China seizes opportunity to invest in Iran

Amid the heightened tensions between Iran and the US, cooperation between Tehran and China has reached its highest level since the establishment of the Islamic Republic in 1979. The ties between China and Iran are strengthening on three fronts: Strategic, military and geopolitical.

In late August, Iran’s Foreign Minister Mohammed Javad Zarif met his Chinese counterpart Wang Yi. The main objective of the meeting was to formulate a road map on how to enhance the strategic partnership between the two nations.  According to Petroleum Economist magazine, China declared that it is planning to invest $280 billion in Iran’s energy sector, including the oil, gas and petrochemical industries. Beijing has also pledged to invest $120 billion in Iran’s industrial infrastructure. In addition, China will be deploying up to 5,000 security officers in the Islamic Republic in order to secure large Chinese projects.

These enormous investments, which will reportedly be implemented during the first five years of the agreement, mark a new level of cooperation between Iran and China.

This ought to be viewed as an economic opportunity for both Beijing and Tehran. Thanks to the US’ crippling sanctions on Iran’s energy sector, China sees fewer competitors vying to reap profits from Iran’s oil, gas and petrochemical sectors.

European governments and corporations have been hesitant to invest in Iran’s energy sector due to the repercussions of US sanctions. Large corporations — such as the French oil giant Total — immediately ended their projects in Iran once the Trump administration re-imposed sanctions. In addition, Western companies do not appear to be willing to re-enter Iran’s market anytime soon, even with the EU’s new special purpose vehicle.

In return for this tremendous investment from China, the Iranian leaders have agreed to sell oil, gas and petrochemical products to Beijing at low prices. Not only has China obtained a total discount of about 32 percent for its oil, gas and petrochemical purchases from Iran, it also does not need to pay using the US dollar. This is profitable for China, since it can pay through its renminbi or other “easy currencies.”

Iran has the second-largest natural gas reserves and the fourth-largest proven crude oil reserves in the world, and the sale of these resources account for more than 80 percent of its export revenues. But why has the Islamic Republic agreed to make such concessions to China, which are unprecedented?

European governments and corporations have been hesitant to invest in Iran’s energy sector due to the repercussions of US sanctions

Dr. Majid Rafizadeh

The main reason is the fact that Tehran is extremely desperate for cash. According to the budget proposed by President Hassan Rouhani at the end of last year, about a third of Iran’s income was expected to come from oil exports. Tehran was hoping to generate $21 billion of oil revenues in the current financial year.

This highlights the fact that the Islamic Republic depends heavily on oil revenues to fund its spending. Before the US took a tougher stance toward the Iranian regime, it was exporting more than 3.5 million barrels per day, but its oil exports have since dropped dramatically. If the Iranian regime was unable to export any oil or natural gas, it would be extremely difficult for the authorities to continue funding, sponsoring and supporting its militias, proxies and terror groups across the Middle East.

In other words, this means that the Iranian leaders would have to substantially cut or totally halt their financial assistance to groups such as the Houthis in Yemen, Shiite militias in Iraq, and Hezbollah. And, when these militias do not receive the funds required to operate and advance Iran’s interests, they may begin to lose their power and even fall apart. Other militia groups will also start losing their loyalty to the Islamic Republic and will likely attempt to find new paymasters. However, through the recent agreement, China has agreed to boost its oil imports from Iran and invest in increasing the level of oil production in Iran’s largest oil and gas fields.

Another reason for the heightened cooperation between China and Iran is their shared animosity toward the US.

As the trade war between Washington and Beijing continues, and as the US persists in imposing its “maximum pressure” policy on the theocratic establishment of Iran, both countries view closer ties with the other as a blow to the US. As Speaker of the Iranian Parliament Ali Larijani pointed out last month: “Consultations between Iran and China, and the cooperation of certain friendly countries, can help counter the US animosity and neutralize its consequences.”

Furthermore, as a member of the UN Security Council and as a strong advocate of maintaining the nuclear deal, China can provide further leverage for Tehran on the international stage.

In conclusion, one of the unintended consequences of the US-China trade war and the American sanctions on Iran is closer economic, political and strategic ties between Beijing and Tehran. China must be held accountable for helping the ruling mullahs evade the US sanctions.

• Dr. Majid Rafizadeh is a Harvard-educated Iranian-American political scientist. He is a leading expert on Iran and US foreign policy, a businessman and president of the International American Council. Twitter: @Dr_Rafizadeh