Why China may have bought a $400bn Iran liability
Until late last year China’s posture in the Middle East
revolved around energy demand as the world’s largest crude importer, and
moderately paced development of the Belt and Road Initiative (BRI), aimed at
placing China at the center of global trade and manufacturing networks. Beijing
had little incentive or geopolitical need to add a security cooperation and
military dimension to its diplomacy in the region, and was perfectly content
with the long-standing US dominance.
As far as China was concerned, its interest in the Middle
East would be best served along multipolar lines, non-interference and
establishing strategic partnerships to enhance investment, trade,
infrastructure development and energy. Such neutral engagement was a foil for
aggressive Western interventions, heavily influenced by thought leaders in
Beijing who believed that regional stability was attainable through
developmental peace. China has since been able to conclude partnership
agreements with 15 countries across the region from Djibouti to Turkey,
encompassing the Gulf states and extending as far west as Morocco. Its
ambitions for the BRI and to sustain a steady flow of oil imports from the
region were mostly achievable, while leaving the US responsible for managing
Middle East security, affording Beijing the luxury of distance and
non-interference.
However, these favorable dynamics have changed drastically,
with the world on the cusp of breaking a decades-long unipolarity in favor of a
muddled collection of regionalized zones —sparked by the US turning into a
reluctant sheriff and accelerated by the COVID-19 pandemic. Heightened tensions
between Beijing and Washington have already unleashed a trade war, which has
now morphed into a diplomatic tit-for-tat with consulate closures in Houston
and Chengdu. In the Middle East, US disengagement would also expose Chinese
investments and patchwork of partnerships to the region’s notorious volatility.
The Middle East is the most strategically important zone in
China's ambitious BRI project — particularly Iran, which sits between the
oil-rich areas Caspian Sea and Arabian Gulf. However, the need to mitigate
pandemic risks by decentralizing global manufacturing, creating multi-node
supply chains and adopting regional insularity will turn many BRI projects into
white elephants.
Beijing’s view is that the post-pandemic world envisioned by
policymakers around the world would significantly hamper Chinese ambitions for
an advanced, consumption-driven economy. It is inevitable that China will step
up its engagement and tailor it to current regional dynamics in order to keep
the oil flowing to its industries, first to recover from pandemic losses and
then to accelerate the BRI before the rest of the world's manufacturing capacity
catches up.
Iran, meanwhile, has been reeling from sanctions and
international isolation since the US withdrawal from the 2015 nuclear deal.
Washington’s threat to cut off access to the international banking system for
companies that engage in business with Tehran has scared away foreign
investment inflows and trade at a time when Iran needs investments of as much
as $186 billion in the upstream oil sector and petrochemicals industries.
Additionally, a pandemic and an economy in tatters are a
recipe for widespread social unrest, destabilizing the government and
threatening the ayatollahs’ grip on power. Repression and overseas distractions
can work for only so long, especially when the latter fail to produce any
significant positive outcomes. In Lebanon, Tehran-backed Hezbollah is part of a
government that has repeatedly failed to address the country’s worst financial
crisis. The Quds Force-backed militias in Syria play third fiddle to Turkey and
Russia as the civil war nears its conclusion, forcing officials to loudly
remind Bashar Assad that Iran has spent up to $30 billion propping up his
regime and does not like having its interests sidelined. In Yemen, Iran’s
sustained support for the Houthis has resulted in the world’s worst
humanitarian crisis.
It is unsurprising that such a country finds itself at
Beijing's door. In China, Tehran has apparently gained a powerful backer,
capable of brushing off punitive actions from Washington and wealthy enough to
pump an estimated $400 billion into Iran’s dilapidated economy over the next 25
years. In exchange, China will be able to buy heavily discounted oil, gas, and
petrochemicals products. Beijing is also going to invest in Iran’s financial,
transport and telecommunication sectors, and the two countries will cooperate
in military and state security affairs via joint training exercises, weapons
development and sharing intelligence. Iran is perhaps the ideal candidate to
adopt Beijing's new digital currency, the e-RMB, to bypass the dollar and
weaken its sanctioning power.
However, for all of its upsides, getting into bed with Iran
will probably earn China the ire of most of an Arab world already facing
intense criticism for turning a blind eye to China’s quiet genocide of Muslim
Uighurs. Should Beijing fail to temper Tehran’s excesses, particularly those
that harm Arab interests of states, it could jeopardize billions in Chinese
investments across the region, especially the ambitious BRI plan to encompass
18 Arab world states.
The proposed military and security cooperation are a glaring
departure from China's usual neutrality, and any consequent advancement in
Iran’s weaponry is likely to be visible in active conflict zones.
Additionally, Beijing’s embrace of Tehran makes it more
challenging for Western democracies to ignore China’s aggressive posture in
Hong Kong, Taiwan, the Galwan Valley and the South China Sea. Combined with the
furor over China’s poor handling of the COVID-19 outbreak, much of the world is
likely to agree with Washington to some extent, and demand redress — further
widening the geopolitical divide.
Alternatively, there are arguments for adopting a
wait-and-see attitude to this budding relationship, erring on the side of
optimism that China has simply collateralized Iran’s regional and even
international ambitions. In this view, China will be able to rein in Iranian
excesses because they will seek China’s cooperation first, followed by mutual
respect, a formula that most strategic partnerships tend to follow.
The flip side is that if Iran refuses to curb its regional
behavior, China will have bought itself a $400 billion liability —and if the
raucous opposition within Iran to this as yet unapproved deal is anything to go
by, there is little chance Tehran will change its policies.
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