The Latest Status of the 25-Year Comprehensive Cooperation Agreement Between Iran and China

ECONOMYOPINION 18.04.2022
Yasir Rashid Researcher

Uncertainty in the Vienna talks and the developments in the region may slow down the implementation of the 25-year agreement between Iran and China.

After his meeting with his Chinese counterpart Wang Yi on January 14, 2022, Iranian Foreign Minister Amir-Abdollahian stated that “Today is the date to begin implementing the comprehensive agreement on the strategic partnership”. China and Iran signed a “Long-Term Cooperation Road Map”, which is known as the “Iran-China 25-Year Comprehensive Cooperation Agreement", in March 2021. Even though the details of this strategic Agreement have not been published yet, this road map is believed to include several political, security, and cultural dimensions, and an important part of the agreement is thought to focus on the economic cooperation between the two countries. The opening of the new Chinese consulate in Bandar Abbas in the south of Iran is considered to be the first step of the implementation of the Agreement. 

According to estimates, there will be cooperation in many sectors, including energy, finance, transportation, and housing, in the framework of the Agreement. There are also some claims with regard to China investing 280 billion dollars in Iran’s energy industry (oil and gas) and 120 billion dollars in the Iranian transportation sector.

Since the articles of the Agreement are classified, there is no detailed information concerning its implementation. However, in the case of the implementation of the Agreement, Iran and China will have several advantages. Economically, the implementation of the Agreement would solve most of the economic and financial problems in several sectors in Iran. According to a report released by Iran-originated Eghtesad News, there are approximately 100,000 half-finished economic and development projects in Iran, and recent estimations predict that 35.5 billion dollars credit is required to finish these projects. Therefore, considering the continuity of the US sanctions and Iran’s challenges in finding foreign investors, it is possible for Iran to fill this gap with Chinese investments.

The most significant part of the Agreement is believed to be the energy cooperation between the two countries. According to the predictions, China will continue to buy oil from Iran with a 30% discount, while it will also make contributions to the developments of main oil and gas fields such as South Pars Phase 11, North Pars Gas Field, Azadegan and Yadavaran oil fields, Abadan and Tehran refineries, and to the modernization of the Iranian refineries. On top of that, China will work with Iran on clean energy development projects and the renewal of damaged power plants. Therefore, it is possible to say that the energy cooperation between the two countries will provide crucial advantages for both of them: China will secure its energy security by investing in Iran’s industry. On the other hand, Iran will improve its damaged energy infrastructure through Chinese investments, increasing Iran’s oil and gas export.

Although there is no certain data on China’s oil import from Iran, the oil import from Iran used to consist of 6.5% of China’s total oil import before the sanctions

Another part of the cooperation between the two countries may include cooperation in several fields such as banking, finance, and insurance, establishing Iran-China joint bank, bilateral currency agreement, and trading in national currencies. China has been the biggest trade partner of Tehran after the international sanctions (since 2010). In recent years, the volume of trade between these countries reached approximately 20 billion dollars. Since 2016, Iran’s export to China has extended to 9 billion dollars, while its imports are worth 9 to 13 billion dollars. China is Iran's largest supplier of electrical, audio-visual, chemical, and industrial equipment. On the other hand, Iran is one of China’s largest energy exporters. Thus, the development of economic cooperation can expand the trade volume between two countries along with their economic relations.

China's investment in Iran's infrastructure projects in the transportation sector is also another important point of the Iran-China 25-Year Comprehensive Cooperation Agreement. Electrification of Iran's different railway lines, development of the train network in Iran's metropolitan cities, and development of Chabahar and Jask ports on the Makran coast will be among the most important cooperation areas between the two countries in the transportation sector. Moreover, through its investments in infrastructure projects, China is expected to occupy a significant part in Iran’s billions of dollars infrastructure project that will extend from East Asia to Europe.  Thus, it is possible to say that Tehran’s position in the Belt and Road Initiative (BRI) project will gain strength in the long term with China's investments in Iran’s infrastructure projects. Iran has a unique place in China’s BRI project due to its strategic location. The country is one of the main links on the road from China to Europe via Türkiye. Apart from that, Iran has a crucial place in the Chinese economy as an energy supplier, which makes it a significant priority in the BRI project for China. Within the framework of the Agreement, these two countries will also cooperate in the fields of housing, automotive, agriculture, telecommunications, science-technology, education, health, and tourism.

Besides the economic projects, cooperation in the field of cyber security, the potential presence of 5000 Chinese soldiers in Iran, the formation of the national internet, cooperation in the field of museums (a Memorandum of Understanding (MoU) between the University of Tehran and the Peking University), and cooperation in the field of cinema (between Cinema Organization of Iran and the China Film Bureau) will be other cooperation areas in terms of security, politics, and culture within the scope of the Agreement. Furthermore, in the long-term, the Agreement can be evaluated in the context of USA-China rivalry. Considering the increasing rivalry between the USA-China and the USA-Iran, the Agreement can strengthen the block of USA rivalries in the Middle East. In other words, Iran will gather billions of dollars through Chinese investments in energy and infrastructure within the scope of the Agreement. It will eventually reduce the impacts of the USA sanctions on the country. On the contrary, China will weaken the USA by reinforcing its ties with Iran and its position in the Middle East.

Apart from the benefits, China’s investments in Iran may also create some serious implications. Falling into China's "debt trap" would be one of the unfortunate consequences of the Agreement. Some news shows that 165 countries owe money (385 billion dollars in total) to China in the scope of the BRI project. Therefore, if China makes 400 billion dollars worth of investment in Iran, it is feasible for Iran to face the problem of repayment and fall into China’s debt trap.

Despite the fact that the Agreement is a golden opportunity, especially for Iran, the great difficulties and obstacles in its implementation draw attention. The sanctions against Iran represent the biggest obstacle to the implementation of the Iran-China 25-Year Comprehensive Cooperation Agreement and the development of economic relations between the two countries. Chinese investors are unlikely to be interested in Iran unless sanctions are lifted. Along with the sanctions, Iran's non-participation in the FATF (Financial Action Task Force) is another challenge that will overshadow the Iran-China strategic cooperation. Therefore, as long as sanctions against Iran remain and the country does not join the FATF, Tehran cannot expect a miracle from Chinese investments in the country.

Furthermore, continued uncertainty in the Vienna talks on the reviving of the 2015 Nuclear Deal could also be seen as another obstacle to the implementation of the 25-year deal between Iran and China. Tehran's nuclear program, followed by the Nuclear Deal in 2015 and the withdrawal of the United States and Iran from the agreement, has had major consequences on Iran’s political economy. Strategic cooperation between Tehran and Beijing is also affected by these developments, which in many cases have led to the cancellation of joint projects between the two countries. Therefore, it can be said that the continuation of ambiguity in the process of nuclear negotiations can slow down the implementation of the 25-year agreement between Iran and China. 

In addition, Russia's invasion of Ukraine and the consequences of this crisis could affect the implementation of the 25-year agreement between Tehran and Beijing. The continuation of the Ukraine crisis will have many opportunities and challenges for various countries, including Iran, which in the long run could affect Tehran's political, economic and energy relations with other countries, such as China. 

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