A Long Road to China: Iran Seeks a Way Out of Its Worst Financial Crisis Ever

Talks to advance a quarter-century, colossal Chinese investment in Iranian infrastructure and oil may be a bet against Trump winning the 2020 election

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Iranian President Hassan Rohani attends a meeting of the national headquarters of the fight against COVID-19, in Tehran, Iran, July 18, 2020.
Iranian President Hassan Rohani attends a meeting of the national headquarters of the fight against COVID-19, in Tehran, Iran, July 18, 2020. Credit: ,AP

The reports of a strategic agreement taking shape between Iran and China have already prompted considerable speculation that it could serve as a channel to bypass U.S. sanctions. Some believe it could turn Iran into a global power that would threaten economies in the Middle East and East Asia, or worse, oversight of Iran’s nuclear development. But the way there, if the agreement can be achieved at all, is very long.

Based on rumors and unconfirmed reports from Iran, the agreement will provide it with $400 billion in investment over 25 years. The investments would be directed primarily towards transportation, industry, oil drilling, telecommunications and medicine.

According to assessments, with China’s help, Iran could become a major manufacturer of arms and would purchase advanced weapons systems from China – including fighter planes, ships and submarines. The Iranian government is not revealing details of the deal or its scope, but the secrecy has raised the suspicions of conservative members of parliament. They publicly expressed concern that President Hassan Rohani wishes to turn Iran into a Chinese colony, harking back to agreements Iran signed with Russia in the 19th century, leading it to cede mass swathes of territory.

There are rumors that Iran will sell China islands in the Persian Gulf, including Kish Island. There are also rumors that China would be the one to dictate Iranian foreign policy and that it would be permitted to station 5,000 troops on Iranian soil to protect Chinese-built oil installations. Mainly, however, the concern is that Iran would mortgage its oil for decades to China and China would enjoy cheap oil and effectively control the industry as the British did in the 20th century.

Iranian-Americans protest China's bypassing of U.S. sanctions in doing business with Iran, as well as the handing over of Kish island, in front of the Chinese Consulate in Los Angeles, California, July 10, 2020.
Iranian-Americans protest China's bypassing of U.S. sanctions in doing business with Iran, as well as the handing over of Kish island, in front of the Chinese Consulate in Los Angeles, California, JulCredit: AFP

Those same conservatives are angered that Iran is signing agreements with a country that is oppressing its own Muslim Uygur population and no less so, that the agreement could be chalked up to President Rohani’s great credit and would strengthen the reformist movements.

Rohani has promised that the secrecy is intended to prevent enemy countries from scuttling the agreement and that its details will become public as soon as they are finalized.

The negotiations on the pact began in 2016, shortly after the Iranian nuclear agreement with major powers was signed. The atmosphere at the time was optimistic, if not euphoric. Competition over the Iranian market prompted representatives from major firms around the world (in addition to American ones) to come to Iran. Commercial agreements were signed at a dizzying pace. The handshakes filled the pages of Iranian newspapers, and the United States released billions in funds that had been frozen in banks, while the price of oil ensured the availability of huge financing and profits.

Now, however, Iran is in the midst of one of its worst crises ever. The United States withdrew from the nuclear accord and imposed additional sanctions, huge European corporations have withdrawn or halted their operations in Iran, and even China has drastically cut its Iranian oil and suspended some investments.

Betting on Biden

This month, Iran’s foreign minister Javad Zarif has been in talks with the Russian leadership on extending a 2011 strategic agreement and broader cooperation worth tens of billions of dollars.

At times like these – when China is deep in a raging economic war with the United States while Russia is limiting Iran's actions in Syria, developing trade and military relations with Egypt and Saudi Arabia and pushing the United States out of the Middle East – pompous declarations seem more like political maneuvers than financial deals.

China and Russia may be betting on Joe Biden entering the White House in less than six months. Biden has already made it clear that he would return to the nuclear deal. If he's elected and fulfils his promise, China and Russia would be the ones standing to gain from it.

But what if Trump is reelected and continues with his campaign against China? A deal between Beijing and Tehran would only give Trump more ammunition and populist reasoning to stick to his anti-Chinese policy. It's unclear what he's trying to achieve with this offense, but it's already led to a cold war between the two countries.

A China-Iran deal would probably not be inked before the results of the U.S. election. Even if unrelated to the vote, the agreement would require many months of negotiations. Another unresolved factor is who will be Iran's new president after the 2021 election.

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