Behrooz Ghamari Tabrizi, and Simon Watkins
The East-Bound Wind Causes a Storm in the West: Iran-China Sign Long-Term Trade Agreement
Behrooz Ghamari Tabrizi
A few months after the publication of his remarkable book, Adam Smith in Beijing, I had an illuminating conversation with Giovanni Arrighi about the significance of China in world history. The late sociologist was interested in knowing more about the subject of my scholarship–modern Iran and the Iranian revolution. When he saw my puzzled face, he told me that he believes that all this apprehension in the west about Iran, is actually rooted in apprehension about China. Arrighi thought that if there were any “mainstream” of world history, it ought to be located in the story of China, the only civilization that has shaped the world as a hegemon over many millennia with the exception of the last 250 years. The rise of the West, according to him is an aberration and China will define the future of the world history. For China to play that role, it needs sources of energy to feed its expanding economy and a firm foothold in the world trade network. And there is Iran with its vast sources of oil and natural gas, located in a key strategic position guarding the flow of oil from the strait of Hormuz and offering open access to the Indian Ocean trade routes. I do not subscribe to the view that the U.S. position on Iran can be reduced to a reflection of the American political establishment’s attitude toward China. But there indeed are signs that Iran’s east-bound realignment toward China is making possible a major transformation in the world political and economic order.
The fear in the West of a rising China became more acute this week with the announcement of a memorandum of understanding (MOU) between Iran and China of a 25-year trade agreement. Although the text of the agreement has not been released, news outlets around the world were quick to sound the alarm of a pending major transformation of the balance of power in the Middle East and beyond. Many observers have seen the move as a direct consequence of the Trump administration’s withdrawal from the Joint Comprehensive Plan of Action (JCPOA), also known as the Iran Nuclear Deal. The Trump administration miscalculated the vulnerability of the Iranian government to his regime of maximum pressure. Trump and his perpetually hawkish advisers believed that withdrawing from the nuclear deal, and re-imposing draconian sanctions against Iran, would compel the Islamic Republic either to surrender to the demands of its international foes, or to face the wrath of its own sullen citizens whose livelihood the sanctions has directly threatened. The latter did materialize last November, but it was met with a swift and brutal reaction by the Iranian security forces. The protests spread in many towns and cities around the country, but failed to sustain itself in the face of the state’s violent clampdown that left hundreds of protesters dead (according to the government’s own estimate 230 people were killed) and thousands arrested. In addition to the state repressive apparatus that contained the protests, Iranians also remain deeply inimical toward an American policy that invests in inflicting suffering on people in order to encourage them to rise up against their own government. Iranians are well-versed in this ploy, which offers a painful reminder of Saddam Hussein’s justification of bombing Iranian cities. In order to stop the bombings, Saddam shamelessly declared, Iranians need to topple their regime.
The U.S. pulled out of the JOCPA hoping that the American withdrawal will render the agreement practically null and void. The Trump administration reinstituted crippling sanctions against Iran and exerted pressure on the EU and the UK to follow suit. Although the Europeans voiced their displeasure with the U.S. policy, they could not deliver their share of the agreement under the mounting American pressures. This was a sobering moment for the Europeans as they witnessed the United States’ ability to impose its political will onto the European banks and corporations. By threatening to levy sanctions against European banks and corporation that invest in the Iranian economy, in effect, the U.S. undermined the sovereignty of the EU members over their own financial and economic affairs.
Whereas the Europeans saw in the U.S. regime of maximum pressure against Iran the limits of their autonomy, China saw an opportunity for the realization of its global development strategy, known as Belt and Road Initiative. The initiative that was adopted in 2013 envisions a massive expansion of trade networks by investing in infrastructures of land and sea transport that will eventually establish a seamless web of production, distribution, and consumption of goods: a silk road for twenty-first century, as the Chinese promote the idea. Iran figures in this strategy mightily, both in terms of the extension of the belt, i.e. roads and railway, and road, i.e. the sea routes, as well as the source of energy that the Chinese expansionist machine requires. Today China imports 10-million barrels of oil per day to fuel its economy. Theoretically, Iran can provide half of that need for the next two decades. If China’s plans to replace fossil fuel with the renewable energy do not pan out, Iran will remain a major source to calm the Communist Party’s anxieties about the future of the silk road for twenty-first century.
The details of the trade agreement have not been released and both China and Iran still need to ratify it. The early reports indicate that China has agreed to a $400-billion investment over the next 25 years in the Iranian oil, gas, and transportation infrastructure. The investment will be frontloaded for the first five years and will also include cooperation in military and intelligence and a strategic alliance between the two countries over the security of the Persian Gulf trade routes. The agreement was first conceived during the Chinese premier’s visit to Iran in 2016. In all likelihood, it is going to end the Trump administration’s gambit to cajole the Iranian side to capitulate and entertain a new nuclear treaty with the United States and its Western allies.
The Iran-China agreement, if signed and ratified, will leave the Iranian exilic opposition, those who banked on the American maximum pressures on the Islamic Republic to gain political points, in an untenable position. These critics, who were also joined by the U.S. State Department, have compared the proposed bilateral pact to the 1828 Treaty of Turkmenchay between Persia and tsarist Russia, under which the Persians ceded control of the vast territories in the South Caucasus that included today’s Armenia, Azerbaijan, Abkhazia, and Georgia. Ever since mid-nineteenth century, in the Iranian political lexicon, “Turkmenchay” has remained a point of reference to the vilest encroachments on the Iranian sovereignty. In the past two centuries, these encroachments have always been mounted by the same Western powers who forewarn Iranians today of the colonial consequences of surrendering the country’s vast resources to the Chinese. No one knows whether this bilateral treaty would one-sidedly satisfy the Chinese imperial ambitions, a scenario that has played out in China’s appropriation of African port cities and mining towns. But one thing is clear that the objections of the U.S. and their Iranian supporters, whatever those objections might be, do not stem from their concerns for the protection of the Iranian sovereignty and Iranian peoples’ interests.
(Behrooz Ghamari-Tabrizi is an associate professor of history and sociology and Director of the Center for South Asian and Middle Eastern Studies at the University of Illinois, Urbana-Champaign.)
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China Inks Military Deal With Iran Under Secretive 25-Year Plan
Simon Watkins
July 06, 2020: Last August, Iran’s Foreign Minister, Mohammad Zarif, paid a visit to his China counterpart, Wang Li, to present a roadmap on a comprehensive 25-year China-Iran strategic partnership that built upon a previous agreement signed in 2016. Many of the key specifics of the updated agreement were not released to the public at the time but were uncovered by OilPrice.com at the time. Last week, at a meeting in Gilan province, former Iran President Mahmoud Ahmadinejad alluded to some of the secret parts of this deal in public for the first time, stating that: “It is not valid to enter into a secret agreement with foreign parties without considering the will of the Iranian nation and against the interests of the country and the nation, and the Iranian nation will not recognize it.” According to the same senior sources closely connected to Iran’s Petroleum Ministry who originally outlined the secret element of the 25-year deal, not only is the secret element of that deal going ahead but China has also added in a new military element, with enormous global security implications.
One of the secret elements of the deal signed last year is that China will invest US$280 billion in developing Iran’s oil, gas, and petrochemicals sectors. This amount will be front-loaded into the first five-year period of the new 25-year deal, and the understanding is that further amounts will be available in each subsequent five year period, provided that both parties agree. There will be another US$120 billion of investment, which again can be front-loaded into the first five-year period, for upgrading Iran’s transport and manufacturing infrastructure, and again subject to increase in each subsequent period should both parties agree. In exchange for this, to begin with, Chinese companies will be given the first option to bid on any new – or stalled or uncompleted – oil, gas, and petrochemicals projects in Iran. China will also be able to buy any and all oil, gas, and petchems products at a minimum guaranteed discount of 12 per cent to the six-month rolling mean average price of comparable benchmark products, plus another 6 to 8 per cent of that metric for risk-adjusted compensation. Additionally, China will be granted the right to delay payment for up to two years and, significantly, it will be able to pay in soft currencies that it has accrued from doing business in Africa and the Former Soviet Union states. “Given the exchange rates involved in converting these soft currencies into hard currencies that Iran can obtain from its friendly Western banks, China is looking at another 8 to 12 per cent discount, which means a total discount of around 32 per cent for China on all oil gas, and petchems purchases,” one of the Iran sources underlined.
Another key part of the secret element to the 25-year deal is that China will be integrally involved in the build-out of Iran’s core infrastructure, which will be in absolute alignment with China’s key geopolitical multi-generational project, ‘One Belt, One Road’ (OBOR). To begin with, China intends to utilise the currently cheap labour available in Iran to build factories that will be financed, designed, and overseen by big Chinese manufacturing companies with identical specifications and operations to those in China. The final manufactured products will then be able to access Western markets through new transport links, also planned, financed, and managed by China.
In this vein, around the same time as the draft new 25-year deal was presented last year by Iran’s Vice President, Eshaq Jahangiri (and senior figures from the Islamic Revolutionary Guard Corps and intelligence agencies) to Iran’s Supreme Leader, Ali Khamenei, Jahangiri announced that Iran had signed a contract with China to implement a project to electrify the main 900 kilometre railway connecting Tehran to the north-eastern city of Mashhad. Jahangiri added that there are also plans to establish a Tehran-Qom-Isfahan high-speed train line and to extend this upgraded network up to the north-west through Tabriz. Tabriz, home to a number of key sites relating to oil, gas, and petrochemicals, and the starting point for the Tabriz-Ankara gas pipeline, will be a pivot point of the 2,300 kilometre New Silk Road that links Urumqi (the capital of China’s western Xinjiang Province) to Tehran, and connecting Kazakhstan, Kyrgyzstan, Uzbekistan and Turkmenistan along the way, and then via Turkey into Europe.
Now, though, another element that will change the entire balance of geopolitical power in the Middle East has been added to the deal. “Last week, the Supreme Leader [Ali Khamenei] agreed to the extension of the existing deal to include new military elements that were proposed by the same senior figures in the IRGC [Islamic Revolutionary Guard Corps] and the intelligence services that proposed the original deal, and this will involve complete aerial and naval military co-operation between Iran and China, with Russia also taking a key role,” one of the Iran sources told OilPrice.com last week. “There is a meeting scheduled in the second week of August between the same Iranian group, and their Chinese and Russian counterparts, that will agree the remaining details but, provided that goes as planned, then as of 9 November, Sino-Russian bombers, fighters, and transport planes will have unrestricted access to Iranian air bases,” he said.
“This process will begin with purpose-built dual-use facilities next to the existing airports at Hamedan, Bandar Abbas, Chabhar, and Abadan,” he said. OilPrice.com understands from the Iranian sources that the bombers to be deployed will be China-modified versions of the long-range Russian Tupolev Tu-22M3s, with a manufacturing specification range of 6,800 kilometres (2,410 km with a typical weapons load), and the fighters will be the all-weather supersonic medium-range fighter bomber/strike Sukhoi Su-34, plus the newer single-seat stealth attack Sukhoi-57. It is apposite to note that in August 2016, Russia used the Hamedan airbase to launch attacks on targets in Syria using both Tupolev-22M3 long-range bombers and Sukhoi-34 strike fighters. At the same time, Chinese and Russian military vessels will be able to use newly-created dual-use facilities at Iran’s key ports at Chabahar, Bandar-e-Bushehr, and Bandar Abbas, constructed by Chinese companies.
These deployments will be accompanied by the roll-out of Chinese and Russian electronic warfare (EW) capabilities, according to the Iran sources. This would encompass each of the three key EW areas – electronic support (including early warning of enemy weapons use) plus electronic attack (including jamming systems) plus electronic protection (including of enemy jamming). Based originally around neutralising NATO’s C4ISR (Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance) systems, part of the new roll-out of software and hardware from China and Russia in Iran, according to the Iran sources, would be the Russian S-400 anti-missile air defence system: “To counter U.S. and/or Israeli attacks.” The Krasukha-2 and -4 systems are also likely to feature in the overall EW architecture, as they proved their effectiveness in Syria in countering the radars of attack, reconnaissance and unmanned aircraft. The Krasukha-2 can jam Airborne Warning And Control Systems (AWACS) at up to 250 km, and other airborne radars such as guided missiles, whilst the Krasukha-4 is a multi-functional jamming system that not only counters AWACS but also ground-based radars, with both being highly mobile.
It is again apposite to note here that an entire EW company (encompassing the three core elements of EW) can consist of as little as 100 men and, according to the Iran sources, part of the new military co-operation includes an exchange of personnel between Iran and China and Russia, with up to 110 senior Iranian IRGC men going for training every year in Beijing and Moscow and 110 Chinese and Russians going to Tehran for their training. It is also apposite to note that Iran’s EW system can easily be tied in to Russia’s Southern Joint Strategic Command 19th EW Brigade (Rassvet) near Rostov-on-Don, which links into the corollary Chinese systems. “One of the Russian air jamming systems is going to be based in Chabahar and will capable of completely disabling the UAE’s and Saudi Arabia’s air defences, to the extent that they would only have around two minutes of warning for a missile or drone attack from Iran,” one of the Iran sources told OilPrice.com last week.
An indication of what Iran hopes to receive in return its co-operation with China, and Russia, came last week when Zhang Jun, China’s permanent United Nations (U.N.) representative, in a statement to the Security Council, told the U.S.: “To stop its illegal unilateral sanctions on Iran… The root cause of the current crisis is the U.S.’s withdrawal from the Iran nuclear deal in May 2018 and the re-imposition of unilateral sanctions against Iran.” He also opposed the U.S.’s push for the extension of the U.N. arms embargo on Iran, which expires in October. “This has again undermined the joint efforts to preserve the JCPOA [Joint Comprehensive Plan of Action],” Zhang said, and added: “The [JCPOA] agreement was endorsed by the U.N. Security Council [UNSC] and is legally binding.”
He concluded: “We urge the U.S. to stop its illegal unilateral sanctions and long-arm jurisdiction, and return to the right track of observing the JCPOA and Resolution 2231 [of the UNSC].” Securing China’s support was a key reason for the original secret part of the deal agreed last year, along with that of Russia, as the two countries have two-fifths of the total Permanent Member votes on the UNSC, with the others being the U.S., the U.K., and France. Aside from this support and the US$400 billion+ of investments pledged by China, the other reason that Iran has agreed to such Chinese (and Russian) influence in its country going forward is that China has guaranteed that it will continue to take all of the oil, gas, and petchems that Iran requires.
(Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. Oilprice.com is the most popular energy news site in the world, and focusses on Oil and Gas, Alternative Energy and Geopolitics.)
