Iran-China Strategic Bonds
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Issue Net Edition | Date : 19 Jul , 2020

According to US media, Iran’s desperation has pushed it into the arms of China, which has the technology and appetite for oil that Iran needs. But the other face of this insinuation is that it is America’s policy of sanctions that has pushed Iran into Beijing’s arms – same way Russia has been pushed closer to China.  Renewed US sanctions against Iran and the threat to cut off access to the international banking system for any company that does business in Iran was a recipe for China to seize this opportunity to enhance its geostrategic reach and make economic gains.

Iran and China have a history of cultural, economic and political exchanges since 200 BC along the Silk Route. In 2004, a Chinese state-run company signed a 25-year contract to import 110 MT LNG from Iran and another contract worth $100 billion adding additional 250 MT LNG to China’s energy supply, to be extracted from Iran’s Yadavaran field over a 25-year period. In 2009, Iran and China signed two deals: $1.76bn contract for initial development of North Azadegan oil field in western Iran and a three-year $3.39 billion deal to produce LNG in Iran’s South Pars natural gas field. Iran has limited refining capacity and therefore imports one-third of its refined products like petrol from China.

Iran-based ‘Green Experts’ reported in 2011 that Iran and China signed a deal that gave Beijing exclusive rights to several Iranian oil and natural gas fields through 2024 – Chinese oil companies granted exclusive rights to three large regions of Iranian land and  right to build necessary infrastructure for these regions. China promised to treat any foreign attack against these regions as attacks against its own sovereign territory, and will defend them as such. Additionally, China was given the right to maintain and increase its military presence in Iran plus controlling movement of Iranians in and out of these territories without any permission from the Iranian government. Green Experts quoted PLA’s Major General Zhang Zhaozhong stating, “China will not hesitate to protect Iran even with a third World War.”

In 2019, Iran signed China’s ‘One Belt One Road’ plan. China will use Iran as its strategic gateway to Central Asia, Middle East and to the Indian Ocean. As and when the US exits Afghanistan, China filling the vacuum will expand its geostrategic reach exponentially. Though the China-Pakistan Economic Corridor (CPEC) ends at Gwadar, a joint China-Pakistan military base is planned in the Jiwani Peninsula which will be closer to Chabahar (Iran) than Gwadar, extending the CPEC beyond Gwadar to Jiwani and Chabahar would be natural follow up at a future date – land link both road and rail.  China and Iran are otherwise linked by rail via Kazakhstan and Turkmenistan. China and are presently engaged in renovating the railway lines connecting Urumqi with Tehran. In addition the plan of The Five Nations Railway Corridor is aimed to connect China on one end and Iran on the other over a distance of 2,100 km through Kyrgyz Republic, Tajikistan and Afghanistan.

In June 2020, the Iranian Cabinet approved the mutual Iran-China partnership proposed by President Xi Jinping when visiting Iran in 2016. Under this partnership, China will invest $400 billion in Iran over 25 years, which will expand Chinese presence in Iran’s banking, telecommunications, ports, railways and dozens of other projects. Significantly, the partnership will include Chinese involvement in Chabahar’s duty free zone, an oil refinery nearby, and possibly a larger role in Chabahar port as well. In exchange, China would receive regular supply of Iranian oil at a discount for the next 25 years.

Now suddenly, Iran has dropped India from jointly constructing the rail line from Chabahar Port to Zahedan on the border with Afghanistan citing delays by the Indian government in funding and starting the project, and has announced that Iran has decided to  construct the railway line on its own. India and Iran had signed an agreement to jointly construct the rail line Chabahar-Zahedan, which will be extended to Zaranj inside Afghanistan, four years ago during the visit of Prime Minister Narendra Modi to Iran in June 2016. Behind the sudden Iranian announcement signatures of Beijing are clear, reinforced by the fact that this came immediately after the Iranian Cabinet approving the $400 billion partnership with China – similar to Nepal’s PM Oli throwing anti-India tantrums every second day on China’s behest. But if India has not even started the project despite signing the MoU four years ago because the Ministry of Finance not releasing the funds, then we must take the blame squarely for the delay.

India has responded by reinforcing its commitment to jointly develop the Chabahar – Zahedan rail project, adding that both sides remain committed to the railway project, but admitting at the same time that progress is slow due to “current political environment”. Iran Railway commenced laying the track for the 628 km railway project on July 7, 2020 with 150 km section to be completed by March 2021 and full length of the track is expected to be completed by March 2022. This looks rather ambitious – 628 km of rail line in 21 months@30 km per month. But India needs to move fast least China offers to complete it at faster rate.

There are some who feel that India would be out of the above rail project because either we are with the US or not, because of which India had to give up oil imports from Iran for fear of US sanctions. But despite our partnership with the US, America continues to threaten us with CAASTA for the S-400 deal with Russia and may do similarly for the recent deal for importing 12 x Sukhoi and 21 x Mig-29 fighters from Russia. China of course continued to import oil from Iran despite US sanctions, but perhaps India could have continued oil imports from Iran at reduced levels considering the proximity and keeping the bilateral relationship balanced. Iran recently announced it will establish a base in the Indian Ocean though the location has not been revealed. It is logical that this port will be developed by China and will have access to Chinese warships and submarines.

Despite news of China’s economic slowdown and dissent within China including because of rising unemployment, Xi Jinping’s haste for world domination and all round aggression may see conflict on the high seas in not too distant future.  China, Pakistan and Iran have been exercising joint naval drills and will be natural allies with North Korea joining China in event of conflict in Western Pacific. As for India, we should be prepared for short war on two fronts even while battling China Virus.  

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The views expressed are of the author and do not necessarily represent the opinions or policies of the Indian Defence Review.

About the Author

Lt Gen Prakash Katoch

is a former Lt Gen Special Forces, Indian Army

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One thought on “Iran-China Strategic Bonds

  1. Indian diplomacy seems on the decline, one by one the neighbouring countries are slipping out of India’s friendship circle. Be it Nepal, Sri Lanka, Maldives and now Iran. Why on earth the point could not have been dealt with/ spoken to US both before and after the 1.6 billion MOU was signed with Iran and Afgh. Now the news is ‘India can join later’ the rail project. This is weird statement. Somehow we seems loosing the plot. Need a strong and sensible leadership to pursue our interests. Come November 20 and after the outcome of US elections, we need to prioritize our interests in the region and start rebuilding our stand before it becomes too late and China gets a stronger foot hold in the Iran-Afgh-Pak-Nepal-Bangladesh axis.

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