News of a massive increase in Chinese foreign investment in Iran has ricocheted across Asia, threatening to upset the geopolitical status quo and causing pundits to spill much ink over the implications. Details about the deal, which purportedly involves $400 billion in Chinese investments in infrastructure and other sectors in Iran over the next 25 years in return for access to a steady supply of discounted Iranian oil, was leaked by Iran and then neither confirmed nor denied by Beijing. To many, the move represents a failure of the US policy of “maximum pressure” designed to economically isolate Iran. To others, shocked by the brazen scale of the deal, the move suggests that China believes that it has little to lose in its otherwise deepening economic disputes with the US.
For Iran, the deal is an economic lifeline for an economy on the brink. For China, it’s viewed as a triple success: securing long-term access for its needed energy imports, the opportunity to lay more road and rail in the heart of its trans-Eurasian infrastructure development project, the Belt and Road Initiative (BRI), all while directly challenging US efforts to economically isolate Iran.
For Pakistan, it’s a potential bonanza, provided it cooperates with Iran and ultimately serves as a potential thoroughfare for moving Chinese energy imports from the Indian Ocean up to China’s western border in Central Asia through pipelines. This would enable China to avoid the much longer maritime journey through the Strait of Malacca potential chokepoint in Southeast Asian waters.
For India, which is competing with China inside Iran with rivaling infrastructure projects, the deal could be considered a snub by Iran, and a sign of India’s diminished influence. India-Iran relations have deteriorated since India agreed to US demands to cut its imports of Iranian oil.
Port Politics: The Backstory
It is useful to understand the geostrategic significance of three obscure Indian Ocean ports: Gwadar in Pakistan, and Bandar Abbas and Chabahar in Iran. Gwadar is the jewel in the crown of China’s BRI, the promising port at the end of the China-Pakistan Economic Corridor (CPEC), a system of new roads and railways connecting Pakistan with Central Asia and China. India opposes CPEC because it transits through disputed Pakistan-controlled Kashmir, which India has claimed since partition in 1947.
To counter China’s growing economic clout, India has been working with partners to develop its own ambitious multi-country infrastructure initiatives in the region. The Iranian port of Bandar Abbas serves as the linchpin in the International North-South Transport Corridor (INSTC) for bringing Indian goods northward through Iran and Azerbaijan to reach Russia and Europe. And the Iranian port of Chabahar is the focal point of another major Indian initiative to bring Indian goods up through Iran and eastward into Afghanistan and Central Asia, thereby giving Afghanistan an alternative route to the sea so that it no longer has to rely solely on Pakistan.
Both ports could expand India’s engagement in Central Asia, Russia and Europe, and a deal was struck to allow an Indian company to manage the port at Chabahar. While other Indian firms had contracts to build the Chabahar-Zahedan railway connecting the port to Afghanistan, extended project delays frustrated Iran, which recently cancelled the contracts. Iran is now offering Chinese investors greater involvement in the port at Chabahar and possibly connecting it with China’s major port in Gwadar, Pakistan – moves that would extend China’s economic influence in the region and undermine Indian efforts to expand its influence.
Economic Reintegration: The Backstory to the Backstory
Plans for the China-Iran deal have been underway since 2016, when both nations adopted a Comprehensive Strategic Partnership, building on decades of deepening economic relations. In this regard, the deal could be seen within the broader context of longstanding China-Iran relations.
China has also adopted Comprehensive Strategic Partnerships with Egypt, Saudi Arabia, and the United Arab Emirates (UAE), and has become a major investor throughout the Middle East region. In July, the ninth China-Arab States Cooperation Forum (CASCF) was held virtually, at which members adopted plans to deepen cooperation. India, Russia and the European Union have also been deepening their economic ties with the Middle East. Therefore, it might be useful to consider the China-Iran deal within this larger context of economic integration between major economies and the Middle East more generally.
And, in an even broader perspective going beyond the Middle East, China’s BRI and India’s infrastructure initiatives could be viewed as just two parts of a much larger and longer-term processes of Asian economic integration that has been underway for the last few decades. Actually, it’s a process of re-integration because, after about 500 years of economic disintegration, the economies of the region have been rebuilding their trade and investment ties. While the BRI gets a lot of attention, there are in fact a vast number of other bilateral and regional initiatives for new transport and communications infrastructure underway, as well as increased efforts aimed at deepening trade, aid and financial integration throughout the region. From this perspective, Russia, China, India, Japan, Turkey, and even Iran, are all key players in this story, and the China-Iran investment deal could also be seen as just one piece of this bigger-picture process.
Whereas many western policy analysts view Iran in the context of contemporary US-Iran antagonisms, China more likely views Iran as a legitimate regional power and acknowledges the depth of its history as an ancient civilization, thereby making its 25-year investment commitment seem relatively trivial. India’s longstanding outlook on Iran is not much different.
While many view the China-Iran deal as driven by the geopolitical maneuvering of states, others see it as driven by the Asian economic integration process. In fact, it is likely that both dynamics are at play and are interactive – that the contours of geopolitical maneuvering at any moment are both shaped and made possible by the longer-term process of Asian economic integration. From this perspective, viewing the China-Iran deal within the zero-sum game of gains and setbacks by the various actors as they jockey for economic influence risks missing the bigger picture – that the process of Asian economic integration is likely to continue for decades to come, and China, India and Iran are all likely to play important roles in it.
Rick Rowden is Adjunct Professorial Lecturer in the School of International Studies at American University. He holds a Ph.D. from Jawaharlal Nehru University (JNU) in New Delhi. He is the author of India-Africa Economic Relations in the 21st Century: Emerging Connections in South-South Economics” (Routledge, forthcoming 2021).
Views expressed are solely those of the author.
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