Uncovering the limitations of the Chinese Iranian agreement

The Economic Cooperation Agreement signed between Iran and China in March 2021 unfolded a development plan that includes China injecting $ 400 billion into various sectors of the Iranian economy. This grants Tehran an opportunity to increase the pressures imposed on the new US administration, regarding resumption of the Joint Comprehensive Plan of Action

held with the P5+1 in 2015, as well as confronting the surrounding regional threats and alleviating internal pressures by improving the Iranian standard of living.

Terms of the Agreement:

Although neither Iran nor China announced the full content of the agreement, the leaked terms revealed that cooperation between the two countries would include the energy sector, particularly crude oil (extraction, transportation and refining), nuclear energy and petrochemicals. Regarding infrastructure, China will invest in the transportation sector and the  development of railways, airports and seaports. Cooperation within the agreement will also focus on developing the banking sector and using the national currency, in addition to combating money laundering and organized crime.

The two countries stressed that this agreement will be a main platform for cooperation in other areas, such as technology, tourism, science, the exchange of training experiences relevant to the workforce and interaction between public and private sector agencies in a way that leads to improving the standard of living and combating poverty. Thus, this deal may contribute to fostering Tehran's financial and strategic interests in Asia, and to achieving its goal of joining the Shanghai Cooperation Organization, and thus be considered a major part of the Chinese ‘Belt and Road’ initiative. 

Enhanced maneuverability: 

By concluding this agreement at this time, Iran may be aiming to intensify pressures on the Biden administration, especially with respect to making the least possible concessions during any upcoming nuclear understandings with Washington. While the US insists on expanding the range of negotiations to include some new files, such as the ballistic missile program and the Iranian influence in the region, Iran considers these matters to be red lines that cannot be trespassed. 

This agreement may contribute to forcing Washington to abandon the ‘First Step’ approach. This was clear through the statements made by a high-ranking US official confirming that reviving the Iran Nuclear deal is not a question of who goes first. This may reflect the US desires to show some flexibility with regard to negotiating the nuclear deal with Iran.

This agreement may become a stumbling block to the solidarity between the US, Europe and Israel in coping with Iran, particularly with the insistence of some European countries, such as France, to involve the Gulf states in the upcoming nuclear talks with Iran, which Iran rejected definitively, stressing that any future arrangements regarding its nuclear program should be confined to the signatories to the 2015 Joint Comprehensive Plan of Action.  Accordingly, this agreement is expected to hinder nuclear understandings between Washington and Tehran, especially with the possible winning of a conservative candidate in the Iranian presidential elections scheduled for June 18, 2021, alongside the escalating economic competition between the US and China.

Tehran's regional influence: 

This agreement could somewhat help Tehran reinforce its regional influence, especially in light of the significant threats posed by Israel. In addition to the ongoing naval war between Tehran and Tel Aviv, through which the latter aims to prevent Iran from circumventing the US sanctions and obtaining hundreds of millions of dollars from the sale of Iranian oil to Syria, the intense Israeli attacks on the military sites of the Iranian militias in Iraq and Syria have contributed to forcing Tehran to reposition itself. It will seek to adopt new strategies, the cost of which exceeds Iran's financial capacity, particularly considering the severe economic sanctions imposed on it. 

This coincides with the escalating challenges in the Iranian strongholds within the region. Iraq often witnesses demonstrations against the Iranian presence, especially in light of the policies of Prime Minister Mustafa Al-Kadhimiy aiming at bringing about rapprochement with some Arab countries, and enhancing security control over all parts of the state. Hence, the imposition of some Iranian militias in the official security body as well as the Iraqi counter-terrorism service, especially in light of the fact that a large number of the brigades affiliated with the Popular Mobilization Forces were part of the armed groups that existed before the establishment of the Hashd in 2014, which later offered full allegiance to the Iranian Revolutionary Guard.

Regarding Syria, despite the remarkable Syrian loyalty that Iran enjoys, Iran is facing international competition from both Turkey and Russia. This was evident in excluding Tehran from the Doha talks, which indicates the Russian-Turkish intentions of abandoning Iran, in light of the fluctuation in the Iranian-US relations, and Moscow's need for Washington's participation in the reconstruction process in Syria later on. 

In Lebanon, the Hezbollah group, which is backed up by Iran, faces significant challenges both internally and externally, in terms of the appeals to classify it as a terrorist organization by most international powers and the ongoing conflict with the Lebanese political factions. Despite the Houthis’ attempts to serve Iranian interests through various systematic escalation campaigns, its support for terrorism has led to the failure of these attempts. Therefore, Iran's comprehensive strategic cooperation agreement with China is expected to reduce the repercussions of these threats by mitigating the negative effects of the US sanctions, as well as Iran obtaining the necessary funds to restore its influence within these countries. 

Impacts domestically:

This agreement may contribute to improving the living conditions in Iran, including tackling the economic problems represented in the escalating unemployment and inflation rates, as well as high prices and shortage of some products within the imposed sanctions, especially medical products, in light of the outbreak of the fourth wave of COVID-19 in Iran. Remarkably, Iran is not expected to turn into a warehouse of mediocre Chinese consumer goods, as Tehran has focused more on building local capabilities to fortify its economy against external shocks, which led to about 70% of Iranian imports becoming intermediate goods. This reflect Iran's dependence on domestic production and added value over the coming period.

This is consistent with the approach that Ali Khamenei is calling for, which is based on converting the negative results of the economic sanctions into opportunities for diversifying Iran's national income sources away from energy exports, as well as giving priority to domestic production. Consequently, the US sanctions will have less impact over time, in addition to the boosting economic cooperation with countries that oppose US domination of the global financial system such as China and Russia. Evidently, the 25-year agreement with Beijing may be considered a logical achievement of these goals.

Meanwhile, this agreement can be viewed as an opportunity for the moderate current in Iran to regain its influence in the face of traditional conservatives. Besides signing this document during Rouhani's era, Khamenei appointed his advisor Ali Larijani - and one of the potential candidates for the moderate current during the upcoming presidential elections in Iran - as a coordinator with China for this agreement, which may enhance the chances of this political faction to win. 

The future of the agreement:

Iran does not limit this agreement to economic cooperation only. Not only is China an ally or a military threat to Iran, but it is also distinguished for its general strategy of separating politics and economics. This is confirmed by Khamenei's statement saying, “Iran’s government and people are striving, as they always have, to broaden relations with trustworthy, independent countries like China”[1], which Iran was missing in its cooperation with Washington. 

Some views suggest that this agreement may enhance mutual cooperation between Tehran and Beijing regarding their respective strategies in the region, primarily through Iran's strong relationship with Iraq and Syria. While Iran seeks the US withdrawal from the region, China aims to have easy access to the Mediterranean Sea, which can be achieved through the Iranian presence in some parts of the region. 

Accordingly, this agreement may be one of the means of boosting the relationship between Iran and China, bringing it to a tighter level, especially since Beijing is not demanding any changes in Iran's domestic or regional policy or even with regard to limiting the development of its missile program, as Brussels and Washington have always sought.