Iran signs 25-year, $400-billion strategic and economic partnership agreement with China

Iran signs a historic economic and security cooperation agreement with China amid talks with the United States on the resumption of the nuclear deal.

Foreign Ministers Wang Yi and Javad Zarif of China and Iran respectively signing the strategic cooperation agreement in Tehran on March 27.

An increasingly confident Iran,refusing to be boxed in internationally by the “maximum pressure” sanctions imposed by Washington, signed what many analysts and commentators of the region describe as a historic economic and security cooperation agreement with China on March 27. It was Chinese President Xi Jinping who had broached the idea of a wide-ranging bilateral agreement during his state visit to Iran in 2016. Iran put the proposal on the back burner at that time as it had signed multibillion-dollar deals with Western governments and companies to develop key sectors of the Iranian economy following the signing of the nuclear deal with the United States in 2015. After President Donald Trump withdrew from the nuclear deal in 2018, Iran’s Supreme Leader, Ayatollah Ali Khamenei, who had reluctantly approved the nuclear deal in the first place, instructed his government to seriously consider Xi’s offer. He dispatched his trusted adviser, Ali Larijani, the former Speaker of the Iranian Majlis, to lead the negotiations with the Chinese side.

The general consensus among observers is that the landmark agreement will have far-reaching implications for the region. The 25-year, $400-billion strategic and economic partnership agreement signed in Tehran by Foreign Ministers Wang Yi and Javad Zarif was a message to the Joe Biden administration that both China and Iran have an alternative game plan for the region and that they are able to withstand the military threats from the West and the punitive sanctions Washington routinely imposes. “China is a friend for hard times,” said Zarif after signing the agreement.

“China firmly supports Iran in safeguarding its state sovereignty and national dignity,” Wang Yi said after a meeting with the Iranian President Hassan Rouhani. The U.S., Wang stressed, should immediately lift the unilateral sanctions imposed on Iran and “remove its long arm of jurisdictional measures that have been aimed at China, among others”.

Hesamoddin Ashena, a top adviser to Rouhani, said the historic deal with China was another example of Iran’s successful diplomacy and a reflection of its capacity “to participate in coalitions and not to remain in isolation”. There are reports that Iran is planning to sign a similar deal with Russia. A spokesman for Iran’s Foreign Ministry said the agreement with China provided “the complete road map” for Iran to conduct its foreign policy for the next 25 years.

Talks for resumption of nuclear deal

Soon after the agreement was signed, the Biden administration announced that it would start “indirect” talks with Tehran for resumption of the U.S.-Iran nuclear deal. Negotiations had been delayed for more than two months since he took office. In fact, the Biden administration had been talking tough, demanding that Tehran make more unilateral concessions for the nuclear talks to resume. Iran politely reminded the Biden administration that it was Washington that had walked out of the nuclear deal in which five other countries were co-signatories. Iran also made it clear that all the sanctions that the Trump administration had reimposed on the country had to be removed for the nuclear deal to be revived.

With the new administration in Washington realising that Tehran would not give any concessions on key issues, a decision was finally made to get the nuclear deal back on track. Israel and its powerful political lobby in the U.S. are huffing and puffing, but, according to reports, the talks in Vienna aimed at reviving the nuclear deal are going on smoothly.

Israel’s response

As the talks began, Israel, in an effort to provoke Iran, attacked one of its ships in the Red Sea. And on April 11, Israel launched a cyberattack on Iran’s Natanz nuclear plant. Natanz was earlier hit by an explosion in June 2020. Iran had then blamed Israel for the attack.

The latest attack has led to a large-scale blackout and destroyed centrifuges. Iran has termed the attack as “nuclear terrorism” and has vowed retaliation. Speaking after attack on the Natanz reactor, Zarif said that Iran’s hands would only be strengthened by the “cowardly act” in the ongoing talks in Vienna. He said the Natanz reactor would now be replenished with advanced centrifuges, which would greatly enhance the enrichment capacity of the general centrifuges that have apparently been destroyed. Ali Akbar Salehi, the head of the Atomic Energy Organisation of Iran, also directly linked the incident with the nuclear deal, saying that the perpetrators of the deed were those opposing the nuclear negotiations currently going on in Vienna.

Stepped-up attacks on Iranian shipping and nuclear installations are a signal to the international community that Israel will refuse to recognise a renegotiated U.S.-Iran nuclear deal. The attacks on Iranian oil tankers that have been taking place with increasing regularity are part of Israel’s strategy to prevent Iranian oil reaching its allies such as Syria and Venezuela. These two countries are also under draconian U.S. sanctions. Israel’s new allies in the Gulf region must also be pleased with the attacks on Iranian shipping. Saudi Arabia claims that Iran poses the biggest threat to its security.

‘A healthy step forward’

Hassan Rouhani said the initial talks with the U.S. and the other world powers were “a success”. The U.S. State Department spokesman also said that the talks in Vienna were “a healthy step forward”. He said that Washington could lift hundreds of sanctions if Iran complies with the nuclear deal once again.

After Trump walked out of the deal, Iran responded by ramping up its uranium enrichment programme beyond the limits of the Joint Comprehensive Plan of Action (JCPOA). The agreement clearly specified that if one party reneged on its obligations, the other side was also entitled to do so. Iran has clearly indicated that it will once again roll back its uranium enrichment programme after all the U.S. sanctions are lifted.

The Trump administration had built a “sanctions wall” to make it difficult for the incoming administration to tear it down with ease. It had imposed a separate set of sanctions on Iran’s central bank, the Ministry of Petroleum and most state-owned institutions under the terrorism law. The signatories are bound by the U.S.-Iran nuclear agreement to “refrain from any policy specifically intended to directly or adversely affect the normalisation of trade and economic relations with Iran inconsistent” with the JCPOA. The Trump administration’s sanctions violated the JCPOA’s basic principles. The onus is now on President Biden. While on the campaign trail he had promised to make the restoration of the nuclear deal one of his topmost priorities.

It is obvious that Iran, despite the Trump administration’s draconian sanctions, has weathered the initial devastation caused to its economy and infrastructure. Khamenei has directed the government not to give any concessions to Washington during the ongoing negotiations, noting that Iran has emerged stronger in the last three years and the U.S. weaker in the region since the signing of the JCPOA in 2015.

Broad contours of the agreement

Iran’s March 27 deal with China shows that there are other avenues open for the country to rise up and prosper once again. After the Trump administration’s “maximum pressure” policy in 2018, the only steady market Iran had for its oil was China. India, one of the biggest markets for Iranian oil, was among the first countries to succumb to U.S. pressure. Although Beijing and Tehran have not fully divulged the details of the March 27 agreement, the broad contours of the deal are evident. In exchange for an assured long-term supply of Iranian oil and gas, China will provide much-needed help to develop Iran’s economic infrastructure. Iran’s ports, rail network, nuclear energy and petrochemical industries will benefit from Chinese investments and know-how.

Iran is already an important member of China’s ambitious Belt Road Initiative (BRI). The 926-kilometre-long New Silk Road rail network traversing Central Asian countries will connect China and Iran. This, as well as the other “Silk Roads” China is involved in, will lessen the dependence of global trade on maritime traffic and bypass choke points such as the Malacca Straits and the Suez Canal. The new silk road through Central Asia will also significantly shorten the transit time for goods. The draft agreement has also envisaged closer military cooperation between the two countries. A joint bank set up by the two countries will bypass the Western banking system.

The agreement also comes at a time when Sino-American relations have plummeted to a historic low. The Chinese leadership knows that in the looming confrontation with the West, it can depend on Iran to be steadfast in its commitments to Beijing. The same cannot be said about most of the oil-exporting states in the region, which despite being BRI members are more importantly military allies of the West.

The JCPOA signed by the Obama administration in 2015 promised massive investments in Iran’s infrastructure ravaged by decades of sanctions. That proved illusory and what followed later was a lesson which Iran’s leadership and people would take a long time to forget. Because of Trump’s “maximum pressure” policy, Iran’s economy contracted by 15 per cent. At the same time because of the prolonged sanctions Iran learned to diversify its economy and make it less dependent on the export of oil.

Iran’s preference until now has been for Western technology and investments. Traditionally it has had strong economic and cultural relations with Germany and France. After the JCPOA was signed, Iran placed huge orders with companies such as Airbus. The few big European companies that set up shop after 2015 were the first to withdraw from Iran after the Trump administration cracked the whip.

And unlike the West, the Chinese government’s policy of non-interference in the internal affairs of other countries is well appreciated in Tehran. Stronger relations with China will also help Iran to break free from the U.S.-controlled world of finance and trade. Iran will now be able to participate in the Yuan-based trading system and thus will not be subject to the whims of every new occupant of the White House. China and Russia are the only two notable countries that are openly opposed to the current U.S.-led global financial system.

There has been some domestic disquiet in Iran on the wide-ranging long-term agreement with China. A few opposition politicians and media commentators have said that the lame duck Rouhani administration, which is due to demit office in two months’ time, should have allowed the next government to negotiate the deal with China. The Iranian political establishment anyway has a deep-seated suspicion about partnering with bigger powers. China and Russia have good relations with Iran’s adversaries in the region, including Israel and Saudi Arabia.

Wang Yi’s recent visit to Tehran was only part of his itinerary for the region. He visited Riyadh and Abu Dhabi too. China has gone out of its way to avoid taking sides in intra-regional disputes. During Wang’s visit to the city of Neom in Saudi Arabia, he offered China’s help to advance the West Asia peace process. Hua Liming, a former Chinese Ambassador to Iran, said that previously Beijing was wary of getting too close to Iran because of American “sensitivities”, but “with fundamental changes in U.S.-China relations, that era has gone”.