Iranian Foreign Minister Javad Zarif and Chinese Foreign Minister Wang Li circa February 2019. Click to see full-size image
China pledged to invest massively in Iran, increasing cooperation between the countries.
Iran’s foreign minister Mohammad Zarif visited China and spoke to Foreign Minister Wang Li at the end of August to present a road map for the China-Iran comprehensive strategic partnership, signed in 2016. The deal is a 25-year strategic partnership.
China announced that it planned to incorporate Iran into the Belt and Road Initiative (BRI), pledging investments totaling approximately $400 billion.
The central pillar of the new deal is that China will invest $280 billion developing Iran’s oil, gas and petrochemicals sectors. There will be another $120 billion investment in upgrading Iran’s transport and manufacturing infrastructure
One of the benefits is that Chinese companies will be given the first refusal to bid on new, stalled or uncompleted oil and gasfield developments.
Chinese companies will furthermore be given first refusal on any petrochemical projects in Iran, including the provision of technology, systems, process ingredients and personnel required to complete such projects.
“This will include up to 5,000 Chinese security personnel on the ground in Iran to protect Chinese projects, and there will be additional personnel and material available to protect the eventual transit of oil, gas and petchems supply from Iran to China, where necessary, including through the Persian Gulf,” an anonymous Iranian sources of Petroleum Economist said.
“China will also be able to buy any and all oil, gas and petchems products at a minimum guaranteed discount of 12pc to the six-month rolling mean price of comparable benchmark products, plus another 6pc to 8pc of that metric for risk-adjusted compensation.”
The deal would also allow China to delay payment for Iranian products for up to two years, and would be able to pay in soft currencies, accrued from business in Africa and the CIS states. Renminbi could also be used if need be, the US dollar would be completely circumvented.
“Given the exchange rates involved in converting these soft currencies into hard currencies that Iran can obtain from its friendly Western banks—including Europäisch-Iranische Handelsbank [in Germany], Oberbank [in Austria] and Halkbank [in Turkey]—China is looking at another 8-12pc discount [relative to the dollar price of the average benchmarks], which means a total discount of up to 32pc for China on all oil, gas and petchems purchases,” the source said.
Factories are to be built in Iran, overseen and designed by large Chinese companies, which will be identical to the ones in China, part of the BRI.
“When the draft deal was presented in late August to Iran’s Supreme Leader Ali Khamenei by Iran’s vice president, Eshaq Jahangiri—and senior figures from the Economic and Finance Ministry, the Petroleum Ministry and the Islamic Revolutionary Guard Corps—he announced that Iran had signed a contract with China to implement a project to electrify the main 900km 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.”
This is where Russia comes in, the pipeline plan would require Russia to cooperate, cause it goes through the CIS states. Allegedly the deal also includes a clause allowing at least one big Russian company to be involved in the project.
Iran itself would get three key benefits from the strategic partnership:
- China is a permanent seat member of the UNSC, with Russia being a permanent member too, that would assist in protecting its interests;
“In order to circumvent any further ramping up of sanctions—and over time encourage the US to come back to the negotiating table—Iran now has two out of five UNSC votes on its side. The fact that [Iran foreign minister Mohammad] Zarif showed up unexpectedly at the G7 summit in August at the invitation of France may imply it has another permanent member on side,” the source said.
- The deal will allow it to finally expedite increases in oil and gas production from three of its key fields;
- China agreed to increase imports of Iranian oil, in defiance of a US decision not to extend China’s waiver on imports from Iran in May.
In July, according to official numbers from the China’s General Administration of Customs (GAC), Beijing imported more oil month-on-month than previously.
According to the Iranian source, those numbers were purposefully reduced, so the alleged imports were even higher.
US pressure against both Iran and China is of varying and questionable effect, but it works unquestionably in one regard – pushing China, Iran, as well as Russia, closer together.
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