Economy, Domestic Economy

China, Iran: Common Grounds for Cooperation

China, Iran: Common Grounds for CooperationChina, Iran: Common Grounds for Cooperation

Relations between China and Iran are unique primarily due to the level of trust between the two sides.

There are several instances where both have weighed favorably toward the other on regional and global platforms, including the period of international economic sanctions against Iran, reads an article recently published by US-based think tank Eurasia Review.

Excerpts of the article are presented below.

Chinese President Xi Jinping and his Iranian counterpart Hassan Rouhani promised to increase bilateral trade to $600 billion in 10 years, during the former’s visit to Iran on January 23, 2016—a week after the implementation of the nuclear deal Iran struck with world powers back in July. Trade between the two countries stood at around $52 billion in 2014, before the plunge in oil prices.

China’s cross-continental “One Belt, One Road”  initiative, Iran’s quest for integration with the world, China’s potential to invest and Iran’s great reserves of hydrocarbons provide an excellent, mutually beneficial scenario for cooperation between Beijing and Tehran.

Iran has the fourth-largest proven crude oil reserves in the world. It is the third-largest producer in the Organization for Petroleum Exporting Countries, the largest oil producing entity in the world.

The country, therefore, plays an influential role in deciding the international price of oil from the supply side of the market.

China is the world’s second largest oil consumer and the world’s largest net importer of petroleum and other liquids. This makes it a very important country with the ability to influence international oil prices from the demand side.

The extent of cooperation between Beijing and Tehran would be a very important element of the oil demand/supply dynamics.

 Chinese Gains

China’s presence in West Asia has never been more important than it is today. Although its economic growth rate is on the decline, it is still significantly high.

Its economic growth runs on the wheels of energy and trade policies, and oil import is an important element of its energy policy. China’s interest in Iran thus will be dominated by its focus on oil imports.

Moreover, Iran’s geographical location is significant to China’s ambitious “One Belt, One Road” initiative. Iran today provides attractive opportunities for Chinese investment. Better relations with Iran will likely enhance China’s energy security policy and provide a market to sell its “cheap-workable-technologically-upgraded” products.

 Iranian Gains

Iran has not been able to use its oil and natural gas resources to fully realize the potential of its economy.

Under the current circumstances following the removal of western sanctions against Iran, the country has been provided with an opening to use its natural resources in the support of its economic growth and China has shown a positive interest in this. The space and time are perfect for both to come together in an advantageous way.

Iran is primarily looking for investments from China in its infrastructure sector. The arrival of the first cargo train from China to Iran in mid-February and China’s interest in financing the Masjed Soleyman petrochemical project in Iran are indicators of the growing cooperation between the two sides.

China’s ability to successfully distance itself from domestic politicking in the countries in which it invests is an important determinant of Iran’s keenness to cooperate with China.

In conclusion, oil and gas imports would be the top priorities for China in its engagement with Iran, while Iran would consider Chinese investments to enhance its domestic oil production capacity on top of its agenda.

The future appears bright for this relationship, as better relations will be rewarding for both, in which Iran is likely to benefit immediately while China in the near and distant future.