Iran and China signed a 25-year “Comprehensive Strategic Partnership” last month that is likely to result, among other things, in increased oil flow from Iran to the world’s second economic power and attract investment in Iran’s key industries.
The deal, signed by Foreign Minister Mohammad Javad Zarif and his visiting Chinese counterpart, Wang Yi, had been in the works since 2016 when President Xi Jinping became the first Chinese leader to visit Iran in more than a decade.
A draft of the accord that surfaced in the press a year ago revealed plans for long-term crude supplies to China in addition to that country’s investment in Iran’s oil, gas, petrochemical, renewables and nuclear energy infrastructure.
China is Iran's largest trading partner. Two-way trade surpassed $18 billion in 2020.
However, one issue that is unclear is whether the deal is a win-win agreement, and more importantly whether Chinese companies can really help Iran’s key energy sector grow in real terms because Beijing has a very poor record when it comes to funding energy projects in recent years.
Chinese state-owned firms namely China National Petroleum Corporation (CNPC) and the energy giant Sinopec Group have not been successful in carrying out oil and gas development contracts in Iran in the last decade.
In 2014 Iran's Oil Ministry formally revoked a $7.5 billion development contract with CNPC due to a five-year delay and the company's persistent foot-dragging in developing the South Azadegan Oilfield in Khuzestan Province. The same was repeated in 2016 when Chinese companies were discharged from the Yadavaran and North Azadegan oilfield contracts near the Iraqi border because of procrastination.
The last time a Chinese firm terminated a contract in Iran dates back to 2019 when CNPC canceled the agreement to develop Phase 11 of the South Pars Gas Field in the Persian Gulf.
Because details of the much publicized 25-year agreement have not been released, there is a lot of controversy surrounding the deal.
Need for Options
Although the agreement can have rewards, economic and energy experts including Hamidreza Salehi, deputy head of the Export Commission of the Iran Chamber of Commerce, Industries, Mines, and Agriculture, told ISNA that “putting all our eggs in China's basket is a wrong policy.”
“China has never, and never will, count on Iran as its only crude oil supplier and the National Iranian Oil Company should follow the same approach and maintain its relation with its traditional customers like India and South Korea.”
Truth be told, the deal can help NIOC accelerate development projects in shared oilfields with Iraq and Saudi Arabia as they have been pumping more oil from those regions with the help of international energy giants like France's Total and Royal Dutch Shell.
Given Iran’s stalemate with the United States over the ongoing nuclear negotiations in Vienna, the arrangements with China are expected to have far-reaching consequences in the long run.
With this agreement Iran, which has been struggling hard to export oil due to the US economic blockade, has been given a guarantee for oil sales and energy infrastructure development from the Chinese side when not a single country with close economic, political, security and military ties to the US has dared to do likewise albeit for understandable reasons.
Furthermore, independent experts concur that the US’ most powerful trump card, the so-called maximum pressure policy, to force Iran to return to the nuclear deal on Washington’s terms has been seriously weakened by the Sino-Iran agreement.
Crude Output
Iran’s oil production has shot up in recent months hitting 2.14 million bpd in February, according to the latest S&P Global Platts survey of OPEC output -- a 190,000 bpd increase from a 33-year low of 1.95 million bpd in August. Iran's oil exports to China have similarly seen an uptick, market sources say.
Data firm Kpler, the leading provider of intelligence solutions for commodity markets, estimates Iran will have exported 896,000 bpd of crude and oil derivatives to China in March, up from 406,000 bpd in February and the highest level since April 2019.
Lured by the prospect of cheaper prices, China has increased its imports of Iranian oil to around 1 million barrels a day, eroding US leverage.
It remains to be seen if and when the ambitious projects mentioned in the agreement will eventually see the light of day. Should the nuclear talks collapse, Chinese companies, too, could face secondary sanctions from Washington, an issue that has agitated Beijing in the past.
The bottom line is that integration with China may help Iran improve its economy against the ill-wish and unending US animosity. But decision and policy makers in Tehran should know (most probably know) that pinning hopes on China and boosting oil exports cannot produce economic miracles.
