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A new window of opportunities

While Tehran’s new strategic partnership with Beijing (a 25-year $400b arrangement) will give the Chinese a strategic foothold and strengthen Iran’s economy and regional clout, the development opens a new window of socio-economic opportunities for Pakistan via the $62b China-Pakistan Economic Corridor (CPEC) which is a crucial lynchpin of China’s global Road and Belt initiative (RBI).

In the immediate aftermath of the China-Iran agreement, India would stand removed from the Chabahar port project. In 2016, India and Iran signed an agreement to invest in Iran’s strategic Chabahar Port and to construct the railway connecting the southeastern port city of Chabahar to the eastern city of Zahedan and to link India to landlocked Afghanistan and Central Asia bypassing Pakistan and in the process diminishing Pakistan’s pre-eminent position as landlocked Afghanistan’s main transit trade partner.

While Iranian officials have refused to link India’s removal from Chabahar-Zahedan project to the new deal with China, it seems that India’s close ties to Washington had led to this decision. Prime Minister Narendra Modi government’s Kashmir policy and its new citizenship conditions discriminating against India’s over 200 million Muslims are said to have also played a significant role in influencing Iran’s decision.

However, Tehran said that the decision to the effect was taken because seemingly under pressure from the US India was dragging its feet over investment in the project.

Replacing India with China in such a strategic project is expected to alter the balance of power in South Asia to the detriment of New Delhi. China now has the chance to connect Chabahar Port to Gwadar in Pakistan, which as mentioned earlier, is a critical hub in the BRI programme.

Iran’s inclusion in the BRI framework is also likely to cause India to lose ground against China in Afghanistan. After 9/11, Indian political and economic influence grew in Afghanistan under the US security umbrella. Since the February deal between the US and the Taliban in Doha, however, India’s influence over the country has been shrinking. India was neither part of the US-Taliban deal, nor does it have any significant role in the intra-Afghan peace process. After the US withdrawal, India’s influence over the country is expected to minimize further.

Despite Washington’s prodding, New Delhi has been ambivalent about entering into dialogue with the Taliban. China, on the other hand, has long been engaging both with the Kabul government and the Taliban in an effort to not only secure its economic investments and interests in Afghanistan in the aftermath of US withdrawal, but also undercut those of India. This also gives China an edge to potentially connect the post-US Afghanistan in the BRI framework. China’s growing ties to Iran – a country that has significant clout over and ties with Afghanistan – is likely to help it achieve this goal.

The new China-Iran relationship is likely to ultimately undermine India’s interests in the region, particularly if Pakistan gets on board. And there is no reason why Pakistan would not get on board. The implementation of Iran’s proposal to expand the existing China-Pakistan Economic Corridor along northern, western, and southern axes and link Gwadar Port in Pakistan to Chabahar and then to Europe and to Central Asia through Iran by a rail network now looks more probable. If that plan proceeds, the golden ring consisting of China, Pakistan, Iran, Russia, and Turkey will turn into the centerpiece of BRI, linking China to Iran and onward to Central Asia, the Caspian Sea, and to the Mediterranean Sea through Iraq and Syria.

China’s involvement in Iran would weaken Pakistan’s main rival India, and open up strategic space for Islamabad to efficiently deal with political and security threats it is currently facing as well as expand its socio-economic links across a huge swath of contiguous land encompassing Iran, Afghanistan and Central Asia.

After fully integrating Iran into the BRI framework, Beijing could help Islamabad improve its relations with Tehran and assist the two countries in pacifying the Iran-Pakistan border along Balochistan which is actually being undermined currently by the US proxies working from Pakistani Balochistan and Indian proxies working off Iranian Balochistan.

Chinese presence in Iran would mean the Iranian port city of Chabahar would not compete with Pakistan’s Gwadar, whose port is operated by China. Finally, India’s ouster from Iran would mean the transit trade from Afghanistan and Central Asia would continue through Pakistani ports.

The agreement between Beijing and Tehran will see China invest in banking, transport and development sectors in Iran. In exchange, Beijing expects to receive a regular, and heavily discounted, supply of Iranian oil over the next 25 years. The deal is part of Chinese President Xi Jinping’s ambitious Belt and Road Initiative (BRI) that aims to extend his country’s economic and strategic influence across Eurasia.

The new deal between Beijing and Tehran includes plans for China to develop several ports in Iran, such as the Bandar-e-Jask which is strategically situated to the east of the Strait of Hormoz. This is significant as it gives Beijing control over one of the seven key maritime chokepoints in the world. This can potentially undermine the US naval dominance in the Middle East, as having a foothold in Bandar-e-Jask would not only allow China to monitor the US Navy’s Fifth Fleet based in Bahrain, but together with a presence in Gwadar and Djibouti ports, it would also augment Chinese presence in the Indian Ocean Region. All this could cause India to lose the leverage its close ties to the US provides against China.

These developments have thrown open a new window of socio-economic opportunities for Pakistan. But in order to make the most of this opportunity Pakistan would need to first study the potential rather closely along with the various scenarios emerging out of the regional realignment. There is a possibility that a cold-war kind of a situation might emerge eventually between two blocs – one led by the US and the other by China. Pakistan will have to take sides in such an eventuality. Perhaps, such a confrontation after all woud not emerge if the Democrats win the upcoming US election. In such a case Pakistan can continue working with the two competing sides.

More importantly, Pakistani planners would need to do an indepth study of the huge market opening on its Western, Northern and North-Western borders extending from Afghanistan to Central Asia along with Iran plus Western China.  We need to find out what can we sell to this market and what we would need to import from it with the supply chain seamlessly connecting the entire market.

What distinguishes the China-Iran regional realignment from other recent global developments is that both China and Iran have global and regional ambitions, both have confrontational relationships with the United States, and there is a security component to the agreement. The military aspect of the agreement concerns the United States. Last year’s unprecedented Iran-China-Russia joint naval exercise in the Indian Ocean and the Gulf of Oman had caused President Donald Trump several sleepless nights.

China’s growing influence in East Asia and Africa has challenged U.S. interests, and the Middle East is likely to be the next battlefield on which Beijing can challenge the US hegemony—this time through Iran.

This is particularly important since the agreement and its implications go beyond the economic sphere and bilateral relations: It operates at the internal, regional, and global level.

Internally, the agreement can be an economic lifeline for Iran, saving its sanctions-hit, cash-strapped economy by ensuring the sale of its oil and gas to China. In addition, Iran will be able to use its strategic ties with China as a bargaining chip in any possible future negotiations with the West by taking advantage of its ability to expand China’s footprint in the Persian Gulf.

In the long term, Iran’s strategic proximity to China implies that Tehran is adapting the so-called “Look East” policy in order to boost its regional and military power and to defy and undermine US power in the Persian Gulf region.

For China, the pact can help guarantee its energy security. The Persian Gulf supplies more than half of China’s energy needs.

Saudi Arabia, a close US ally, has now become the top supplier of crude oil to China, as Chinese imports from the kingdom in May set a new record of 2.16 million barrels per day. This dependence is at odds with China’s general policy of diversifying its energy sources and not being reliant on one supplier. China’s other Arab oil suppliers in the Persian Gulf region have close security ties with the United States.

China is right to fear that as the trade war between the two countries intensifies, the US may put pressure on those countries not to supply Beijing with the energy it needs. A comprehensive strategic partnership with Iran is being seen both as a hedge and an insurance policy; it can provide China with a guaranteed and discounted source of energy.

China understands Iran’s strategic position and its importance as a regional power in the ‘new’ Middle East. Regional developments in recent years have consolidated Iran’s influence. Unlike the United States, China has adopted an apolitical development-oriented approach to the region, utilizing Iran’s regional power to expand economic relations with nearby countries and establish security in the region through what it calls developmental peace—rather than the Western notion of democratic peace. It’s an approach that appeals to the authoritarian states in the Middle East.

M ZIAUDDIN, "A new window of opportunities," Business Recorder. 2020-09-02.
Keywords: Economics , Economic issues , Economic opportunities , Central asia , Tehran , China , Saudi Arabia , CPEC , RBI

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