China’s Wooing of Iran May Not Pay Off

Iran’s emergence from pariah status may seem to coincide nicely with China’s push for One Belt One Road links through Asia. China is already Iran’s biggest trading partner, buying much of the 2 million barrels a day of the oil Iran currently exports – an amount likely to be increased by another million barrels over the next near as sanctions are eased and Iran can acquire needed technology.

During the period of Iran’s isolation, a situation largely induced by the stranglehold that Saudi and Israeli interests had over US policymakers, and know-nothing congressmen in Washington, China came to be a partner of Iran in many ways. It helped build infrastructure such as the Tehran subway and supplied technology which could no longer be acquired from the west.

One result has been that despite some hardship, Iran’s economy has continued to grow, even despite sanctions and the recently sharply falling oil price. For example, steel production now exceeds that in both Britain and France and car manufacturers produce 1.6 million units a year, albeit of somewhat dated designs.

Paris, Rome, Seoul, US Rush in

Yet it is not all clear that China is going to get the lion’s share of benefit from the lift in output that is expected to follow the easing of sanctions. No sooner had Xi Jinping been in Tehran than Iranian president Rouhani was signing huge deals in Paris and Rome and European oil giants were rushing to talk to the Iranians about investment and drilling technology issues. Apart from anything else, the Iranians need their help in oil and gas development of the fields which straddle Qatar and Iraq and are already being exploited across the borders.

Others rushing for new opportunities include the Koreans, who figure they can help raise Iran’s steel output and quality, and Japanese, Korean and European carmakers who already have some old tie-ups and want to expand the. The potential of this market of 80 million people is huge and could probably absorb a trebling of output within a decade.

Of the neighbors, similarly-sized Turkey is almost sure to benefit from faster growth in Iran. The two have mutual suspicions but trade is already large and Turkish companies which have shown their prowess in Russia and central Asia will be looking for opportunities. Russia on the other hand will probably lose rather more from Iran’s depressing impact on the oil price, and its increased competition as a gas supplier, than it will gain from other trade.

Also India

India on the other hand will be happy with developments. Having shrugged off US criticism of its gas pipeline deal with Iran, it too is hopeful of exploiting a history of good relations with the Islamic Republic – with which it is generally in agreement on Afghan issues.

Preachers of the Chinese road/belt idea often fail to take a close look at their maps.

For example, there is already a train route from China to Iran and on to Turkey via Iran. One was completed in 2014 with the Russian-run Kazakh railway extending through Turkmenistan to Gorgan on the Caspian.

But it would involve two track changes – Iran like China uses standard gauge, not Russian broad gauge – and the tortuous Alborz mountain crossing and six-hour ferry journey across Turkey’s Lake Van. There is in principle a link from to Iran through Armenia but this is closed as it passed through an Azerbaijani enclave. Likewise the link from Russia to Turkey via Armenia has been closed since 1993.

New Iranian links to Turkey are not on the cards any time soon as Iran has more interest in modernization and electrification of its system than extending the network. There is almost a link too to Pakistan but a connection would involve a gauge change as the latter uses the same extra broad gauge as India.

In reality the barriers of the Himalaya and Pamir mountains and the ethnic and geographic complexities of the Caucasus mean that any major road rail links from China to the west need to pass north of the these ranges and the Caspian – ie through Russia or Kazakhstan and Russia.

Troubled Region

Iran sits in a troubled region and cannot escape the problems of having Saudi Arabia, Iraq and Afghanistan as neighbours. But its level of income and other aspects of development puts much of SE Asia in the shade.Southeast Asians who have grown used to the idea that the Middle East was a region of under-education, excessive oil and clerical dominance may now need to wake up to the reality of Iran as it already is, not to mention what it could be with international links and more liberal policies at home. Its workforce is still relatively young but fertility rates have already fallen to around replacement levels so it huge a huge demographic dividend potential. Despite isolation, educational levels, are high and an especially high percentage of graduates are in science and engineering. With foreign technology and investment these could drive very rapid growth.

Whether that will happen is another matter. Numerous vested interests linked to the Revolutionary Guard and clerical groups have grown up over the years when economic liberalization mostly consisted of quasi-privatizations which mainly benefited these groups. The banking system is weak as are a multitude of professional services.

The nation needs change at home as much as international engagement. But it already has a thriving stock market with a market capitalization of US$80 billion and potential for much more given that is still only 30 percent of GDP. Its external situation is stable despite years of sanctions and the recent oil price fall, investment has been rising and mineral potential – copper in particular – is huge. It may also be able to attract back at least some of the educated and prosperous Iranians who left after the Islamic revolution.

They may not be welcomed by the new establishment. Yet like China under Deng, national identity and a preference for economic progress over ideology should win out.