Implications of the Proposed China-Iran deal for India

The ambitious $400 billion deal between China and Iran has garnered worldwide attention. The 18-page draft proposal says that China will facilitate the infusion of about $280 billion to Iran. This major economic and security partnership between China and Iran has raised India’s concerns against the backdrop of its ongoing border conflict with China.

According to the New York Times report, the proposed China-Iran deal talks about expanding China’s presence in Iran’s “banking, telecommunications, ports, railways and dozens of other projects”, and in return China will receive a steady supply of oil from Iran for the next 25 years at a discounted price. There are more than 100 projects listed in the draft that will see Chinese investments; these include building Free Trade Zones and several very significant ports. The Chinese will also help Iran build infrastructure for 5G networks and come up with an internet filter like the Great Firewall in China. The stronghold of China in Iran could also result in undermining US policy in the Middle East.

Understanding China-Iran Relation

The diplomatic ties between China and Iran are not very old. Though diplomatic relations were established in 1971 within the backdrop US-Sino diplomatic overtures, Sino-Iranian relations took significance after the Islamic Revolution of Iran in 1979. Their economic, cultural and political relations have existed ever since.

Following the Iranian revolution, China increased its efforts to form a more workable relationship with Iran through more trade and an increase in oil purchases. With similar anti-imperialist sentiments and third world solidarity, both countries recognized each other as allies. In fact, in the 1980s Sino-Iranian trade reached $1.627 billions. It was also in 1980 that nuclear cooperation began between both countries, and China’s refusal to support the UN arms embargo against Iran. Iran and China later went ahead towards a nuclear cooperation agreement in 1992 despite protests from the US.

Chinese President Xi Jinping was one of the first heads of state to visit Iran after international trade sanctions were lifted in 2016. In this 2016 visit, China and Iran signed some 16 accords and agreed to increase bilateral trade in the next decade. Iranian President Hassan Rouhani said at a press conference in 2016 that, “Iran and China have agreed on forming strategic relations (as) reflected in a 25-year comprehensive document.” Hence, the root of the current deal between China and Iran that has been proposed has taken shape since 2016.

Since 2016, China and Iran have become closer due to the election of US President Trump. The increasing hostility between the US and Iran has pushed China to fill that space through more bilateral agreements and partnerships. In terms of trade relations, the first direct train service route was established between Yiwu (Zhejiang Province) and Tehran in 2016. While trade was conducted by sea, which usually took  a month, the train service brought it down to 12-14 days. Furtner. China and Iran held their first navy drills in 2017. In 2019, Iran signed China’s ambitious Belt Road Initiative (BRI) and also signed a joint letter to the UNHCR defending China’s treatment of Muslim minorities. Recently, Iran was also one of the 53 countries to back the Hong Kong national security law at the United Nations.

To be sure, China and Iran are strategic partners for each other. The Islamic Republic of Iran is considered as the most strategic partner to China’s geopolitical ambitions. Iran could gain from this friendship by accessing and creating more links across Asia.

With Iran being marginalized by the US following the Trump administration’s withdrawal from the Iran nuclear deal, space opened for China to increase its partnership with Tehran. In parallel to Iran’s tense relations with the US, China is experience tension of its own with Washington. The Trump administration has repeatedly criticized Beijing over a range of issues such as the Covid-19, treatment of Muslim minorities, and the Hong Kong protests. With Washington’s relation with both China and Iran on a low, China and Iran will naturally seek to strengthen their alliances for mutual benefits.

Chabahar Port Project and Concerns for India

The current timing of the deal between China and Iran is a case of worry for India. China’s growing presence in Iran comes at a time when India is itself caught in a geopolitical tug of power with China. The current developments have indicated India’s isolation in the subcontinent – with deteriorating relations with Nepal, China’s influence on cooling India-Bangladesh friendship,  and the recent BRI projects China signed with Myanmar.

The China-Iran deal may hamper India’s strategic relationship with Iran. This proposed deal could result in the presence of Chinese military in Iran as well. India had committed to the Chabahar port project in a bilateral agreement with Iran in 2016 to develop the port. India would invest $500m to establish an alternate trade route with Central Asia. The 2016 deal was considered India’s challenge to China’s power in central Asia through the Chabahar route.

India and Iran agreed to develop the port first in 2003 but couldn’t do so due to sanctions against Iran at that time. However, the same pattern followed the post 2016 deal as well. The US sanctions impacted the pace and delayed the Chabahar port project. However, in 2018, Washington announced a waiver to the port and in December 2019, at the second India-US two-plus-two dialogue. Following the assassination of the head of the IRGC Quds Force, Qassem Soleimani, the increase in US-Iran tensions have added additional delays on the project again.

With the new China-Iran deal about to close, there were reports that India was dropped from the Chabahar projects due to delayed funds. Following the reports, a deputy to Iran’s Ports and Maritime Organization, Farhad Montaser clarified, “Iran has only signed two agreements with Indians for investment in Chabahar: one is related to port’s machinery and equipment, and the second is related to India’s investment to the tune of $150 million.” India’s stakes are high on this project. The Indian government had also allocated $1 billion in its 2020 budget for this project.

The proposed $400 billion agreement with China comes at a time when Iran is suffering from an economic crisis due to US sanctions and the global Covid-19 pandemic. To be sure, India being a quasi-ally of the US with a border conflict with China has much at stake in its foreign relations with Iran and beyond.