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China the biggest winner as Iran’s economy collapses

The “maximum pressure” policy and sanctions imposed on Iran by the Trump administration have definitely achieved one of their main objectives: Exerting significant economic pressure on the Iranian regime. Nevertheless, one of the unintended consequences is that Iran is now being pushed into the arms of China. And China is taking full advantage of US-Iranian tensions.


Iranian Supreme Leader Ali Khamenei has reportedly given his approval to a proposed 25-year comprehensive cooperation agreement with China. By giving his blessing to President Hassan Rouhani and Foreign Minister Mohammed Javad Zarif over the deal, Khamenei is partially attempting to put an end to the heated debate over the agreement in Iran. He is also trying to send a strong message to the Iranian authorities and lawmakers that they ought to get on board with the deal and halt their criticism of the government’s negotiations with China.


Before Khamenei stepped in, even some of the country’s most prominent hard-liners questioned the accord. For example, Mahmoud Ahmadi Bighash, a hard-line member of Iran’s parliament, spoke to a state-run TV channel and warned that he believes “transferring full authority of Iranian islands to China” was included in the proposed agreement. Iran’s Ministry of Foreign Affairs immediately issued a statement calling Bighash’s comment “basically mendacious,” adding that “such unfounded allegations” are a “severe blow to the national interests of the Islamic Republic of Iran.” Later, Bighash retracted his remarks and said: “I have read the draft of the Iran-China agreement and in no part of the text there is any discussion about leasing Iranian islands to China.”


Now that it has become clear Khamenei is in favor of the deal, the Iranian parliament, which is dominated by hard-liners, will most likely follow the supreme leader’s instructions and approve the proposal. Iran’s state media outlets have already begun spreading the narrative that it is in the nation’s interest to side with China. For example, a headline in Kayhan newspaper read: “Guardian Council: The enemy’s stance toward Iran-China agreement showed that Tehran has done the right thing.” Donya-e-Eqtesad newspaper wrote: “Poll reveals that China’s economy outdoing others amid Chinese virus.”
But it is important to point out that China will be gaining much more from this comprehensive deal than Iran. To begin with, the Iranian authorities entered into negotiations with China from a weaker position. Tehran’s economy is on the verge of collapse, inflation and unemployment rates are at record high levels, the coronavirus pandemic has worsened the situation, and the regime cannot pay its employees and militia groups. The economic conditions have become so dire that even some officials are warning of possible revolt and the collapse of the Islamic Republic. In other words, the Iranian regime is in survival mode and is in desperate need of cash to maintain its control.


On the other hand, China has strong leverage and is in a much better position economically. China’s gross domestic product grew by 3.2 percent between April and June, while many other countries witnessed a severe economic decline due to the pandemic. As the National Bureau of Statistics pointed out: “The national economy overcame the adverse impact of the epidemic in the first half gradually and demonstrated a momentum of restorative growth and gradual recovery, further manifesting its development resilience and vitality.” This is likely why China was able to dictate such stringent terms that clearly benefit Beijing more than Tehran.


By investing nearly $400 billion over 25 years, which is an infinitesimal amount for the second-largest economy in the world, China will gain access to Iran’s oil at a highly discounted rate and it will increase its influence and presence in almost every sector of Iranian industry, including telecommunications, energy, ports, railways, and banking. It is worth noting that China is the largest importer of oil in the world.

Furthermore, Beijing will most likely solidify its foothold in Iran, advance its Belt and Road Initiative and reap the rewards for the next 25 years, regardless of whether or not there is a regime change in Iran because such agreements are normally binding and governed by international law. Beijing will also exert significant strategic influence in the Gulf through its presence in Iran. The opening paragraph of the draft deal stipulates: “Two ancient Asian cultures, two partners in the sectors of trade, economy, politics, culture and security with a similar outlook and many mutual bilateral and multilateral interests will consider one another strategic partners.”


China is the biggest and clear winner due to Iran’s weakened economy and increased isolation.

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