VYING FOR SOME PERSIAN PIE
China is set to reap the windfall of the post-nuclear deal scenario with Iran. Indeed if one looks at Chinese engagement with Iran during the standoff between Washington and Tehran over the last few years, it is understandable why Beijing threw its weight behind a diplomatic solution to the nuclear issue. A military conflict would have had disastrous implications for China which is heavily dependent on oil imports that pass through the Persian Gulf. Beyond that, an Iran free of sanctions helps China diversify its oil imports from the Kingdom of Saudi Arabia (KSA) to the Islamic Republic which, according to the US Energy Information Administration, "holds the world's fourth-largest proved crude oil reserves and the world's second-largest natural gas reserves."
An "unfettered" Iran fits squarely into Chinese Premier Xi Jinping's vision of a "One Belt, One Road" initiative which would allow for uninterrupted flow of energy, infrastructure and maritime links that effectively connect East Asia with Central Asia, Europe and the Middle East. The implications for international trade and energy security (from Chinese perspective) for such a deal are profound to say the least. Given the strategic location of Iran being situated strategically between three major continents makes it a country worth investing in for the long term.
Western pundits have been quick to point out the moribund state of Iran's energy sector and that the overall sorry state of the country's infrastructure which, according to estimates would need around US$500 billion to revitalise. Unfrozen assets would free up to the tune of US$100 – 150 billion. It takes little imagination to guess where the balance amount will come from. According to a recent public statement by the Iranian deputy minister, Beijing has apparently committed $52 billion in infrastructure investment. This falls in line with the recently announced $46billion pledged to Islamabad for similar infrastructure development by China.
The belt-road initiative is moving ahead, which will help Beijing in the foreseeable future to avoid using international maritime routes (that are beyond its capacity to control) to transport the fuel it needs to power the economy through a network of transnational pipelines. Looking beyond military implications, Chinese companies are operating globally, with thousands of its nationals working on projects in the region. In times of chaos, the Chinese navy or its merchant fleet has to be able to evacuate its people from trouble spots. With ties warming between China and Iran, one cannot really rule out a future Chinese naval facility in the Persian Gulf.
Iran for its part has been playing its cards well. India is another Iranian strategic partner which has not been left out in the cold while Tehran warms up to Beijing. As pointed out by the Forbes magazine in an article recently "Not long ago, Iran represented India's second largest source of crude oil, providing nearly 17 percent of the country's imports alone. Many of India's largest oil refineries are designed to process Iranian crude exclusively. A Western-led sanctions regime targeting Tehran's lucrative oil sector, however, forced India to sharply curtail its purchases from Iran. By last year, crude imports from the theocratic state comprised only 6 percent of India's total. Iran tumbled from its perch as India's second largest supplier of crude to its seventh." With the gradual lifting of sanctions, Tehran is poised to become a cornerstone of India's energy sourcing map once again. Looking beyond the energy angle, India looks to become an important trading partner of Iran. Investment opportunities have opened up with Tehran formally asking Delhi to make financial commitments to developing Iran's southern port of Chabahar. The recently concluded deal is worth $8 billion. Chabahar will allow Indian goods to be shipped deep into Central Asia by bypassing its arch rival Pakistan altogether. The port is India's answer to Pakistan's Gwadar being developed with Chinese assistance.
From a regional perspective, Iran is set to become a major player in the oil industry once again.
Times do not look too rosy for KSA and other major oil producers like Venezuela and Iraq. Yes, it will take some time for Iranian crude production to rebound to its full strength but with Chinese largesse the timelines for a rebound is shortened considerably. Even if a fraction of Chinese annual demand for oil is sourced from Iran, it will go a long way to help rebuild the battered economy. Combine that with a stop on the upcoming silk route, there is little that can go wrong for Iran should the roadmap for lifting of sanctions stay on track.
Again, a major oil producing country coming on the market is always good news for importing nations which include not only major oil-guzzling nations like China and India, but also developing nations such as Bangladesh. It can take advantage of negotiating more palatable terms for the import of the precious liquid gold which had till now not seen much success with traditional suppliers.
The writer is Assistant Editor, The Daily Star.