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What Does the Iran Deal Mean for China?

What Does the Iran Deal Mean for China?

china-iran-leaders By Jessica Margolis

The recent signing of the Joint Comprehensive Plan of Action (more commonly known as the Iran Deal) between the Islamic Republic of Iran and the P5+1 will undoubtedly affect the future of nuclear policy, and change the dynamics of relations between the world’s most contentious powers. The deal outlines an agreement between Iran and the world’s largest powers regarding the Iranian nuclear program. With approval of the United States Congress in September, the deal will mean big changes in U.S. diplomatic relations with Iran and the Middle East region in general.But what does the deal mean for China?

China has been a long time supporter of diplomacy with Iran, and was a key mediator during negotiations. China’s participation was spurred by the promise of large economic benefits from the ending of sanctions and opening-up of the Iranian market. Before sanctions were imposed, Iran was China’s third largest oil supplier, and even during the sanctions regime it supplied about 9% of overall Chinese oil imports. The opening of Iranian markets will mean cheap oil imports in the future and increased access for Chinese companies to Iran’s oil and natural gas markets. Direct access to and development of these fields will create large profits for Chinese companies and provide reliable access to resources for the future. The major state-owned Chinese petroleum company, Sinopec, has already begun developing the Yadavaran oil field, which is expected to begin producing around 85,000 barrels of oil per day in 2016. Additionally, the China Natural Petroleum Corporation (CNPC) is developing the North Azadegan oil field, which is projected to produce about “150,000 barrels per day by the end of the decade.”Access to this oil will give China an ample supply of the energy resources necessary for domestic expansion and infrastructural development, aiding the country’s ever-expanding industrial sector.

The North Azadegan Oil Field Photo courtesy of The Iran Project

Fortunately for Iran, this economic relationship goes both ways. With new Chinese involvement in the Iranian energy sector, the country will see a drastic increase in international investment capital. The Islamic Republic’s government can use this money to increase its oil and gas production and bolster its presence in the world economy. However, development of the country’s natural gas reserves, which is a priority for the government, comes at a steep price. The South Pars field, which accounts for 40% of Iran’s gas reserves, will take an estimated $100 billion to develop. Partnerships with wealthy investors, such as those from China, will be required if Iran is to move forward on development of these natural gas reserves. Additionally, as Iran looks to international markets for the technology and supplies it will need for this development, it could become one of China’s best customers in numerous markets.

China has also become involved in other infrastructural development projects in Iran and the surrounding region. This includes involvement in the construction, manufacturing and transportation sectors. Currently, CNPC is negotiating with Iran and Pakistan to help build 435 miles of a natural gas pipeline to stretch from Asaluyeh, Iran, to Nawabshah, Pakistan.This pipeline would create a lucrative market for Iranian natural gas (once again, likely benefitting Chinese companies) and would significantly strengthen ties between the three nations.

The proposed pipeline route. Photo courtesy of The Wall Street Journal

 

 

 

 

 

 

 

 

 

 

 

In fact, the most important effect the deal will have on China is strengthening its ties to countries in the region. As we’ve seen time and time again throughout the history of the Middle East, control over oil creates influence in regional security, economic and social policies. Consequently, it also creates a large geopolitical advantage. By solidifying ties with Iran and securing a place for its companies in the energy sector, China has ensured that it will have a long-lasting ally, bound by both economic and strategic interests. Additionally, control over this degree of oil production in the region puts China in a powerful place in relation to the United States. China may soon have the ability to control, and limit if necessary, a significant amount of Iranian oil production, which could carry implications for the world oil supply. This could be of large concern to the United States, who relies on the entirety of the Middle East for oil.

As Chinese and Iranian relations progress, China may also develop the opportunity to establish a more permanent presence in the Middle East, perhaps in the form of a military base. China could use its increasing involvement in the area as a means to intervene in international actions with which it disagrees. Thus, the U.S. may see Chinese dominance as a strong incentive to maintain cooperation and positive relations with both countries, in order to prevent experiencing backlash in the Middle East for other diplomatic disputes.

Of course, increased economic involvement in Iran will create a vested interest for China in helping maintain stability in the country. Fear of snapback sanctions - applicable if Iran violates the nuclear deal - creates an incentive for China to encourage Iranian compliance to the agreement and deter aggressive actions by the government. Thus, increased Chinese involvement has the potential to affect positive change in the region as well.

The Iran Deal will lead to a strong economic and diplomatic relationship between Iran and China. It will increase Chinese involvement in Iranian energy and gas markets and give Iran access to the investment capital necessary for expansion. Growing Chinese participation in the region will create new geopolitical implications for world powers and incentive for the country to maintain stability in Iran.

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