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5 Negative Factors For Oil Prices

5 Negative Factors For Oil Prices

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China Deal Shows Iran Tilting East, Not West

Iran already has signaled that it plans to do more business with Russia now that the crippling Western sanctions have been lifted from its economy. Iran has also made it clear that it will reach even farther east by moving to a strategic partnership with China, including increasing bilateral trade with Beijing to $600 billion over the next 10 years.

Certainly Iran will resume its business ties with some Western concerns, but Iran’s supreme leader, Ayatollah Ali Khamenei, told visiting Chinese President Xi Jinping in Tehran on Saturday that Iranians don’t trust the West and would prefer to pursue closer relations with “independent and trustworthy countries” such as China.

“Westerners have never been able to win the Iranian nation’s trust,” Khamenei told Xi, even though the six world powers that negotiated an agreement to lift the sanctions imposed on Iran included the leading Western powers Britain, France, Germany and the United States, as well as Russia and China.

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Khamenei has said he feels no sense of gratitude to these countries. “If the bully of the neighborhood breaks into your house to take your properties away by force, and you try hard to finally kick him out of your house, is this a favor by him or an outcome of your power?” he’s quoted as saying on his website.

In a meeting Saturday between Xi and Iranian President Hassan Rouhani, the two sides signed 17 agreements and letters of intent on Saturday that included cooperation on nuclear power and a revival of the ancient trade route known in the West as the Silk Road and known in China as One Belt, One Road.

Overall, bilateral economic relations will amount to $600 billion in the next decade. They included plans for long-term contracts involving energy and mining, according to Rouhani. Iran hopes to attract $50 billion a year in foreign investment now that the sanctions have been lifted.

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Already China is Iran’s biggest trade partner, buying its oil while Western countries were forbidden to do so during the sanctions regime. Trade between Tehran and Beijing amounted to about $52 billion in 2014, before oil prices began to plunge in late June of that year.

Few other details were made public, but Xi gave broad outlines of the pacts, saying, “China stands ready to work with Iran to lift our mutually beneficial cooperation in such fields as politics, economy and trade, energy, infrastructure, security, and cultural and people-to-people exchanges to a new stage.”
Xi noted that in the 2,000-year history of the Silk Road linking their two countries, there had been no wars or even lesser disputes, but only friendly relations and cooperation. “The China-Iran friendship is originated from friendly exchanges in history,” Xi told Rouhani.

Related: Iran Poses A Threat To Gazprom 

Iran has shown it also is willing to cooperate more normally with the West now that the sanctions have been lifted, but it has become even more cordial with the West’s competitors, including Russia as well as China. For example, Russian President Vladimir Putin was a special guest at a Tehran energy summit in November.

Moscow has also been considering extending two loans to the Iranian government worth a total of $7 billion, and Russia reportedly will equip Iran with modern air-defense systems. Furthermore, Iran Shipbuilding & Offshore Industries Complex Co. has reached a tentative deal with the Russian shipyard Krasnye Barrikady to cooperate in the construction of oil rigs and share technology.

As Tehran moves closer to Moscow and Beijing both economically and politically, it appears it is merely becoming less hostile to the West, including the United States, despite the political risks taken by President Obama both at home and abroad to reach the agreement under which Iran would severely limit its nuclear program in exchange for a lifting of sanctions.

By Andy Tully of Oilprice.com

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