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Simon Watkins

Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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Iran Cements Alliance With China, Russia In Clear Message To Washington

  • The seismic, multi-generational Iran-China deal is set for full roll-out.
  • Full membership of the economic, military and political, SCO alliance will lead to major strategic investments in Iran’s up-and-downstream sectors.

 

Iran’s approval last week for full membership to the Shanghai Cooperation Organization (SCO) is the surest sign yet that any U.S. efforts to keep it, or Iraq, or many key Shia Crescent Middle East states out of the China-Russia-Iran sphere of influence may now be entirely futile. The SCO is the world’s biggest regional organization both in terms of geographic scope and of population, covering 60 percent of the Eurasian continent (by far the biggest single landmass on Earth), 40 percent of the world’s population, and more than 20 percent of global GDP. Iran’s acceptance into the group’s full membership grouping, in which it held ‘observer status’ only for over 15 years, means, in effect: that the seismic, multi-generational Iran-China deal is set for full roll-out, with Russia firmly alongside both playing its role; and, that any new ‘nuclear deal’ done with Iran by the new U.S. administration will not be worth the paper it is written on. 

The most recent musings on this subject from the White House were that the U.S. is prepared to return to full compliance with the original nuclear deal – the ‘Joint Comprehensive Plan of Action’ (JCPOA) agreed in 2015 and implemented in January 2016 - if Tehran does the same. Tehran, for its part, has said that it is prepared to restart talks within the next few weeks. “Of course Iran will do this as it wants sanctions lifted because they are a considerable nuisance to it but the chances of its truly complying with any restrictions on its activities that it doesn’t want to are zero now,” a senior oil and gas industry figure who works closely with Iran’s Petroleum Ministry told OilPrice.com last week. “The U.S. and Europe had a genuine opportunity in 2016 to establish a new dynamic with Iran that would have seen a good working relationship between the two sides but that was lost when [former President, Donald] Trump pulled it [the U.S.] our of the [JCPOA] agreement in 2018,” the source said. “It was a one-time government in Iran at that point under [former President, Hassan] Rouhani who gambled that the deal would bring prosperity to the population through a lot of deals but these were promised but then never happened and that promise can never be made again by any other Iranian president,” he added. “Certainly, for the purposes of making a deal they will say whatever the U.S. wants to hear to get some relief from sanctions but in terms of really doing things that the U.S. wants but that Iran doesn’t want to do, that won’t happen,” he underlined. 

Related: Could Oil Pipelines Solve America’s Water Crisis?

The full list of the original 12 tough clauses that former U.S. President Barack Obama and his Secretary of State, John Kerry, wanted in the original draft of the JCPOA but which were removed after U.N. Permanent Members France, China, and Russia – plus Germany - supported Iranian objections to them can be found here, as delineated exclusively at the time by OilPrice.com. These were precisely the key clauses that Trump – and his former National Security Advisor, John Bolton – wanted put back in any new version of the JCPOA that would occur after Iran was economically crippled (as the plan was) after the re-imposition of sanctions after the unilateral U.S. withdrawal from the deal in May 2018. Although it is absolutely true that Iran has suffered economically since then, it has been kept from complete financial disaster both through much higher than generally reported oil sales to China (although exclusively reported in full by OilPrice.com here) and through direct and indirect investment and funding connected to the landmark 25-year deal done between China and Iran (and exclusively revealed for the first time here in September 2019).  

On the other side of the table, Iran had previously laid out its own conditions for any new version of the JCPOA, according to various senior sources in Iran exclusively spoke to by OilPrice.com. There were: 1. Compensation by the U.S. for the damage done by sanctions to its economy; 2. Immediate access to all of Iran’s frozen deposits in Europe, the Far East, and everywhere else; 3. Guarantees that Israel does not continue to increase its intelligence and military presence in the region to threaten the security of Iran; and 4. Recognition of the national security interests of Iran including not discussing anything to do with the 25-year China deal. Clearly, the U.S. is unlikely to agree to any of these four conditions but will likely be willing to allow Iran not to lose face entirely in the negotiations, so will allow it the following: 1. Access – from non-U.S.-sanctioned suppliers – to equipment relating to civilian aircraft; 2. Access – from non-U.S.-sanctioned suppliers – to medicines and medical equipment; 3. Access – from non-U.S.-sanctioned suppliers – to technology needed to upgrade its oil and gas and petrochemicals sectors; and 4. Allow U.S.-monitored access to some of its frozen deposits but subject to Iran’s full agreement on Financial Action Task Force conditions on transparency. 

As it now stands, according to the Iran source: “Iran will play the game but will ultimately agree to whatever it has to agree to in order to get what it wants – sanctions lifted and free access where it needs it – for as long as it can do so without having to comply with anything it doesn’t want to comply with, so the lists are now irrelevant in practical terms.” Even more so, as Iran’s accession to full membership of the SCO will mean that the key problem it faced at the time when the full details of the 25-year deal with China emerged in September 2019 (and prompted official denials from senior government figures in Tehran) – that Iran was being bought by China and becoming a client state in the process - can be disguised as investment flows coming from its membership of the SCO. 

Already, this process has begun, with last week seeing statements from Iran’s new Petroleum Minister, Javad Owji that plans are underway to attract US$145 billion from Iranian and foreign investors in the petroleum industry within the next four to eight years. This figure was always part of the broader investment package of the 25-year China-Iran deal that comprised the first US$280 billion of funds flowing into developing Iran’s oil, gas, and petrochemicals sectors over 25 years. The amount was to be largely front-loaded into the first five-year period of the new deal, with the understanding being that further amounts would be available in each subsequent five-year period, subsequent to both parties’ agreement. There would also be another US$120 billion of investment, which again can be front-loaded into the first five-year period, for upgrading Iran’s transport and manufacturing infrastructure, and again subject to increase in each subsequent five-year period should both parties agree. 

Highlighting precisely this, Owji went on to say that Tehran is ‘determined to bolster cooperation with Chinese companies. He added that: “Iran is ready to cooperate fully with Chinese companies to develop oil industry projects in the upstream and downstream sectors…We expect the administration to have many partnerships and agreements between Iran and China.” Full membership of the economic, military and political, SCO alliance will also, of course, perfectly enable the leadership in Tehran to explain to its people the dramatic ramping up of military cooperation with China, and Russia, which is also a key element of the full 25-year China-Iran plan, as also exclusively reported by OilPrice.com here.

By Simon Watkins for Oilprice.com 

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Leave a comment
  • Mamdouh Salameh on September 29 2021 said:
    Iran’s accession to full membership of the Shanghai Cooperation Organization (SCO) is a clear sign that it is throwing its full weight behind the China-Russia-Iran axis and is also a signal of the growing role than Iran will play under both China’s Belt and Road Initiative (BRI) and the 25-year strategic cooperation agreement with China. In a nutshell, Iran is betting heavily on the China-Russia-Iran axis emerging triumphant against the United States-UAE-Israel-India bloc.

    The SOC membership can only toughen Iran’s stand vis-à-vis the negotiations on the nuclear deal.

    I have been repeatedly saying that a lifting of US sanctions against Iran will never see the light of day soon or ever because of the positions of the United States and Iran are irreconcilable.

    Iran will never agree to negotiate a new nuclear deal before the sanctions are lifted first and without any limitations on its nuclear and missile development programmes. This the United States can’t agree to.

    Moreover, the United States may have to consider the notion that Iran’s economy isn’t crippled by the sanctions as the Americans are trying to convince themselves and that Iran is prepared to accept a continuation of the sanctions as a small price to pay either to get a deal on its own terms or to force the ejection of the US military presence from Iraq and Syria and eventually the whole Middle East thus achieving a resounding geopolitical victory over the United States.

    Iran has successfully been evading US sanctions and succeeding in exporting an estimated 1.5 million barrels a day (mbd) the bulk of which went to China. The SOC membership can only enhance Iran’s success against the sanctions and China’s purchases of Iranian crude.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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