Ann Arbor (Informed Comment) – The 2015 nuclear deal signed by the permanent members of the UN Security Council plus Germany with Iran had the potential to bring Iran into the world community economically and politically. Iran at one point intended to buy 80 Boeing civilian airliners, creating jobs in Seattle. A country with extensive economic ties with other countries begins having to moderate its policies, and is susceptible to pressure to back off extremism. Iran could have taken a route similar to Vietnam; the US and that country do over $77 billion a year in trade now, and the US is actually transferring nuclear technology for power plants to Vietnam, despite their having fought a bloody war with one another and having been bitter enemies.
Instead, in May of 2018, Trump petulantly breached the treaty the US had signed and went on to mount an international campaign to blockade Iran’s trade with the world and its financial connections with other countries. Trump strong-armed Japan, South Korea, India, etc. into not buying Iranian petroleum or buying much less of it. Trump took these steps even though Iran was in compliance with its obligations under the Joint Comprehensive Plan of Action in having accepted a permanent set of obstacles to ever weaponizing its civilian nuclear enrichment program. In essence, Trump freed Iran from those restrictions. Since the US Treasury Department’s Office of Foreign Asset Control (OFAC) acted like a mafioso with respect to Iran, threatening to break the legs of any European companies that invested in Iran, Trump was able to destroy the JCPOA and alienate Iran from Europe.
Iran is a fiercely nationalistic and independent country. There were nevertheless Iranians who wanted closer economic and diplomatic ties with Europe and North America. But OFAC under Trump is never going to let that happen. Plus the unprecedented US economic blockade of Iran has left the country hurting economically and set it in search of a solution.
The solution? A tight alliance with China. Simon Watkins at oilprice.com reports on the leaked details of what Iranian officials confirm is a 25-year economic, political and military pact between Iran and China.
China will be able to buy Iranian petroleum and gas at an 18 percent discount, and will be able to pay for it with soft currencies it has accumulated. That will probably be another 12 percent discount, given that Iran will have difficulty unloading soft currencies at face value. Soft currencies are those of economically poorer countries and they fluctuate wildly in value, unlike hard currencies such as the the Euro, the US dollar, and the Japanese Yen. Currency traders don’t like soft currencies and will only typically buy them at a steep discount.
So, for China Iranian oil and gas has been marked down by nearly a third.
In return, China will invest $228 billion in Iran over 25 years, though a big chunk of that will be front-loaded in the first five years.
China will build loads of Chinese factories in Iran, in accordance with President Xi Jinping’s directive to Chinese firms to “go out,” i.e. to take advantage of cheap labor to set up factories abroad.
Beijing will also build infrastructure, including hydrocarbon infrastructure. But some of its projects will be green, such as a 560-mile electrified rail link between Tehran and the eastern holy city of Mashhad. China hopes to link its northwest to Central Asia and Europe through new high speed rail links, of which Iran will be a node.
China is said also to view Iran as a gateway to more robust economic interaction with Iraq. I guess the New American Century should have been called the New Chinese Century. (Look it up for the history of wasteful US warmongering in Iraq.)
The pact, however, is not only economic. Watkins writes that late in the year-long negotiations, just concluded, Iran’s clerical Leader Ali Khamenei approved “complete aerial and naval military co-operation between Iran and China, with Russia also taking a key role.”
BBC Monitoring translated a tweet of Foreign Ministry spokesman Abbas Mousavi, saying ““There is nothing [in the agreement] about delivering Iranian islands to China, nothing about the presence of military forces, and other falsehoods!”
Rumors that Iran would allow basing rights to the People’s Liberation Army or would allow PLA troops to be stationed on its soil had angered Iranians on social media, but Mousavi was denying those rumors.
Iran has been pushed by the US blockade to join the Chinese network in Asia, counting itself alongside Pakistan, Bangladesh, Sri Lanka, Russia, Uzbekistan, Kyrgyzstan, Turkmenistan, and Kazakhstan, and North Korea
The avoidance of trade in dollars, the use of soft currency, and avoiding banks over which the US has influence, show the ways in which the US Treasury Department has overstretched in trying to be a global bully. People will find a way to hold themselves harmless from unreasonable and weaponized US sanctions.
Trump came into office wanting to weaken and isolate China and Iran, but appears mainly to have weakened and isolated the United States.
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Asia Global Institue: “On China-Iran relations and Iranian domestic politics and foreign policy”
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