China and Iran cozying up

China ramps up oil and gas investment in Iran . . .

Iran’s foreign minister, Mohammad Zarif, returned from Beijing last week with a US$280-billion oil and gas investment deal. Tehran has been hungry for foreign capital since the U.S. imposed sanctions in 2018, and is looking to Beijing for a solution. Iran holds the second-largest gas and the fourth-largest crude oil reserves in the world. China also recently became a major developer of the world's largest natural gas field – Iran’s South Pars gas field – after France exited due to U.S. sanctions. The agreement will be strategically important for China to secure its energy supply. Moreover, the deal includes assurances that China will be able to continue to purchase Iranian oil and gas at a discounted price.

Beyond energy . . .

China’s play in Iran expands beyond the energy sector. It has been Iran’s largest trading partner since the 2000s, and more recently it has come to view the country as an anchor point for its Belt and Road Initiative. In 2018, a new rail line connecting China’s Inner Mongolia region to Tehran was launched amidst U.S. sanctions, and there are many more infrastructure projects in the works. For example, Chinese companies have secured contracts to build the Iranian port of Chabahar and four major railways, including a 415-km high-speed rail line between the Iranian cities of Tehran and Isfahan.

Leaning towards each other . . .

Since the Trump administration withdrew from the Iran nuclear deal, China has been filling the trade and investment vacuum. Beijing has already openly breached U.S. sanctions on Iran by continuing its oil purchases and investment in the country. For China, it is a win-win game both to secure its energy imports while promoting its currency, the RMB, in the global market. Just yesterday, President Trump issued a US$15-million reward for ‘busting’ companies that do business in Iran, certainly a warning message to China. However, the escalating aggression is likely to push Tehran and Beijing closer together.

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