Quitting Iran deal will jeopardize regional stability

By Lu Jin Source:Global Times Published: 2018/4/3 18:58:40

Illustration: Xia Qing/GT


US President Donald Trump has been threatening to withdraw from the Iran nuclear deal. On January 12, Trump claimed in a statement "I am waiving the application of certain nuclear sanctions, but only in order to secure our European allies' agreement to fix the terrible flaws of the Iran nuclear deal." It means the US may quit the nuclear deal in May. While it is unlikely to impact China's energy security, if the US resumes sanctions on Iran, it will put a halt to Chinese investment projects. 

So far, the international crude oil market has been a buyer's market. Due to the shale oil and gas revolution, supply of crude oil is plentiful which has driven prices down. China has already diversified its sources of energy. As the Belt and Road initiative gathers momentum, China has imported more oil from Russia and Central Asia, reducing its dependence on the Middle East.

Iran's economy benefited after the sanctions were lifted, and oil exports were restored to Europe, Japan and South Korea. If the US imposes them again, and Europe follows, Iran will have to fall back on the Chinese oil market. For years, China was Iran's largest customer. Although oil from Iran is not as essential for China's energy security as it was, to help out a true business partner, China would continue to buy oil from Iran, despite any move by the US.

After the nuclear deal agreed by Iran and the P5+1 (the permanent members of the UN Security Council plus Germany), reinvigorating its moribund economy was Tehran's main focus. Attracting foreign investment and adding jobs were the top priorities. With its abundant natural resources, huge market demand, plus the vast platform brought by the Belt and Road construction, China has been Iran's No.1 trade partner and source of investment for many years.

More sanctions imposed on Iran could be a double-edged sword for China-Iran Belt and Road cooperation as well as bilateral trade relations. On the down side, there will be more obstruction to wire transfers which will directly affect the operation and progress of the projects. Because of US financial sanctions, Iranian financial institutes had been cut off from the Society for Worldwide Interbank Financial Telecommunication, causing major barriers to China-Iran trade payments and settlement. It also influences normal operations, as Chinese companies in Iran had trouble due to funding shortfalls. Money Iran earned from selling oil to China was stranded. If the US backs out of the nuclear deal, foreign companies with economic connections with Iran will face the risk of sanctions as well. Chinese firms will face an uncertain future.

On the other hand, Iran going back to a closed economy may potentially benefit Chinese firms. Nuclear sanctions will bring more business opportunities to the Chinese, by lowering competition with Western firms.

In the auto sector, Chinese firms struggle to compete with their German, Japanese and Korean counterparts. Small- and medium-sized companies may be attracted by the Iranian market, although this will bring problems of its own. Firms that dabble in the Iran market cannot only focus on the business opportunities bought by Belt and Road construction. They will have to research the market risks and be aware of local laws and regulations.

Iran is geographically endowed and is a key variable in the regional situation. A failed nuclear deal will jeopardize regional stability, making it more volatile and eventually harming the external environment for Belt and Road construction in the region. Moreover, in response to the US withdrawal, it is possible that Iran will return to enriching uranium, risking nuclear proliferation. China certainly hopes that Iran will see a peaceful and stable political environment, as any potential risk of regional war will harm the safety of projects invested by Chinese firms.

The EU is the largest stakeholder in the nuclear deal, and re-imposing sanctions will hurt the EU most. It used to be Iran's largest trading partner, with several big European oil companies in the Iran market before the UN imposed sanctions. The EU was active in returning to Iran right after the initial agreement was signed in November 2013. In just a few years, the EU and Iran have reached many economic and trade cooperation deals. Even though the pace is slow, the EU has sold Iran aircraft and cooperated in the auto sector. Europe is certain to suffer collateral damage if the region slips into unrest. 

The US needs to understand that an imperfect deal is better than no deal. The Iran nuclear deal framework has provided a model for solving international disputes through diplomatic channels. If Trump quits the deal, there will inevitably be negative blowback on the North Korea nuclear issue, too. We hope that the other parties involved, especially the EU, will be able to mediate with the US to keep the agreement alive.

The author is an associate research fellow with the Institute of West-Asian and African Studies of the Chinese Academy of Social Sciences. bizopinion@globaltimes.com.cn

Posted in: INSIDER'S EYE

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