Iran’s foreign minister Mohammad Zarif recently met his Chinese counterpart Wang Li at the end of August to present a road map for the China-Iran comprehensive strategic partnership that was signed in 2016.
The central part of the new deal is that China will invest $280 billion developing Iran’s oil, gas and petrochemicals sectors. This amount may be distributed into the first five-year period of the deal but the understanding is that further amounts will be available in every subsequent five-year period, subject to both parties’ agreement.
There will be another $120 billion investment in upgrading Iran’s transport and manufacturing infrastructure, which again can be front-loaded into the first five-year period and added to in each subsequent period should both parties agree.
The actual figure is still higher, according to the report, with excess barrels being kept in floating storage in and around China; without having gone through customs they do not show up on customs data, but are effectively part of China’s Strategic Petroleum Reserve.
The updated agreement echoes many of the points contained in previous China-Iran accords, and already in the public domain. However, many of the key specifics of this new understanding will not be released to the public stated a report.
Closer cooperation between China and Iran, especially on economic matters, is inevitable given they are both now targets of rising US antagonism.
Benefits for China
According to the report, Chinese companies will be given the first refusal to bid on any new, stalled or uncompleted oil and gas field developments. Chinese firms will also have the first refusal on opportunities to become involved with any and all petchems projects in Iran, including the provision of technology, systems, process ingredients and personnel required to complete such projects.
Furthermore, the report stated that there will be up to 5,000 Chinese security personnel on the ground in Iran to protect Chinese projects, and there will be additional personnel and material available to protect the eventual transit of oil, gas and petchems supply from Iran to China, where necessary, including through the Persian Gulf.
Another positive factor for China is that its close involvement in the build-out of Iran’s manufacturing infrastructure will be entirely in line with its One Belt, One Road initiative.
Benefits for Iran
The Iranians expect three key positives from the 25-year deal, according to the report. The first flows from China being one of just five countries to hold permanent member status on the United Nations Security Council (UNSC). Russia, tangentially included in the new deal, also holds a seat, alongside the US, the UK and France.
A second Iranian positive is that the deal will allow it to finally expedite increases in oil and gas production from three of its key fields. China has agreed to up the pace on its development of one of Iran’s flagship gas field projects, Phase 11 of the giant South Pars gas field.
China has also agreed to increase production from Iran’s West Karoun oil fields—including North Azadegan, operated by CNPC, and Yadavaran, operated by fellow ‘big three’ firm Sinopec—by an additional 500,000bl/d by the end of 2020.
A final Iranian benefit is that China has agreed to increase imports of Iranian oil, in defiance of a US decision not to extend China’s waiver on imports from Iran in May.
The resulting products will be able to enter Western markets via routes built or enhanced by China’s increasing involvement in Iran’s transport infrastructure. Iran had signed a contract with China to implement a project to electrify the main 900km railway connecting Tehran to the north-eastern city of Mashhad. There are also plans to establish a Tehran-Qom-Isfahan high-speed train line and to extend this upgraded network up to the north-west through Tabriz.
Tabriz, home to a number of key oil, gas and petchems sites, and the starting point for the Tabriz-Ankara gas pipeline, will be a pivot point of the 2,300km New Silk Road that links Urumqi (the capital of China’s western Xinjiang Province) to Tehran, connecting Kazakhstan, Kyrgyzstan, Uzbekistan and Turkmenistan along the way, and then via Turkey into Europe, says the report.
This 25-year deal could make a seismic shift in the global hydrocarbons sector. China is the world’s second-largest oil consumer after the U.S. and still one the main drivers of the global energy demand.
China’s decision to continue oil imports from Iran despite U.S. sanctions demonstrates the willingness (and the capacity) of Beijing to act as a global power. When it comes to Middle Eastern countries, the choice of Beijing to flirt with Tehran despite the U.S. sanctions is certainly not welcome by the governments of the Gulf. So this might be a gamechanger for the whole region and the entire world.