Beijing’s plan to invest in Tehran’s Hormuz port threatens Islamabad’s value
KARACHI — A proposed $400 billion economic and strategic agreement between Iran and China, including a major port development project on the Strait of Hormuz, is likely to eclipse the China-Pakistan Economic Corridor, a project that symbolizes the geopolitical ties between the two countries and is a linchpin of Pakistan’s efforts to develop its infrastructure.
An unverified 18-page document with details of the proposed 25-year Iran-China agreement was leaked, a copy of which was seen by the Nikkei Asian Review. The deal was originally proposed in January 2016 by Chinese President Xi Jinping during his trip to Iran. Talks on the agreement are thought to be in the final stretch.
A statement sent by the Iranian Embassy to Nikkei on behalf of Seyed Mohammad Ali Hosseini, Iran’s ambassador to Pakistan, stated that the details of the agreement are being reviewed by Chinese and Iranian officials and have not been finalized.
In response to a question about the proposed agreement, Chinese Foreign Ministry spokeswoman Hua Chunying declined to elaborate at a media briefing last week. Hua reiterated that China attaches importance to developing friendly, cooperative relations with other countries, adding that “Iran is a friendly nation enjoying normal exchange and cooperation with China.”
According to the leaked document, China will invest $280 billion in Iran’s oil and gas industry and $120 billion in production and transportation infrastructure. China will also develop 5G infrastructure in Iran and invest in banking, telecommunications, ports, railways and dozens of other sectors.
The terms of the agreement also give China access to supplies of crude oil and gas from Iran at discounted prices for the next 25 years.
Although the document does not specifically mention the Belt and Road Initiative, the proposed agreement fits the framework of Xi’s ambitious project, envisioning that China will help Iran develop the coast near the mouth of Strait of Hormuz, through which much of the world’s oil exports pass.
Once the port at Jask is operational, Pakistan’s port of Gwadar on the Arabian Sea will lose its unique strategic value to China, according to experts. Pakistan has turned over responsibility for development and management of the port at Gwadar to the Chinese until 2057.
Publicly, Pakistani officials are supportive of China’s prospective deal with Iran. Mushahid Hussain Sayed, chairman of the Senate Standing Committee on Foreign Affairs, called it a “very pleasant development for Pakistan,” in a statement issued to the media last week.
But experts point out when the agreement between Beijing and Tehran is signed, it will likely diminish the importance of the China-Pakistan Economic Corridor in the Belt and Road because Iran is a more valuable partner to China than Pakistan.
“Despite major economic struggles, [Iran] is a wealthier country than Pakistan and won’t be as anxious as Pakistan is about unfavorable loan terms and debt risks,” said Michael Kugelman, deputy director of the Asia program at the Wilson Center, a Washington think tank.
Kugelman told Nikkei that if China can leverage Iran’s less serious debt concerns, work out favorable terms for new investment and make early progress on new projects, that will be a big boost for the China-Iran deal.
Other observers, however, do not believe an economic cooperation pact between Beijing and Tehran poses a serious threat to the Economic Corridor in the near future.
Lukasz Przybyszewski, West Asia analyst at the Asia Research Centre at the War Studies Academy Warsaw says it would be quite surprising to for Beijing to scrap or scale back plans to develop Gwadar Port or the Economic Corridor. “We cannot, therefore, claim that Gwadar’s importance will become less,” he told Nikkei.
Stella Hong Zhang, an expert on China’s economic engagement with Pakistan and a postgraduate student at George Mason University in the U.S., told Nikkei the corridor is considered the flagship project of the Belt and Road because China has solid political relations with Pakistan. She added that geography is also important, as Pakistan borders the southern part of China’s Xinjiang autonomous region.
An immediate effect of the proposed Iran-China deal was the exclusion of India from the 628 km Chabahar-Zahedan railway line, which will be extended to Zaranj in Afghanistan.
According to The Hindu, an Indian newspaper, Iran will invest $400 million of its own money in the railway project. Anurag Srivastava, a spokesman for India’s Foreign Ministry, said at a recent media briefing that decisions on the fate of Chabahar railway project are “still awaited.” But he did not categorically deny the report.
Experts believe China is a more suitable partner for Iran than India. Kugelman said that Iran and many other countries would much prefer to partner with Beijing rather than New Delhi on infrastructure, given that China can deliver much more, much faster than India.
He added that the China-Iran deal is a blow to New Delhi, given that it all but assures India will be shut out of Chabahar. “India, which has refused to join [the Belt and Road Initiative], is left with no potential plan to access markets in Afghanistan and further afield in Central Asia,” Kugelman told Nikkei.