No, China isn’t giving Iran $400 billion

Bourse and Bazaar | Jacopo Scita: A recent report from the London-based publication Petroleum Economist offers a cautionary tale of “fake news” having spurred an unprecedented debate in about Sino-Iranian relations.

Quoting an anonymous senior source “closely connected” to Iran’s petroleum ministry, the article claims the existence of a major new agreement between Tehran and Beijing that could reflect “a potentially material shift to the global balance of the oil and gas sector.” The figures presented to back up this claim are astronomical—China will invest a total of $400 billion in Iran over the next 5 years, split between $280 billion in the development of Iran’s energy sector and $120 billion for infrastructure projects. This first round of investments is claimed to be part of a 25-year plan with capital injected in the Iranian economy every five years. Despite the attention that the report garnered, with follow-up articles in Forbes and Al Monitor among other publications, Petroleum Economist’s figures do not appear plausible.

China and Iran signed a comprehensive strategic partnership, the highest level in the hierarchy of Beijing’s partnership diplomacy, in 2016. On the occasion, Xi Jinping and Hassan Rouhani signed a comprehensive 25-year deal which included a series of multi-sector agreements intended to boost bilateral trade to $600 billion within a decade. Even considering the potential for trade following the listing of international sanctions after the implementation of the JCPOA, the goal was extremely ambitious, if not totally unrealistic.

Indeed, the re-imposition of US secondary sanctions in November 2018 has deeply impacted the level of China-Iran trade. As detailed in a Bourse & Bazaar special report, in the last trimester of 2018 Chinese exports to Iran dropped by nearly 70 percent, falling from the already low figure of $1.2 billion in October to a dramatic low of $400 million in December. Exports to Iran have now stabilized at just under $1billion each month.

Meanwhile, the flow of crude oil from Tehran to Beijing—undoubtedly the engine of Sino-Iranian trade—suffered a major slowdown due to the revocation of US oil waivers expired in May 2019. Despite China continuing buying Iranian oil in defiance of US sanctions, using ship-to-ship transfers and ghost tankers, the level of imports remain about half of pre-sanctions levels.

Post-November 2018 trade figures show a clear picture. Although China remains Iran’s most important foreign partner, Beijing has adopted a mixed policy vis-à-vis US sanctions—certainly bolder than European states, but still cautious. In short, the pattern of China-Iran trade suggests that a five-year, three-digit investment program is not credible, especially with oil imports at their minimum, secondary sanctions in place, and the poor record for project delivery of Chinese infrastructure projects in Iran. Moreover, it is unrealistic that Iran’s suffering economy could absorb such a massive injection of capital.

Petroleum Economist’s figures look even less realistic if looked from a broader perspective. According to Morgan Stanley, the total Chinese investment in the Belt and Road Initiative could reach $1.2-1.3 trillion in 2027. In May 2017, Ning Jizhe, the vice-chairman of China’s National Development and Reform Commission (CNDR), declared that Beijing’s investments in the BRI for the following five years (2017-2022) were expected to be between $600 billion and $800 billion. Therefore, it is hard to believe that China will invest almost the equivalent of two-thirds of its planned budget for its most ambitious and largest foreign project in Iran alone. If the Chinese were indeed set to spend $400 billion on Iran, the recent French proposal to extend a $15 billion credit line to restore JCPOA’s economic benefits would be completely useless given Chinese largesse.

The anonymous source painted an idealistic picture for Petroleum Investor, claiming that China has agreed to keep increasing its import of Iran’s oil in defiance of the United States and “to put up the pace on its development” of Phase 11 of South Pars gas field—which, ironically, represents one the clearest examples of Beijing’s difficulties in delivering its projects.

Most perplexingly, the source claimed that the deal “will include up to 5000 Chinese security personnel on the ground in Iran to protect Chinese projects”. Such a claim directly contradicts Beijing’s strategy of remaining disengaged from the Persian Gulf, especially considering the current tensions. Indeed, China’s apolitical approach to the region and good relations with Saudi Arabia and the UAE—with which China has comprehensive strategic partnerships—would be severely undermined by the presence of a Chinese armed contingent on the ground in Iran. The presence of foreign troops is also a political impossibility in Iran, where the refueling of Russian bombers at an Iranian airbase caused a political scandal last year.

With the exception of a Fars News piece quoted by Middle East Monitor, practically no Iranian nor Chinese official and semi-official news outlet have reported or confirmed the figures presented by Petroleum Economist. State news agency IRNA, which launched its Chinese channel only days before the news came out, had no corroborating report. When asked, Iran’s oil minister Bijan Zanganeh denied rumors about the $400 billion investment plan, succinctly stating: “I have not heard such a thing.” The head of the Iran-China Chamber of Commerce called the reports “a joke” and urged people to be more careful about the news they share.

The figures quoted by Petroleum Economist do not accurately reflect the future of Chinese investment in Iran. Nevertheless, the news achieved what could be assumed to be its original goal— to bait clicks.

No doubt, Iran is trying to put some pressure on the West, and perhaps on China itself, by reinforcing the idea of a strong, growing, and unique relationship between Tehran and Beijing. It should also be noted that before his trip to China at the end of August, Iran’s foreign minister, Javad Zarif published an op-ed in Global Times—a practice that is typical of Xi Jinping—calling, with quite unprecedented audacity, for a new phase in Sino-Iranian relations.

However, ties between Iran and China should not be overestimated and deserve careful consideration. In the short-term, Beijing represents Iran’s minimum insurance against US sanctions; in the long-term Tehran may be forced to more expansive eastward shift. But this will happen at the pace of China’s “strategic patience,” and there will be no $400 billion bonanza.