by Pepe Escobar for the Asia Times
The shift in the global balance of financing power towards Russia, India and China — especially China — is opening up opportunities for Tehran
It’s a beautiful late winter morning, the snowy Alborz mountains glittering under the sun, and Professor Mohammad Marandi from the faculty of world studies at the University of Tehran is taking me on the road, westbound.
Sprawling west Tehran is a decentralization/connectivity spectacular, with its brand new highways, metro lines, artificial lakes and megamalls. While not on the epic scale of the construction rush in Beijing or Shanghai, it is similar in spirit and comparable to what’s going on in Istanbul.
The professor — arguably Iran’s leading political and cultural analyst —and I had been on a running conversation for days on all aspects of an evolving Russia-China-Iran strategic partnership, the massive Eurasia integration project pushed by China, and its myriad interconnected challenges.
Watching west Tehran go by, it was hard not to connect this new normal to the atmosphere of excitement surrounding the Iran nuclear deal struck in Vienna in the summer of 2015. But this had actually started even before President Hassan Rouhani came to power in 2013, “linked to Iran’s stability and rising regional status,” Marandi said.
Cue to the former head of the Iranian National Security Council’s Foreign Relations Committee and professor at Princeton, Seyed Hosein Mousavian. He has been adamant that “America’s four-decade push for regime change in Iran is a failure.” On the nuclear deal, Mousavian noted, regarding the Trump administration rumble, “it is 170 pages, too much technicalities, they might not have time to go through different resolutions – and therefore they really don’t know what they’re talking about.”
The implementation of the deal should have signaled the acceptance of Iran by the West – hence renewed trade and commerce. Instead, the new normal points towards the China-driven New Silk Roads, Asian Infrastructure Investment Bank and Shanghai Cooperation Organization, and the Russia-driven Eurasia Economic Union; and towards Iran, alongside other emerging economies, seeking infrastructure finance and foreign investment from BRICS nations, especially the RIC triumvirate. In sum: look east.
Tehran did sign a rash of memorandums of understanding with French industry. But the heart of the trade and investment action is China. When President Xi Jinping visited Tehran in January last year, Rouhani said, “Iran and China have agreed to increase trade to US$600 billion in the next 10 years.”
Most deals, of course, involve oil and gas – but crucially they also span cooperation on nuclear energy and Iran’s positioning as an absolutely crucial hub of One Belt, One Road.
Compared to it, Russia-Iran trade, at almost US$2 billion last year, is not exactly newsworthy, although rising rapidly.
Post-sanctions, Russia-Iran signed almost US$40 billion in MoUs – but projects are mostly still only on paper. The problem is the overwhelming majority of Iranian companies are cash-strapped, so financing should come from Russian sources. “Secret code” exports – as in weapons – are back, as in the US$900 million contract for the S-300 defense missile systems, the first batch delivered to Iran last April.
The real secret though in reference to incipient trade is that Russia and Iran do not have much to exchange at globally competitive rates. Russia exports mainly metals, wood, electrical machines, paper, grain, floating structures, mechanically engineered products and weapons. Iran exports agricultural and seafood products.
With India, the heart of the matter is the development of the port of Chabahar. Here’s where China’s Maritime Silk Road meets India’s drive to connect the Indian Ocean to Afghanistan bypassing Pakistan and the China-Pakistan Economic Corridor.
Enter Indian investment on the Chabahar-Zahedan railway, ending in Sistan-Balochistan, close to the Pakistani border, as well as in the still-in-planning Chabahar-Hajigak railway, which translates as a direct connection to Afghanistan. All this spells out Iran blooming as a crucial integration/connectivity hub for China, India and the intersection of South and Central Asia.
On the energy front, the news is also encouraging. According to the head of National Iranian Oil Company, Ali Kardor, by next month Iran will be producing 4 million barrels of oil a day (there was a peak at 4.2 million before sanctions were tightened in 2011).
Iran used to be the second-largest OPEC producer. Sanctions forced it down to 2.5 million barrels a day and exports of just above 1 million. Now it’s back to OPEC’s number three, behind Saudi Arabia (10 million barrels a day) and Iraq (4.5 million).
Natural gas production will reach 1.3 billion cubic meters a day by 2021. For that to happen, NIOC needs to drill at least 500 new offshore wells. The problem is NIOC is deep in US$50 billion of debt; not only because of low oil prices but also bad financial and management decisions. Royal Dutch Shell and Total are keen to strike deals, but nothing has been signed yet.
Once again, I got a similar figure to what NIOC provided me roughly 10 years ago; Iran needs at least US$200 billion to upgrade its energy industry infrastructure, and to really start profiting from an astonishing US$7 trillion in gas reserves. It’s fair to assume substantial funds could be provided, eventually, by the AIIB and other sources from Russia and China. Deputy Oil Minister Amir Hossein Zamaninia expects major developments “in a few months.”
Socially, Iran is not a powder keg. The average standard of living improved roughly 70% since the Islamic revolution. Women accounted for 70% of Iran’s science and engineering students in 2015. The healthcare system, by 2014, was the 30th most efficient in the world, way ahead of the US (in 50th).
Much will depend on the upcoming presidential elections. Former president Mahmoud Ahmadinejad was politely dissuaded by Supreme Leader Ayatollah Khamenei, in person, from running again. Marandi confirms President Rouhani, up for re-election, is way less popular than Foreign Minister Zarif, who in turn is less popular than the number one superstar: Major General Qassem Soleimani, the head of the elite Quds Force — who’s not running for office. The reason for Rouhani’s woes; his record on the economy has been far from stellar.
Tehran will soon drop the US dollar in its financial and foreign exchange reports. That will certainly imply more currency swap agreements, and Iran only accepting payment for oil and gas in euros or in a basket of currencies.
Iran trades mostly with China, the EU and the UAE. Trump claimed during his campaign that Iran was handed a US$150 billion gift by the nuclear deal. Not true. The Central Bank’s frozen oil funds repatriated since January 2016 from the UAE, Britain, India, Greece, Italy and Norway amount to less than US$10 billion. And only US$12 billion of blocked assets were released from Japan, South Korea and India, on installments.
Before we arrived back in Tehran, Marandi told me that all in all, “ I believe whoever invests now in Iran will have an amazing return. The time to invest is now.” The RIC in BRICS are doing it. Europeans are doing it – although not much so far. And Americans are not doing it – at their loss. We wrapped it up at a traditional Iranian restaurant downtown, serving first-class food to middle and upper middle class families. The bill: less than US$30 for two. A fabulous return on investment.