US President Donald Trump’s decision to grant exemptions from sanctions to India, China and six other countries importing Iranian oil reveals how the quest for energy security, enhanced connectivity and economic progress are intertwined with strategy in the Sino-Indian Great Game in Iran.
China and India are the world’s top oil buyers and Iran’s top two customers. They are also Asia’s largest rivals and have a long-standing border dispute. India and the US have a strategic partnership; China and the US perceive each other as security threats.
The competition between India and China stretches beyond their contested frontier, especially as China extends its political, economic and military influence into the Indian Ocean. Their rivalry extends to Iran.
In fact, Iran is why both are affected by the Trump administration’s National Security Strategy 2017. That document calls for America’s “energy dominance” — which is unrealistic in an interdependent world having energy markets which are interconnected to one another. India, for instance, is dependent on both the US and Iran for many of its needs. And the US is indebted to China to the tune of .
Iran’s geopolitical location highlights its strategic importance to China and India. At the center of the Middle East, its neighbors are Afghanistan and Pakistan in South Asia, Turkmenistan in Central Asia, Iraq and Turkey in West Asia, and Armenia and Azerbaijan in the South Caucasian part of Europe (both are members of the Council of Europe and the Organization for Security and Co-operation in Europe). The Strait of Hormuz, that crucial conduit, links Iran westwards to the Persian Gulf and Europe, and eastwards to the Gulf of Oman, South and East Asia.
Moreover, Iran’s geography enables it to connect the energy networks of countries which are on the route of China’s Belt and Road Initiative (BRI). They include Turkey, Turkmenistan and Pakistan.
Advantage China: Diplomacy, Economics and Connectivity
The connections of both Iran and China with Central Asia increases their potential to cooperate within the framework of the BRI. China is the top investor in, and builder of, supply networks in Central Asia.
China is the world’s largest energy buyer; Iran is a major oil producer. China imports oil from several Middle Eastern countries. But Iran is the only one that supplies it with oil and gas by both land and sea.
China and Iran on one side, and the US on the other, are mutually hostile. India and the US are strategic partners. India is opposed to the militarization of Iran’s nuclear program and joined the international sanctions imposed on Iran between July 31, 2006 and January 16, 2016. China, which helped to develop Iran’s nuclear program and trained its nuclear scientists, defied those sanctions and will disobey Trump’s call for new sanctions.
Initially, New Delhi said it would not comply with America’s unilateral sanctions. Understandably. But the State Bank of India informed refiners in June 2018 that it would not handle payments for Iranian crude when the sanctions came into force in November. The result? Even before the sanctions “officially” started on November 4, 2018, Indian oil imports from Iran fell sharply. That was bad news for Teheran. For India is Iran’s second-biggest oil buyer behind China.
China’s refusal to obey Trump’s sanctions put the spotlight on Iran’s dependence on China, and its diplomatic edge in Iran.
China has strengthened its position in Iran over three decades. It has bought Iran’s oil, sold Iran arms, and made huge investments there. While the international sanctions were in force, China’s support saved Iran from international pariah status for a decade. Even in the future, as a permanent member of the United Nations (UN) Security Council with veto power, China could be of great strategic help for Iran when it comes to vetoing any proposal against Iran in the UN.
Trump’s sanctions will only push China and Iran closer. On August 3, 2018, Iran’s foreign minister, Mohammad Javad Zarif, said that China was pivotal to salvaging the multilateral nuclear agreement which ended the UN sanctions against his country. Now, with Trump’s unilateral sanctions in place, China will probably buy much of the Iranian oil that other countries won’t because of the latest American sanctions.
Both countries will benefit from this. Since 2012, Iran has accepted the for its crude exports to Beijing. This practice could increase because of America’s withdrawal from the and its imposition of new sanctions against Iran. That would not be to Washington’s liking.
When it comes to connectivity, China is also in the lead. Tehran hopes to promote Sino-Iranian trade and turn Iran into a major Eurasian trade hub. And China can help.
Iran joined the BRI in January 2016, when President Xi Jinping became the first foreign leader to visit the country after the international sanctions were lifted.
In mid-February 2016, the first train — — arrived from China to Teheran. It started from Yiwu city in eastern China’s Zhejiang Province, lying to the south of Shanghai, and carried Chinese goods. The train passed through Kazakhstan and Turkmenistan and completed its journey in a fortnight. Until then, it took 45 days to sail from Shanghai to Iran’s Bandar Abbas port, which is on the on the Strait of Hormuz. Significantly, Bandar Abbas is also Iran’s main naval base.
For Iran, the Chinese-built railway line and train opened a new trade link as it emerged from years of economic isolation.
Since international sanctions were lifted in 2016, Iran has shown, in just three years, how quickly the rivalry between India and China can expand as both seek to enhance their regional and international clout. To counter China, US-friendly India will try to strengthen its ties with US-hostile Iran.
The train’s route via Kazakhstan and Turkmenistan is also of significance for strategic “connectivity”. Located between East Asia and Western Europe, Central Asia will be the key to the success of the BRI.
The importance of Kazakhstan cannot be overstressed. It is one of three Central Asian countries (the other two are Turkmenistan and Uzbekistan) sharing a border with China. It was in Kazakhstan that Xi announced the BRI on September 7, 2013.
China’s search for energy has also led it to cultivate energy-rich Turkmenistan for supplies. A few days before Xi presented his vision of the BRI in Astana, China and Turkmenistan created, on September 2, 2013, a strategic partnership. Gradually, energy cooperation between the two countries was strengthened. China became the largest trading partner and largest natural gas market for Turkmenistan.
Turkmenistan also has road and rail links with Iran. So, together with Iran, China has crafted economic strategies and tried to improve road and rail networks to Central Asia. Xi sees such supply routes further linking the Pacific Ocean to the Baltic Sea, and gradually connecting East, West and South Asia. World trade and investment — passing through Chinese and Iranian hands — would thus be facilitated.
With its hunt for energy in Iran and
Central Asia well under way, in May 2018 China boldly responded to Trump’s
announcement of sanctions by defiantly presenting news of another train service
to Iran. Shortening travel time again, the new train starts from Bayannur city
in northern China’s Inner Mongolia Autonomous Region to Tehran. Iran and China
see their new railway as helping to increase domestic consumption and facilitating
the export of their products to European markets.
Between 2006 and 2016, China benefited by defying the international sanctions. The nervous withdrawal of Western and Indian companies from Iran opened a wide door to Chinese companies, which gained a stable foothold there. That was advantageous to both countries. Iran-China trade was worth USD 51.8 billion in 2014, according to official Chinese statistics — a big increase from around USD 4 billion in 2003. During President Xi Jinping ‘s visit to Iran in 2018, the two countries agreed to increase trade to USD 600 billion over the next decade.
India Tries to Counter China
India lost ground to China by going along with the international sanctions on Iran. Now, with China establishing its influence in the Indian Ocean, attempts by Beijing and New Delhi to increase their clout in Teheran augur an increase in the China-India regional competition.
On the security front, India’s cooperation with Iran has to be seen against the broader context of its regional rivalries with Pakistan and China.
India has long opposed Iran’s alleged efforts to acquire nuclear weapons capability. A nuclear-armed Iran would upset the balance of power across West and Central Asia. This would adversely impact India’s economic and strategic interests. It is unclear how Iran might react to Pakistan’s extremist training and exports across West, Central and South Asia. At the same time, however, friendly ties with Iran would enhance India’s influence in West and Central Asia. India hopes that an amicable relationship could help counter China in Iran and West Asia.
The Significance of Chabahar Port
With the intent of increasing its clout in Iran, New Delhi signed, in 2002, an agreement with Teheran to develop the strategically-located port of Chabahar on the Gulf of Oman. But it was only in 2016 — after the lifting of international sanctions on Iran — that work on the port gained impetus.
Chabahar is Iran’s sole Indian Ocean port. Iran itself is keenly interested in the construction of the port. The sanctions had left Chabahar undeveloped and poorly funded. Control over Chabahar could put the ace card in Teheran’s hands as it deals with the competition between China, India, and Russia in South and Central Asia.
India’s interest in building the port reflects its need to counter China’s China-Pakistan Economic Corridor, which is a vital milestone on the BRI. Sino-Indian competition in the Arabian Sea has sharpened since 2013, when Pakistan gave China control over Gwadar port. For China, Gwadar is an outlet to the Indian Ocean. Gwadar has given China a permanent vantage point in the Indian Ocean and the Persian Gulf. It could become a Chinese military base.
The spectre of “China” has loomed large over Chabahar. Beijing offered investment to build the port. But India clinched the deal. India and Iran signed their Memorandum of Understanding in May 2015 to construct Chabahar port.
India’s development of Chabahar suits Iran. Tehran’s concern that China’s Gwadar project in Pakistan would weaken Iran’s position as the entrance to Central Asia led it to develop Chabahar with India’s help.
Situated in southern Iran and lying just outside the Persian Gulf, Chabahar could become India’s door to trade with Afghanistan and Central Asian countries. In fact, India shipped its first consignment of wheat to Afghanistan in December 2017 via Chabahar.
Iran has not ruled out a Chinese role in developing Chabahar. Teheran would be open to Chinese and Pakistani investment to speed up the Chabahar project.
If India’s ties with Iran are dented because it goes along with American sanctions, the country that will gain the most is China. This prospect does worry the US. That is why Washington has additionally granted India relief from certain sanctions so that it can continue to develop the port. It would not like China to replace India in Chabahar.
Generally, India’s influence in Iran and in the Indian Ocean area will hinge on how much cash it can provide, and on its efficiency in completing projects. More investment by India’s friends like Japan, the US and the European Union in the Middle East could also help balance China’s economic power, which in turn is contributing to its growing military footprint in the Indian Ocean region.
The rivalry between India and China will prevail. They cooperate on many regional issues and in organizations, including the BRICS New Development Bank, the China-sponsored Asian Infrastructure Investment Bank and the Shanghai Cooperation Organization. The mix of rivalry and collaboration helps both to maximize their diplomatic and economic options. That is normal. Parallel or cross-cutting linkages define relations between states.
Iran will remain the well-connected playground for the Sino-Indian Great Game in South Asia, the Middle East and Central Asia. Since international sanctions were lifted in 2016, Iran has shown, in just three years, how quickly the rivalry between India and China can expand as both seek to enhance their regional and international clout. To counter China, US-friendly India will try to strengthen its ties with US-hostile Iran. (Interdependence again?)
The Great Game between China and India in Iran is going to be played for many years. Strategically and economically useful to both India and China, Iran will remain a major power-broker in the Indian Ocean area, the Middle East and Central Asia.