Iran Brief— The New Silk Road: Using Iran as a Possibility for Sino-American Cooperation

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By Christian Manley, AIC Research Associate

Introduction

The United States can best navigate the post-nuclear accord era by understanding how the easing of tensions will shape Iran’s role in Asia. Opportunities may arise through recognizing that Iran’s economic needs can work within US frameworks for improving the region. Chief among these is the chance that economically integrating Iran could help stabilize violence in nearby Afghanistan. This may be achieved through acknowledging that China has already begun a similar strategy of connecting Iran with Central Asian trade networks for the same goal, as well as investigating China’s achievements and failures here. Doing so may improve Iran’s view of the United States and be an opportunity for Sino-US cooperation.

The US Plan for A Stable Region

Fifteen years after the 2001 invasion of Afghanistan, the US is still concerned about instability in the country and region. President Obama, once adamant that conflict in Afghanistan was settling down, recently reversed the earlier decision to withdraw troops due to a rise in conflicts and casualties since 2014 as well as the growth of ISIS in Afghanistan. Nonetheless, apart from military means, the US has expressed an economic focused strategy for stabilizing Afghanistan, based on developing South and Central Asia  through investment. This will be used for building more education facilities, increasing and improving transportation infrastructure such as roads and trains, and modernizing communication networks. Here, it is believed that better connecting the region through securing a working market could incentivize individuals to steer away from insurgency in the hope that they will have more opportunities to achieve prosperity and thus, view violence as threatening to business.  Incorporating Iran into this regional vision may have been difficult while the two sides were separated by a nuclear issue and related sanctions; however, in 2016 the post-JCPOA era gives the US new opportunities. There are a number of reasons why the current situation offers hope for this relationship.

The Importance of the Nuclear Accord to Connecting Iran with the US Vision

The first reason for optimism is that the lifting of sanctions is an opportune moment for connecting US regional plans with Iran because it is one of the few significant reversals of tensions since 1979. Additionally, the nuclear accord reveals Iran’s desire to recover what it lost from sanctions.  Proper evaluation of these scars could allow the US to improve the situation and use Iran to help economically stabilize the region. For instance, because American companies have been prohibited since the 1990s from working in Iran, they could be highly desired due to their newfound limited accessibility. Similar sanctions prohibiting foreign businesses have hurt the Iranian economy by increasing inflation and creating a terrible exchange rate. This has hurt Iranian consumers by creating unemployment, growing prices of goods, and losses in the value of their savings. The US should acknowledge that these issues have made 82% of Iranians express optimism about the nuclear accord due to hopes that it will bring higher quality and more modern products, job opportunities, and an end to high inflation.

Another reason for optimism is seen in how the US regional strategy aligns with the consistency of the Iranian administration’s agendas. From 2005 until 2013, President Ahmadinejad focused on using subsidies to help Iran’s poorer regions and citizens, while President Rouhani retained this aim in his “Economy of Resistance” policy. Here, Rouhani envisioned making Iran independent of international economic forces so that sanctions would cause less harm. This was done by empowering domestic companies to replace goods and services lost from sanctions while using Asia as an alternative to western trade. Rouhani hoped this would make Iran a major economic power internationally and within the Middle East. While the nuclear accord has made Rouhani embrace foreign products again, he has retained his desire to promote Iran as a regional economic powerhouse with a diversified set of trading partners. The US should acknowledge that Iran’s economic plan for becoming a trading hub could be consistent with the US plan for economically stabilizing the region.

China’s New Silk Road

Another reason why the US should take advantage of Iran’s current economic needs is to compete with China’s growing influence in the region. China has already begun promoting its own economic plans in the region. At the helm of this initiative was President Xi Jinping’s so-called “New Silk Road” policy. Basing this off the ancient trade route that linked China with Europe from Late Antiquity to the 15th century, Xi envisioned an expansive collection of roads, railways, sea routes, and flight connections to better link China, the Middle East, Central Asia, and eventually Europe. For China and many Central Asian countries, Iran’s commitment to the project is crucial due to its geography. Iran offers strategic  access to the Persian Gulf and sits at a pivotal centrepoint between the Middle East and Southern Asia. For all countries involved, connecting Iran to the growing transportation networks would mean quicker and more frequent trade. While this cooperation with China reveals Iran has a desire for better regional connection, the US should realize it can still work within this initiative because of Iran’s willingness to have a diversified set of economic partners.

Currently, one of Beijing’s goals is to develop the western part of China. Since China opened its borders to international trade in 1979, this area of the country has lacked the economic growth China’s eastern coast received due to its proximity to the Pacific Ocean where powerful economies like Japan and the US resided. Additionally, China’s west includes Tibet and Xinjiang, both regions known for having ethnicities distinct from the country’s Han majority and being prone to calls for independence. In recent years, Xinjiang in particular has witnessed separatist desires grow into insurgencies. Xi Jinping has postulated that developing the west would incentivize cooperation in the region. This is one of the reasons why Central Asia joined China’s New Silk Road.  China recently called on the US to support its policy of the Xinjiang insurgency, further revealing the desire of the major actors to stabilize the region.

Roadblocks to Iran-China Cooperation

We have explored the opportunities of economically integrating Iran in the region for both US and China, this section will briefly explore the roadblocks faced by the two regional actors involved. Firstly, as the Chinese economy is slowing down, it has begun to anger Iran for abusing its unchallenged position, particularly during sanctions. These problems have stemmed from China’s fears over the deceleration of its annual GDP growth. To solve this issue, the Chinese government has pushed companies to flock to Iran to take advantage of limited international competition. While this has benefitted China, many consumers have been angry over the bad quality of China’s cheap goods and how they have beaten out domestic companies. Understanding this situation, US goods might be highly desired due to their better quality compared to Chinese alternatives. This asset may enable the US to easily gain favor in persuading Iran to join its regional integration project.

Secondly, Iran is facing similar issues, and it is trying to solve its own economic dilemmas regarding its construction industry. Both the Chinese and Iranian construction companies are competing for the Iranian market. However, overproduction and slowing down of the economy in China has resulted in decreased value of construction material and less demand for steel domestically. Seeing Iran’s desire for development, China used the reduced competition from sanctions as an opportunity to continue its economic strategy of emphasizing steel and construction. The rise of China’s middle class has been a motive for this approach, as a significant amount of the country’s newly wealthy citizens desire better paying jobs than the simple factory positions China had 20 years ago before its economic rise. The growth of university education in China has added to this phenomenon, prompting many young middle class professionals with engineering degrees to latch onto Iran’s development needs for launching their own careers. Much of this construction has been aimed at evolving Iran’s oil industries to provide China’s middle class with the electricity necessary for sustaining their new lifestyles.  As a result of this approach, Iran has lost local job opportunities.

Summary

  1. Understand the Economic Needs of Iran:  Sanctions have made Iran an untapped source for American business due to unemployment, lack of modern technology, and desire to obtain more international products as well as the Iranian government’s urge to become a regional export hub and diversify its trading partners so that the poorer regions/populace can be enriched.

  2. Understand Previous US Goals for the Greater Region: Iran’s yearning for a greater economic regional role could link with the US vision to stabilize the Middle East through trade. Many countries, Central Asia in particular, are focused on gaining investment to link with Iran for similar reasons of creating incentive to prevent insurgency. American assistance in this area could gain more trust all around.

  3. Understand the Role of China: The US should understand how China has already been trying to link Iran to the greater region. It should see the this as an opportunity to build trust with China as well as a chance to learn from China’s mistake of taking advantage of its dominant position during Iran’s sanctions through an approach that provides more jobs and wealth to the Iranian people. This may even need a strategy that involves partnering with domestic companies instead of crushing them in competition as China has done.

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Kayvon Afshari

Kayvon Afshari managed the campaign to elect Hooshang Amirahmadi as President of Iran. In this role, he directed the campaign’s event planning, publicity, online social media, web analytics, and delivered speeches. Mr. Afshari has also been working at the CBS News foreign desk for over five years. He has coordinated coverage of Iran’s 2009 post-election demonstrations, the Arab Spring, the earthquake in Haiti, and many other stories of international significance. He holds a Master in International Relations from New York University’s Department of Politics, and graduated with distinction from McGill University in 2007 with a double major in political science and Middle Eastern studies. At NYU, his research focused on quantitative analysis and the Middle East with an emphasis on US-Iran relations. In his 2012 Master’s thesis, he devised a formula to predict whether Israel would launch a pre-emptive strike on Iran’s nuclear facilities, concluding that an overt strike would not materialize.