China’s Belt And Road Initiative

While there has been ample media attention given to the China-Pakistan Economic Corridor (CPEC), a flagship Program of China’s Belt and Road Initiative (BRI), China’s concurrent interest and projects in Iran remain relatively ignored. These developments have immense economic, strategic and political implications not only for South Asia but also at a global scale. Iranian seaports allow access to the landlocked Central Asian countries, and are hence of special interest to neighboring countries such as India and Afghanistan. The inclusion of Iran in BRI projects is hence a potential geostrategic advantage to China in form of market access, and a possible solution to Pakistan’s energy problems.

The importance of CPEC for Pakistan:

Often described as a "game-changer" by leaders and policymakers in China and Pakistan, CPEC is an important, ambitious, and most developed set of projects under BRI, consisting of four key components: the Gwadar Port, energy projects, transport infrastructure, and the creation of Special Economic Zones (SEZs) in Pakistan. Under the umbrella of CPEC, China and Pakistan agreed to complete numerous projects to expand and enable mutual and international business and trade. China has allocated more than US $33.8 billion in several energy projects and US $11 billion to construct new roads and revamp the infrastructure. Furthermore, SEZs aim to enhance regional economic activity and international trade amongst Pakistan, China, and Eurasia.2 The transport infrastructure projects connect the southern Gwadar port in Pakistan’s Balochistan province to Kashgar in western China’s Xinjiang province through a network of roads, pipelines, and railway lines.

For a detailed multidisciplinary overview of BRI and CPEC, readers may refer to two books co-edited by Yung-Hsiang Ying and this author, namely “China’s Belt and Road Initiative in a Global Context, Volume I: A Business and Management Perspective” and “China’s Belt and Road Initiative in a Global Context, Volume II: The China Pakistan Economic Corridor and Its Implications for Business” (published by Palgrave Macmillan UK in 2019).

Geo-strategic and economic significance of CPEC:

Pakistan is situated at a strategically significant locus on the world map. To its northeast is the ‘rising’ China and to the southwest is the energy-rich Iran. Pakistan’s Balochistan province holds a significant position in domestic, regional, and global politics as it borders connects with Afghanistan, Iran and the Arabian Sea.

China and Pakistan have identified potential sites for SEZs from Khunjrab to Gwadar. Highways connecting Gwadar to Afghanistan may reduce the distances of Pakistan-Central Asia traffic by more than 500 km which would facilitate trade with the landlocked states of Central Asia. Gwadar is the deep-sea Port of Pakistan positioned in the Balochistan province. On the top of Arabian Sea, west of Karachi at a distance of 460K, and located on the East of Pakistan's border with Iran at a distance of about 75 KM, and Strait of Hormoz about 400KM. Gwadar holds an immense economic significance for South Asia, China, and other neighboring regions because of its deep seaport on the Arabia Sea which connects South Asia with the Middle East and Central Asia. It is located near the Iran-Pakistan border and is not too far from Iran’s Chabahar port.

The Iran Dimension:

Chabahar port is an emerging Iranian Port along the Makran coast with an easy access to the Indian Ocean and the Persian Gulf. In recent decades, Iran has engaged in development projects in this area. Chabahar is located in the Sistan and Baluchestan provinces of Iran, preceding the South-Eastern part of the Sea of Oman. Chabahar Port has 10 berths and handled 2.1million ton of cargo in 2015; and since the capacity has further increased. In addition to China, other regional countries such as India and Afghanistan have shown interest in this seaport for trade, commerce, business, transportation, oil and gas trade purposes to Central Asia, Middle East and Europe.

Iran is a part of several ongoing projects under BRI such as freight by train from the city of Urumqi in Western China to Tehran and linking Kazakhstan, Kyrgyzstan, Uzbekistan and Turkmenistan. Iran is currently engaged in several development projects in Chahbahar’s Shahid Beheshti port including a container terminal and a terminal for refrigerated containers, a multi-purpose warehouse, a strategic equipment building, power and water supply projects, a firefighting network project, and private sector investment projects.

Through Gwadar in Pakistan and Chahbahar in Iran, China and both of the host countries can access new markets for their goods. In return, both countries may gain economic and financial boost from the large-scale infrastructure development projects. Therefore, Pakistan can materialize the north-south trade and energy corridor with the promising opportunities of road-rail and pipelines link up to Gwadar.

Gwadar is 72 km away from Iran which provides easy overland access. Iran contributes to the development of BRI to expand and improve its connectivity through the railway track network and to develop Pak-Iran Pipeline of Liquid Natural Gas (LNG) at Gwadar port to develop a gas link with China. Tehran and Islamabad have signed an agreement to set up an oil refinery at Gwadar. Furthermore, through Gwadar, Iran may hope to get more shares in worldwide markets for oil. In this way, CPEC is connecting the trilateral of Pakistan-China-Iran and benefiting both regional and inter-regional trade.

In 2020, it was reported in the media that Iran and China had agreed on a 25-year strategic partnership. This partnership plan calls for an investment of US $400 in different sectors such as telecommunications (5G), infrastructure, banking, and free trade zones and controversially, a vast expansion in military cooperation to include intelligence sharing and weapons design.9 These projects may enable Pakistan and Iran to become a new economic power center for the region. This partnership between three countries may benefit them through energy cooperation, construction of pipelines for transporting low-cost Iranian oil and gas to China, and improved market access. Pakistan could become the transit hub of China's Middle East trade and energy supplies.

Implications for Pakistan:

In November 2020, Iran announced that it would open the Rimdan crossing point, located about 130km from Chahbahar port in its Sistan and Baluchestan province. Once the Pakistani authorities too open their side of the border — Gabd crossing point — further trade would be promoted between the two countries and will potentially lead to reinforcement and integration of BRI. Rimdan border crossing is believed to be suitably located for export and import of fruits, livestock, construction material, and petroleum products. The Iranian side of the crossing point has been equipped with modern communication systems, livestock and vegetable quarantine and other required facilities for import of mango and livestock.

Iran’s active inclusion in BRI and linkages with CPEC mean that Tehran can ease Pakistan’s looming energy crisis and Islamabad can ease Iran’s international isolation and economic sanctions. Iran has the potential to increase its electricity export to 3,000 MW in Pakistan. Iran has also completed work on its side of the Iran-Pakistan gas pipeline. The project may get a boost due to the China-Iran trade pact. Iran may also build a liquefied natural gas (LNG) pipeline to China along the CPEC route. The energy dimension of the Pakistan, China, and Iran partnership has the potential to take the BRI and its regional integration in South Asia to the next level.

These developments may incentivize Pakistan to build strong economic and cultural relations with Iran. Under Trump administration, the U.S. State Department had imposed some sanctions on Chinese companies doing business with Iran, and these sanctions were anticipated to have a spillover effect on CPEC projects. However, with a potential change in the post-Trump US policy towards Iran, this situation is likely to improve.