February 1, 2016

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TSG IntelBrief: Iran Emerges from Isolation

January 16, 2016 marked 'Implementation Day' of the July 2015 nuclear deal between Iran and the P5+1 countries (United States, Britain, France, Russia, China, and Germany)—the day international sanctions on Iran’s major economic sectors were lifted. Almost immediately thereafter, Iran began reintegrating into the global economic and diplomatic system with a January 23 visit to Tehran by China’s President Xi Jinping, whose itinerary also included Iran’s main regional rival, Saudi Arabia. The centerpiece of President Xi’s stop in Tehran was to discuss with Iranian leaders China’s vision of an energy and transportation corridor extending throughout Eurasia (known in China as 'One Road, One Belt'). Iran’s location and large, skilled population renders Iran pivotal to realizing that vision. China and Iran also agreed to increase bilateral trade to $600 billion per year by 2026, which will entail China returning to or exceeding pre-sanctions levels of Iranian oil imports (600,000 barrels per day)—50% higher than the current level of 400,000 bpd.  

President Xi’s interest in post-sanctions Iran transcends economics. Like Iran, China sees radical Sunni Islamist movements such as the so-called Islamic State, al-Qaeda, and their affiliates, as a direct security threat. Al-Qaeda and a branch of the Islamic State operate in areas of Afghanistan and Pakistan near the Chinese border, co-mingling there with a radical Sunni Islamist group composed of members of China’s ethnic Uighur community—the East Turkestan Islamic Movement (ETIM).  China and Iran share the view that Syria’s President Bashar al-Assad and the Syrian state structure are a bulwark against—not fuel for—radical Islamist terrorism. Yet, China is unwilling to abandon its other major energy source, Saudi Arabia. President Xi has taken the Saudi side in the Yemen conflict by supporting full restoration of the government of President Abd Rabbuh Mansour Hadi, and against the insurrection by Iran-backed Zaydi Shi’a Houthi rebels. China also looks to Iran as a future market for arms, as the global UN ban on arms sales to Iran is to expire within five years. China has in the past been a supplier to Iran of major combat systems, ships and ship-borne and land-based cruise missiles, as well as ballistic missile technology.  

After Xi's visit, Iran’s emergence from isolation accelerated with President Rouhani’s visit to France and Italy, accompanied by over 100 Iranian officials and business executives. The trip came two weeks after Implementation Day, when EU countries lifted nearly all of their sanctions on Iran. For months before that milestone, numerous European business and official delegations visited Iran to prepare to resume relationships severed in 2010-11. France opened a formal trade office in Tehran in September 2015, and Rouhani had planned to visit France in November, but that trip was postponed because of the November 13 Islamic State attacks in Paris. In France and Italy last week, Rouhani signed about $40 billion in trade deals in industries including energy, energy infrastructure, auto production, shipping, and airport operations. The agreements included Iran’s purchase of 118 Airbus commercial passenger jets (a value of over $20 billion) and a resumption of the automobile production relationship between French carmaker Peugeot and its Iranian partner Khodro. Both France and Italy, as well as other EU countries, are also resuming importation of Iranian crude oil and other petroleum products. These and other commercial agreements come at a crucial time for Europe as it seeks to accelerate economic growth after the shocks of its own debt crisis and near default by Greece, and the unfolding economic slowdown in China, a major market for European products.  

Rouhani’s visit to Europe also has significant security implications for the Middle East and for Europe itself. Italian Prime Minister Matteo Renzi expressed this linkage directly by saying he hoped Rouhani’s trip would lay the groundwork for an Iran-based agreement for ending Syria’s five-year civil war. The Syria conflict, and the broader war against the Islamic State, was also a feature of French President François Hollande’s discussions with Rouhani last week. Europe’s leaders, including Hollande and Renzi, see a successful transition in Syria as not only key to defeating the Islamic State, but also to ending the migration crisis that has seen a flood of Syrian refugees enter Europe over the past year. Since the November Paris attacks, Hollande has played a key role in narrowing differences among the major stakeholders on these issues (Russia, the United States, Saudi Arabia, and Iran)—a narrowing that produced a Syria political transition roadmap in late 2015. The Rouhani visit to Europe came just ahead of crucial talks in Geneva between representatives of the Assad regime and the Syrian opposition that were prescribed by that roadmap. However, the future role of Assad remains in contention, pitting Iran and Russia against the United States and its European and Persian Gulf allies. Hollande and Renzi hoped to persuade Rouhani—using trade and investment as an incentive—to agree to the departure of Assad at the end of the transition process. Yet, despite its reintegration into global diplomacy, Iran is reluctant to abandon Assad; he is Iran’s closest Arab ally and the conduit through which Iran supplies and protects its most cherished protégé, Lebanese Hizballah.                   

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