GRM 2010 GRM 2011

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Iran and Asian Countries (China, South Korea, Japan and India): perspectives of the economic dialog
Paper Proposal Text :
Since the early 2000, Asian countries have been gradually acquiring special importance for Tehran as perspective trade and investment partners. It is possible to argue that, by 2012, the Far East region and India have become a strategically important vector of the Iranian economic diplomacy. During the last decade, in spite of all challenges the aggregate volume of trade between Iran, China, South Korea, Japan and India enjoyed the upward trend, and, in 2011, it reached the level of 90 billion dollars. Moreover, its balance was positive for Tehran, and this, in turn, makes these countries an appealing market for the Iranian authorities. The main export items of the IRI remain oil and so-called traditional goods (carpets and dried fruits) whereas Iranian imports include machinery, petrochemical products, petrol, food produce, automobiles, and consumer goods. The track record of the investments activities of the above-mentioned Asian states would probably be less impressive without China whose investment projects – both completed and under implementation – accounts for more than 100 different cases (according to other sources, for more than 200). Yet, even Japan, South Korea and India alone are either participating in development projects in Iran or thinking about allocating necessary funds for investments.
Although Iran and the Asian countries have mutual interest in establishing closer economic ties, their motifs are different. The behavior of Tehran is determined by the political calculations. The growing confrontation with the West and the periodically emerging threat of a military attack make the authorities of Iran to look for reliable supporters and allies which would be capable to outbalance the negative influence of Iran’s opponents on the economic situation in the country and prevent adversaries from abrupt and bold measures. With the gradual disappointment in Russia as a potential defender of Tehran, the Iranian elite gradually turns its attention to the countries of the Far East. However, given the absence of a common ideological ground, Tehran is compelled to buy the loyalty of the Asian countries by economic means. Luckily, it has one of the most effective and reliable leverages – oil.
Indeed, energy security is one of (if not the main) driving factors behind the efforts of the Asian states in Iran: until June 2012, on an average basis, Tehran was providing about 10% of oil imported by these four states. Even US and EU sanctions adopted against Tehran in 2012 as well as political pressure exercised by Washington and Brussels could not compel China, South Korea, Japan or India completely cut their oil transactions with Iran. The longest period during which Seoul, New Delhi and Tokyo could afford their economies to function without Iranian hydrocarbons was barely longer than one month. Moreover, by December 2012, Chinese and Korean imports of oil from the IRI were only 20% lower than during the previous years.
The determination of some countries to continue the imports of oil from the Islamic republic has not only economic background. Beijing would probably replace Tehran as a supplier, if the authorities of the PRC did not have their own ambitions as a global power. These aspirations are definitely contradicting to the interests of some other international players and, as a result, China is gradually becoming concerned about its security, including its energy aspect. Under these conditions, Iran as an oil and, potentially, gas supplier has few alternatives: Beijing probably sees it dangerous to solely rely on hydrocarbon imports from the GCC countries with their pro-American foreign policy.
Sanctions as well as Chinese approaches towards the economic cooperation with Iran show that it is almost impossible to analyze the current development of the economic (as well as political) dialog between Iran and the leading Asian countries without taking into account the position of Washington. Subsequently, it is probably correct to assume that the future of their relations will be also determined by the US stance. There are, at least, two probable scenarios of the farther development of the situation.
Scenario 1. The continuation of confrontation between Washington and Tehran. This will lead to further economic engagement between Iran and China (as well as probably South Korea and India) and to the reorientation of the oil and gas industry of the IRI to the markets of the Far East and India. The absence of western companies in Iran will also create convenient conditions for the activities of Asian companies in the Iranian domestic markets where they will be unrivaled. Yet, the further increase in the political and economic pressure by the US on the Asian countries should not be excluded. There is a possibility that the gradual evolution of the sanctions regime will make the conduct of business with Iran either extremely hard or impossible.
Scenario 2. U.S. – Iranian rapprochement. The restoration of relations between Tehran and Washington will probably have a diverse influence on Iranian economic cooperation with the four leading Asian countries. On one hand, this will eradicate the considerable part of obstacles for the development of the dialog and probably make such countries as Japan more active in Iran. On the other hand, the economic cooperation with China, South Korea and India will lose its political importance. The U.S.-Iranian rapprochement will also open Iran not only for American companies, but for European firms. This will inevitably make market conditions for the Asian companies extremely competitive: although the Americans will have to start their cooperation with Iran from the scratch, the period of the European absence was not that long and the EU will only need to resume their activities rather than to restore long lost positions. Finally, the return of the U.S. will strengthen the positions of pro-Western political groupings among the Iranian political elite seriously weakened during the period 2009 – 2012. They will certainly try to change the vector of Iran’s energy diplomacy from the East to the West by restoring old project of the Iranian participation in the Nabucco pipeline and so-called Persian gas pipeline.