China’s growing role in Middle East won’t solve Iran’s economic woes

Al-Monitor Pro Members

Dr. Bijan Khajehpour

Managing Partner, Eurasian Nexus Partners, Vienna, Austria

April 13, 2023

Iran’s geostrategic position means that its trade and economy will remain vulnerable to geopolitical shifts. These include regional realities, changes in West-Russia relations as well as West-China ties and shifts in international energy markets. Whether the net effect will be positive or negative will depend on Tehran’s policy responses to the current geopolitical climate. For example, as can be witnessed, Iran is positioned to benefit from China’s growing role as a trusted intermediary in Middle Eastern affairs. How far this process will continue will depend on the interplay between domestic, regional and international processes, but many believe that favorable geopolitical shifts won’t compensate Iran for the economic losses the country has suffered because of the failure to revive the nuclear deal. In the end, what the Iranian economy needs is sizable investments in the next decade and such investments will remain limited as long as Western sanctions persist.

Scenario 1: The sum total of the current geopolitical shifts will be to Iran’s detriment

If Iran’s strategists conclude that their focus on immediate neighbors and Eastern powers will be sufficient to attract the needed investment, the medium term impact of their strategic calculus will be negative. In other words, the continuation of Western sanctions, especially restrictions in the banking sector, will deprive Iran of the needed investment levels and will lead to further erosion of the Iranian economy. In parallel, undesirable economic conditions will intensify the existing brain drain and lead to additional costs to the country’s economy.

Scenario 2: There will be a tangible positive impact on the economy

The least likely scenario will be a positive impact on the economy as a result of massive investments by China, Russia and regional partners such as Saudi Arabia and the UAE. Evidently, if such investments emerge due to the mentioned geopolitical shifts, Iran could gradually move out of its current economic crisis and regain a certain degree of economic stability. However, such investments would need to be accompanied by technological and project management capacities that Tehran could attract from among the Iranian diaspora who would only return to the country, if there are overall improvements in the socio-economic and socio-political conditions. A factor that will further complicate this scenario.

Bijan Khajehpour is the managing partner at Eurasian Nexus Partners - eunepa.com - a Vienna-based international consulting firm. He also sits on the board of the Europe Middle East Research Group. He is considered an expert on geopolitics of energy and the Iranian economy and energy sector.