Situation with sanctions against Iran in the global market forces the Islamic Republic to find its own ways of staying afloat. Strategic cooperation with such a big trade partner as China became one of the options, which is expected to benefit the Iranian party in terms of developing numerous sectors of the national economy, gradually improve the balance in the steel value chain, and open more opportunities for infrastructure upgrade. The Chinese party also gets its advantages in oil supply, steel and added value products sourcing, trade opportunities etc.
Metal Expert had a chance to discuss the opportunities and threats of the large-scale deal between the two countries with the strategic adviser to the Committee on Mine and Mining Industries, Prof. Keyvan Jafari Tehrani. He has a wide experience in the development of steel value chain products, especially in iron ore, HBI, steel segments, and exports – mainly to China and ASEAN countries – for more than 20 years.
Tehran and Beijing have recently sealed a strategic long-term deal, which grants huge investments to Iran in return for affordable oil. Could you please specify the details of the agreement and its meaning for both parties?
According to the framework deal, Iran can count on $450 billion of investments. The contract and agreement are separate parts that are in the process of elaboration and have still not been concluded. It is worth mentioning that at least $80 billion from this sum will be allocated for the mines and minerals industries, subject there is investment capacity.
One of the main points of the deal will be securing all supplies to the Asian partner, because China is trying to build a sustainable supply canal, first of all in the oil segment. Such approach is good for Iran, taking into account sanctions and restrictions on oil export. However, the agreement has obvious advantages for both parties: while Iran is still facing challenges in relations with the US and Europe, China is ready to continue to deal with the Islamic Republic. The benefits for Iranian mining and mineral sector are the promotion and development of upstream operations and products, medium stream like billet and slabs, as well as finished products.
We also have restrictions in Iran regarding the exploration of the mines. Iran has big reserves of minerals that are not explored yet due to financial restrictions and limitations, and everyone believes that this deal is an opportunity to get foreign direct investment to develop the country’s mining sector.
On top of that, there is an opportunity to sell different steel products to China according to international rates, and in case the country is not interested to buy them, Iran can sell its commodities to other countries as well. However, the priority will be given to China, taking into account large investments.
Iran has been using the “oil-for-goods” trading system for years. Is the recent deal based on the same principle or suggests some other mechanisms of cooperation?
There is no such practice as oil-for-goods here, which we used before. It is exactly a framework that suggests foreign investment in different businesses. Iran is trying to choose and select not only governmental sectors, but also private ones. As a committee, we sent such inquiries to private companies to introduce their projects. In some segments like aluminium sector, the scenario is a bit different, as the reserves are not so big, compared to iron ore. Regarding aluminium business, Iran does not have enough bauxite and generally imports it, but we have local factories to produce it, and they are worth giving them a helping hand.
It is obvious that the deal grants some opportunities for Iranian mining and steel sectors, but what are the priorities in investments defined by counterparts?
One of the main purposes is to make balance in all sectors of the steel value chain. This Iranian year (March 21, 2021 –March 20, 2022) we have extra production of pellets and shortage of concentrate. Up to 3 million t of pellets has a shortage of concentrate feed due to the fact that these pellet projects started earlier than concentrate plants. By next year, the balance may be achieved. With such investment, we hope to have balance in a shorter time. One of the other visions of this agreement is transfer of technical knowledge and technologies to Iran by China.
Does Iran already know the projects related to the mining and steel industries, which could benefit from the cooperation with China?
No specific projects were selected for any sections at present. There are no contracts, but we expect that during the current Iranian year we can specify and choose projects, and get a confirmation for making investment.
What benefits will get other sectors of the national economy, except for mining and steel, taking into account that the international sanctions have bound Iran’s hand and foot?
The deal will have a positive impact on different segments, as Iran has big potential and an excellent strategic position in the Middle East, which will help China to implement its Belt and Road initiative (BRI) in a more efficient way. Earlier it was planned that BRI project could not be passed across Iran due to some missed opportunities, and it was diverted to other countries. The recently announced agreement will create more favourable conditions for Iran’s infrastructure developments, specifically rail networks, roads, ports, airports etc. In the sixth five years plan, Iran needs $9.5 billion in investment and we can fulfil these goals with the help of China.
Despite visible advantages, the agreement is facing certain opposition. How do you explain such situation?
Both parties should try to make this deal a win-win. China has experience in financing in a lot of countries worldwide. It was in the format of giving loans mainly. If somebody is speaking about the disadvantages of this deal because they are thinking that we are getting a loan and they are worried to return it back with high interest, it is not like this here. By such investment Iran will solve the financial issues and can promote and develop its economy. Another big advantage of this business is creating jobs in 15 different sectors, including oil, agricultural, petrochemical, culture, tourism, mining and steel industries, IT, telecommunication and others by involving all sectors. Up to 5 million directly and indirectly can be recruited, and it will improve the living conditions of Iranian people.
What does this deal mean for the global market and international relations in general? Which shifts will it cause in trade flows?
Other countries, mainly the neighbouring ones, will be happy, because the Belt and Road initiative will touch Iran and pass across it. This will help other counties to get an advantage. Maybe some pipelines between Iran and China will be set to export gas or oil products and pass across other neighbouring countries. So, this deal will bring some positive changes to neighbouring countries as well.
In terms of trade flows, we need to make branding of Iranian products by such a deal and get experience from the Chinese party in order to increase export of all types of commodities. China has strategic agreements with most countries like India, the US, Europe, so we can also join this club to build a win-win global business.
