NewsSanctions drive Russia, Iran, and China towards economic alliance

Sanctions drive Russia, Iran, and China towards economic alliance

Russia and Iran are forming an anti-Western alliance with China.
Russia and Iran are forming an anti-Western alliance with China.
Images source: © Getty Images | Anadolu Agency

5:33 PM EDT, March 19, 2024

Sanctions imposed by the West have pushed Russia, Iran, and China closer together, fostering tighter economic and political cooperation. Yet, despite their efforts, a full alliance seems challenging due to insufficient integration levels, which means their cooperation doesn't yet pose a significant threat to the West, according to "The Economist." However, one factor could alter this scenario dramatically.

Presidents Vladimir Putin of Russia and Ebrahim Raisi of Iran share a unique bond, being among the few world leaders under personal US sanctions. Their international travels may be limited, but both have made recent visits to China. Historically, Russia, Iran, and China have vied for influence in Asia. However, the dynamics are shifting due to American policies, leading these countries to advocate for a multipolar world where the US no longer holds dominance, "The Economist" analyses reveal.

China, Iran, Russia forge an economic alliance

At the heart of their new alliance is a pledge for enhanced economic cooperation. China has offered Russia a "no limits" partnership and signed a 25-year, $400 billion "strategic agreement" with Iran. Together, they participate in international consortia like BRICS, and their trade relationships are flourishing with plans for free trade zones, independent payment systems, and alternative trade routes that circumvent Western control. For the US and its allies, a thriving anti-Western axis appears as a nightmare scenario. But is it a feasible one?

The trade of energy resources among Russia, China, and Iran is notably increasing, marking the simplest form of their cooperation.

Yet, this is where complications arise. Adhering to an informal policy, China limits its dependency on a single energy supplier to 15-20 percent of its needs. This restriction means they are nearing the maximum volume of imports desired from Iran and Russia.

Limited cooperation

Trade in energy resources is merely a lifeline for their economies. The countries aspire for deeper integration but are hampered by the lack of shared banking channels and payment systems. Despite governmental efforts, Iranian banks scarcely use Russia's SPFS or the Mir system, alternatives to SWIFT and American credit card networks, respectively.

The situation with currency exchange is no better. Attempts to move away from the dollar in trade have led to the establishment of a ruble-rial exchange scheme in August 2022, but transactions have been minimal.

Iran and Russia seek investment; only China can provide

For Iran and Russia, enduring sanctions requires more than just transactional cooperation; investments are vital, yet this remains their weakest link. Since 2014, Chinese foreign investments in Iran have stagnated.

During Iran's president's most recent trip to Beijing, agreements worth up to $10 billion were made, a sum that seems insignificant compared to the $50 billion China committed to Saudi Arabia in 2022, Iran's archenemy, as calculated by "The Economist."

The potential threat to the West from a China, Russia, and Iran alliance

Although the anti-Western alliance has survived, its full potential remains unrealized.

"The Economist" highlights a significant issue: Iran and Russia's economies are too alike, making them less suitable as natural trading partners. Both countries share nine out of the fifteen most crucial export categories and ten out of their top fifteen imports.

The alliance, while beneficial for achieving immediate, specific goals, faces challenges regarding more ambitious objectives. Each nation--Beijing, Moscow, and Tehran--has its own global aspirations, which could hinder deeper cooperation.

At present, the axis can only cause substantial concern.

The most probable outcome is that it remains a strategic convenience for China, rather than evolving into a genuine partnership. As long as it serves China's short-term interests, the alliance will persist. A dramatic shift could occur if America, possibly during a second Trump presidency, were to aggressively exclude China from Western markets. Facing significant losses, China might then invest more heavily in building an alternative bloc, leveraging and expanding existing alliances.

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