FROM THE BARREL
By Bheki Gila and Zwelakhe Gila
CAPE TOWN – The approval of the China-Iran bilateral deal by the Majilis in Tehran has helped move a significant piece of the global oil puzzle in China’s favour. To be fair, also in Iran’s too, especially considering that the burden of US tempestuousness is often randomly allocated and, as a consequence, shouldered unequally by different countries.
For the two signatories in this historic pact the inequality is in the cross- cutting trade tariffs for the one and asphyxiating sanctions for the other.
The deal has rattled the Red White and Blue empire and its viceroys so much so that the US Secretary of State declared the Second Coming of the Second Coming as he announced that a cold war has started between the West and China. The umbrage of Pompeo is understandable, whose vortex has been fed by a number of variables in constant flux.
This includes the war on tariffs, the raging antagonisms on the deployment of the 5G technology, China’s trade surplus over the U.S and by and large, China’s ability to contain the spread of SARS 2 Covid-19 pandemic against the abysmal performance of the US in this regard.
Above all, the string of foreign policy gaffes and vacuous military threats dependent on the volatile personality of its Commander-in-Chief, has been frustrating many advocates of American imperialism and their jingoist ambitions for a global empire.
Reckless policy misadventures
Venezuela, Iran, Syria, Lybia, North Korea and recently, the Nord Stream II are just recent examplars of reckless policy misadventures. The latest cosying up of China and Iran will undoubtedly weigh heavy on the ego of the mighty empire, unfolding as it does against America’s most sensitive backdrop, the looming Presidential elections.
Proceeding from the Socratic exhortation that we must assume that we know less anytime we approach a new subject, we do so in this proposed bilateral agreement accepting that the deal may be more complex than there is patience to find out.
Furthermore, both countries have in the past promoted a host of bilateral trade plans that have hitherto not achieved their full purport. What we are not certain about in the meantime, is whether or not the Agreement composes a military component, and when it does, the prescience of the detail attending it.
What we do know however, to an arguable degree of exactitude, is that as far back as 2016 it emerged that there are two broad categories of collaboration. For a period of 25 years, China shall invest an approximated $280 Billion in the development and maintenance of oil and gas facilities which, when bought and reckoned with other factors, may attract an aggregated discount of up to 25 percent per barrel of the first part.
Crippling sanctions
For the second part, the parties sought to focus on the decrepit and insalubrious Iranian infrastructure resulting from many years of crippling sanctions. The $120 billion will include banking services, telecommunications and high speed rail networks amongst other initiatives.
Whatever the true content of that accord, Ahmajinedad is patently unhappy about it. He prefers in his Dolat-e- Bahar blog to condemn it as suspicious, even though in the same vein, he concedes that he has not seen it too.
Some of his compatriots derisively compare it to the Treaty of Turkmenchay, a dark memory for Persia where significant parts of their land were given away against debt. In the collective wisdom of the remonstrating patriots, they prefer to continue with debilitating sanctions ad nauseum than get respite from the Chinese.
The ruling Mullahs for their part, have opted to lean more toward pragmatism than be smitten with the Panglossian naivette of waiting for an American president who will be generous enough to take them out of sanctions. In their estimation, another Obama in 1600 Pennsylvania Avenue is many light years away.
A complex world power game
In July of 1840, Captain Arthur Conolly sent correspondence to Major Henry Rawlinson in which he inelliptically crafted the famous line ‘…you’ve a great game, a noble game before you.’ As at the date of the approval by the Majilis, however, the world power game had turned infinitely more complex. It’s a greater game, and far, far from being noble.
The greatest collateral damage of this development may be the Indian-Persian brotherhood, rapturing its cultural and diplomatic comity. If India predicted this turn of events, Modi’s administration had no way of preventing it and to this day remains completely helpless. India had resolved to fasten its colours on the mast of the Trump universe.
After many months of deliberate crafting, the Iranians have finally come to terms with the reality that the surgical art of triangulating a relationship with an India that is intractably linked with a querulous United States, is well-nigh impossible. The Chabahar port initiative between Iran and India is now at stake. The next move is that of India, a zugzwang manoeuvre they can hardly afford to get wrong.
Secretary Pompeo may not have had to time to explain who belongs to the category of ‘West’ that must go on a cold war against China. With this recent development, Iran certainly wont make the list.
And considering that the war is not ideological, so many citizens of Lilliput will be lost in the many crevices of definition, leaving the mighty empire with an unenviable task of qualifying rules of entry. It is equally notable that the tensile pressures of separating the west from the rest may severely rapture the BRICS community relations irreparably.
The yuan’s international trade appeal
In 1993 the Shanghai Stock Exchange was promoted as the host for the trading of the Chinese premium Shengli Blend through a domestic futures contract. The move was part of a plan to accelerate the pace of the yuan’s international trade appeal through liberalising the capital and futures market.
As of this month, the volume of crude oil contracts traded on the INE has accounted for 10.5 percent of the global volume traded, up 4 percent from 2018. More impressively, momentum to increasing the PetroYuan has seen the daily average of yuan-denominated crude oil contracts more than double in volume to 162,053 from the previous year.
Without the clout of volume, the Shengli lacked critical heft. Seeking to remedy that defect, this Deal provides it all from the bountiful crude oil reserves of the fourth most endowed country. This would make the adversaries of Iran and China murderous with envy.
Yet, the task of preventing the success of the Shengli Blend futures contract is a tall errand. A lot of work must go into ensuring that Russia and Venezuela do not participate. Adding the benefit of trading it with a cryptocurrency which China has recently introduced, this contract may pull other participants too, including Iraq.
And depending on what happens between Egypt and Turkey and their belligerent rhetoric which is driving them closer to an armed conflict, Lybia may be sucked into this orbit as well. And so the moment of the PetroYuan would have ushered.
The oil pricing pact
Ever since the oil pricing pact between the US and the Kingdom of Saudi Arabia was executed which established the rudiments and subsequent dominance of the PetroDollar, it has been taboo to purchase crude oil in any currency other than the Greenback. 2017 however was a turning point as it saw China becoming the world’s largest importer of crude oil.
And with this historic milestone, the fulcrum of the global oil politics thus quietly tilted by a gradient to the advantage of the leading importer’s currency. It is not entirely unfathomable that every time the US imposes sanctions against an oil producing country, the punished country may welcome it heartily, and within the context of Pompeo’s cold war declaration, result in ostracizing many-a-good country.
In the parlance of the sages, a random many indiscriminate sanctions will stab the PetroDollar so severely it may leave it to die bleeding from a thousand cuts.
Awhile India looks on at another Chinese master dribble with consternation as the Greater Game raises the stakes slightly beyond its current political bargains. So complex is the latest development that it is bound to stretch the policy flexibility of the current US administration.
After all, post the second world, the only instrument in the foreign policy chest of the U.S has predictably been war. Confronted with intractable social problems and a gaping leadership vacuum at the top, the denizens of the rest of the world are busy contemplating their role toward a new multipolarity whilst those United States stumble toward an uncertain future in a twisted bipolarity of an unfamiliar kind.
Who would have known that being obliged to China through a massive yuan debt, may be the most pragmatic egress out of US sanctions?
Ambassador Bheki Gila is a Barrister-at-Law; and Zwelakhe Gila is an Oil Economist.
BUSINESS REPORT