The road to Shanghai can ease Iran’s problems, but not solve them

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Iran’s most recent admission as a member of the Shanghai Cooperation Organization (SCO), with which it has been an observer since 2005, is recognized by many in Tehran as paving the way for the circumvention of US President Donald Trump in 2018 and is supported by President Joe Biden continued.

Joining large regional coalitions is an opportunity for states to strengthen their international reputation. the SCO, originally a security group, covers over 60 percent of the world’s landmass, is home to around half of the world’s population, holds 45 percent of the world’s energy reserves and generates over a quarter of global GDP.

The SCO comprises eight states – India, which alone has 1.3 billion people and a GDP of 2.6 trillion dollars, Pakistan, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan. Mongolia, Belarus and Afghanistan are observers, while Turkey and Azerbaijan are among their “dialogue partners”.

But the organization has two important members. China and Russia have the greatest influence on SCO decisions.

the SCOThe EU’s original mandate, which remains important, is to develop common approaches to security. This became evident with Iranian participation in the developments in Afghanistan at the end of the 20-year US military presence. Tehran is also interested in China’s approach to internet surveillance and cyber technology.

End of dollar dominance

But the SCO has increasingly emphasized the economic potential. At an SCO summit in 2007, Russian President Vladimir Putin criticized the “world financial monopoly and the politics of economic selfishness”, referring to the role of the US and the dollar. Putin committed Russia to “change the global financial structure in such a way that it can guarantee stability and prosperity in the world and ensure progress”.

Russia and China have successfully reduced the use of the dollar in bilateral trade. Russia’s dollar-denominated exports to China fell from 90 percent in 2013 to 61 percent in the first three quarters of 2020, according to the Russian central bank. Russia’s US government bonds fell from $ 176.3 billion in October 2010 to 6.15 billion Dollars in January.

With large economic powers as members, smaller ones SCO member states can use their national currencies and reduce the use of the dollar in international transactions, while strengthening their mutual working relationships and knowledge sharing. Although not well known to many international think tanks, the SCO has become an important group.

On the other hand, Iran needs Western technology and trade and cannot rely on bartering without the use of the dollar. Russia and China both have huge foreign exchange revenues, and their economies aren’t just spinning with their non-dollar trade.

For Iran, SCO membership can strengthen ties China’s silk road project, the Belt and Road Initiative run by one estimate will increase global GDP by $ 7.1 trillion annually by 2040.

Iranian state media argue that Tehran can seize a unique opportunity for economic development and infrastructure improvement. While SCO Membership alone is not enough to push Iran’s economic relations, many economists in Iran argue that it offers the opportunity to unlock $ 330 billion in annual trade between member countries, benefit from the political security that the SCO can offer, and reduce the bite of US sanctions.

Iran is also building links with the five-member Eurasian Economic Union (EAEU), which connects Russia, Belarus, Armenia, Kazakhstan and Kyrgyzstan in a single market of 180 million people. IranNon-oil trade with EAEU members rose 93 percent year over year in the first four months (March 21 – July 22) of the current Iranian year and exceeded $ 1.6 billion.

Raisi looks to the east

The Raisi government’s pledge to look east will put more emphasis on the importance of SCO membership, but accession will not happen immediately – it can take up to two years – and will not meet all of Iran’s demands.

Continued US sanctions will limit the SCO member states’ cooperation with Iran. Tehran is not included the Financial Action Task Force (FATF) could, as opponents of FATF accession in Tehran argue, help to shield some transactions from the US.

But it won’t change the fact that SCO members – including Iran’s largest trading partner China – have significant US interests that they want to protect. China, Russia and India are all FATF members and are required to apply FATF due diligence rules to transactions in a blacklisted state, as Iran has been doing since 2020.

Without major changes in Foreign policy, Iran will not be able to enjoy all the advantages of the SCO.


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