Doing business with Iran will help Central Asia stabilize the region

To the United States, Iran is a state sponsor of terrorism and a nuclear proliferation risk. But to its Central Asian neighbors, the Islamic Republic is a business opportunity.

Iran is paying attention to Central Asia, and its diplomats have visited the five states in recent months as part of its “Look East” policy. In April 2021, Iran and Tajikistan agreed to promote military cooperation.

In fact, “potential” is a misnomer, as neighboring Central Asian countries are trying to grow existing trade with Iran:

– Kazakhstan, which has the biggest Central Asian economy, recently discussed cooperation with Iran, which will likely include moving beyond the barter system Iran proposed in 2020, and building on the relationship deepened through the negotiations of the 2018 Caspian Sea Treaty. The total trade turnover (exports plus imports) was $375 million in 2019.

– Uzbekistan, which has the biggest population in Central Asia, conferred with Iran in late 2020 on implementing a mutual trade agreement. The double-landlocked country has also expressed an interest in using Iran’s Chabahar port on the Gulf of Oman as a trade gateway. The total trade turnover was over $400 million in 2019.

– Turkmenistan, which shares an over 700-mile land and sea border with Iran, recently reopened another border checkpoint for Iran trade, which was seriously impacted by the pandemic. Turkmenistan is also a party to the 2018 Caspian Sea Treaty. The total trade turnover was over $400 million in 2018.

U.S. policies to sanction and isolate Iran are a tax on the region and may raise concerns that Washington is oblivious to the regional effects of its Iran program. Or maybe it just doesn’t care.

But care it should, for, though U.S. interest in the region is sporadic and transactional, healthy trade relations between Iran and its Central Asian partners will ensure Central Asian countries maintain their independence and contribute to regional stability, thus supporting U.S. objectives.

For example: 

– As part of its Belt and Road Initiative, China has been accused of “debt-trap diplomacy.” Recent research has shown there is no “smoking gun” evidence of a predatory loan program and the Chinese are just tough negotiators but healthy local economies will proof the states against taking on a loans they may later regret.

– Iran’s ruling regime looks firmly in place and will stay that way until it isn’t. Iran has struggled to import food as many potential traders are wary of dealing with it to avoid U.S. sanctions. Expanded trade with Central Asia may contribute to a “soft landing” if regime change turns violent and food security becomes Issue #1 for Iranians.

The U.S. can always strongarm the smaller states to shun Iran, but it should instead explicitly signal it favors increased regional trade in the interest of stability. This will also make a positive impression on the region’s population, which views Russia and China more positively than it does America.

Iran’s “Look East” policy is a return to its interest in Central Asia in the 1990s, but it was then rebuffed by the newly-independent states that feared Iran would try to export the Islamic revolution and weaken the separation of state and religion.

Iran has natural heft from its size and location astride trade routes. It will be wise to tread carefully this time as it will need Central Asian cooperation in the event of future instability in Afghanistan, and because its financial position is parlous.

Much was made of the announcement of China’s 25-year, $400 billion dollar investment program for Iran, but Iran has never absorbed more than $5 billion per year in foreign direct investment from all sources. How it will absorb $16 billion per year from China alone is unknown.

Unlike President Obama, General Secretary Xi won’t send Iran pallets of cash. China will invest enough to keep the discounted oil flowing and ensure Iranian purchases of Chinese foods and services, in addition to political concessions like siting Chinese intelligence gathering stations.

Sanctions are crushing Iran’s economy which contracted by almost 5 percent in 2020, and Trump’s maximum pressure campaign forced Tehran to spend nearly all its cash reserves, ending 2020 with just $4 billion.

The Biden administration will throw the mullahs a lifeline to try to buy its way back into the Iran nuclear deal, but it won’t be enough for immediate, widespread relief.

What it means for Central Asia is that Iran will be anxious to do business both to offset its subordinate relationship with China and to ensure friendly faces in the neighborhood. Iran’s trade with Central Asian countries helps stabilize a region that will experience turbulence in the wake of the U.S. departure from Afghanistan and it will ensure the small states can better balance between Russia, China, Turkey, and — eventually — Iran.

James Durso (@james_durso) is the Managing Director of Corsair LLC, a supply chain consultancy. He was a professional staff member at the 2005 Defense Base Closure and Realignment Commission and the Commission on Wartime Contracting in Iraq and Afghanistan. Mr. Durso served as a U.S. Navy officer for 20 years and specialized in logistics and security assistance. His overseas military postings were in Kuwait and Saudi Arabia, and he served in Iraq as a civilian transport advisor with the Coalition Provisional Authority.  He served afloat as Supply Officer of the submarine USS SKATE (SSN 578).