Update from AIJAC

04/21 #01 

On March 27, Iran and China signed a cooperation agreement scheduled to last 25 years which provides for large-scale Chinese investments in Iran in exchange for oil over that time. This Update contains some analysis of the implications of that deal  – as well as a piece on the background to recent Israeli-Iranian maritime clashes, including alleged Israeli damage to an Iranian spy ship earlier this week, following an attack on Israeli cargo ship in early March believed to have emanated from Iran.

We lead with a discussion of the Iran-China deal from several Israeli experts, as reported by security affairs journalist Yaakov Lappin. China expert Roie Yellinek explains that the agreement should be seen as part of China’s larger strategy of competition with the US, as well as helping meet Beijing’s energy needs – but that does not mean China is committed to aligning fully with Iran in the Middle East. Meanwhile, former IDF military intelligence head Gen. (ret) Amos Yadlin expresses concern about the clauses in the agreement calling for Chinese-Iranian military and intelligence cooperation. For the views of both these experts, as well as some others quoted in the piece,  CLICK HERE.

Next up is former senior US official turned analyst Elliott Abrams giving his take on the deal. He expresses scepticism that the terms of the deal whereby Iran trades cheap petroleum for massive Chinese investment will or can be carried out on the scale the deal’s language seems to allow for. However, he warns that even a more limited implementation of the deal could have very negative effects – undermining US sanctions and limiting the ability of the international community to rein in rogue Iranian behaviour, especially on the nuclear front, once Teheran has Chinese backing. For his valuable discussion in full,  CLICK HERE.

Finally, top counterterrorism expert Matthew Levitt of the Washington Institute for Near East Policy details how Iranian smuggling operations are the key background to the recent Israeli-Iranian maritime clashes mentioned above. Levitt details how, when Israeli and US counter-measures made other avenues for smuggling money and arms to Hezbollah more difficult to use in 2017-18, Iran set up a new scheme to use oil smuggling to Syria to finance Hezbollah. Levitt says it is not surprising that Israel is trying to stop these efforts at sea, with some success. For his important revelations, CLICK HERE.

Readers may also be interested in…

• Former AIJAC staffer Gedaliah Afterman argues the Iran-China deal may be less than meets the eye.
• American columnist Benny Avni argues that the China-Iran deal should cause the Biden Administration to rethink its Iran policies. 
• Israeli security journalist Ron Ben Yishai discusses the signalling behind Israel’s alleged attack on the Iranian intelligence ship earlier this week.
• Yaakov Lappin also had a recent valuable piece on the International Criminal Court and Israel. 
• Israeli strategic expert Brig. (ret.) Yossi Kuperwasser discusses the widespread claim that Israel is in danger of losing either its democracy or its Jewish identity. 
• Washington Institute head Robert Satloff wrote an important discussion of the crumbling of the Holocaust denial once so prevalent in the Arab world. Plus, Israeli Arab activist Yoseph Haddad discusses his own efforts to hold commemorations for Holocaust Remembrance Day among Israeli Arab communities.
• Some examples from the many stories and comments now appearing at AIJAC’s daily “Fresh AIR” blog:
  • In the Jewish News, Naomi Levin analyses some ALP resolutions on Iran and Hezbollah which, she argues, were welcome, yet really did not go far enough.
  • Ahron Shapiro discusses the latest post-election developments in Israel on ABC News radio, after incumbent PM Netanyahu was given a mandate to try to assemble a government earlier this week. Earlier, Shapiro detailed the surprising success of Netanyahu’s Likud party in gaining Arab Israeli votes in this election.
  • AIJAC Research Associate Dr. Ran Porat discusses some bizarre anti-Israel conspiracy theories regarding the recent Suez Canal blockage, published on an Australian Arabic website.

China’s strategic cooperation agreement with Iran is ‘part of its struggle with the US’

“If the U.S. pushes Iran away, it is natural that China brings it closer,” says an Israeli specialist on China’s relations with the Middle East • Cooperation on military and intelligence-sharing are of particular concern to Israel’s interests.

BY YAAKOV LAPPIN

(March 31, 2021 / JNS) The recent announcement by Iran and China of a 25-year strategic cooperation agreement involving some $400 billion of Chinese investment in the Islamic Republic is part of Beijing’s wider struggle against the United States, an Israeli specialist on China’s relationship with the Middle East has told JNS.

The announcement on Dec. 27 of the bilateral agreement mentions investments in the energy, transportation and agricultural sectors, as well as bilateral cooperation on intelligence, military affairs and training, with the latter clauses forming particular sources of concern for Israel.

The United States has maintained biting sanctions on Iran’s economy, particularly against its oil, banking and shipping sectors since former President Donald Trump exited the nuclear deal in May 2018.

China’s central interest in such widescale involvement in Iran stems from its struggle for leadership with the United States, said Roie Yellinek, a non-resident scholar at the Middle East Institute and a research associate at the Begin Sadat Center for Strategic Studies. “If the U.S. pushes Iran away, it is natural that China brings it closer,” he stated.

Currently, when American policy on Iran is under discussion and not entirely clear, “the Chinese have agreed to promote a long-term agreement with the Iranians in order to create facts on the ground and prevent the Americans from doing the same,” said Yellinek.

Beijing has specific interests in Iran as an energy supplier, which is necessary for continued Chinese growth, and Iran’s centrality in the Middle Eastern arena makes it attractive to China, he added.

“Chinese foreign policy is well-versed in the ‘both’ approach—in other words, China knows how to wage a struggle with the U.S. and to conduct trade with the U.S. worth hundreds of billions of dollars. It knows how to threaten Taiwan with invasion and at the same time manage a widespread economic system with it. It knows how to combat the Muslim Uyghurs in China and to safeguard close ties with Muslim countries. It seems that in this case, too, regarding Iran versus Israel and the Sunni states, China will succeed in persisting with ‘both,’ ” explained Yellinek.

The United States and Russia both have cause to be concerned by Chinese activities in the Middle East, he argued. At the same time, both China and Russia know how to manage complex relations, including the ability to trade with one another, while engaging in a zero-sum vaccine competition against one another.

“The U.S. has already indicated that it views China’s growing involvement in the area, as signified by the agreement with Iran, as a threat to its position and as a ‘free rider’—i.e., it enjoys the order and security that the U.S. supplies to the region without paying for it in personnel, money or [giving it] recognition. Russia is showing signs of increasing its presence in the area by building a military base in Sudan, not far from Chinese and American bases in Djibouti,” said Yellinek, describing the competition between superpowers in the region.

Asked to assess China’s longer-term objectives, Yellinek recalled that in 1949, Chinese leader Mao Zedong announced his 100-year plan, which is obtaining global hegemony. “There is a reasonable basis to assume that by 2030, China will continue its economic growth, its growing military strength and in consolidating its position in recognized international institutions and in the parallel institutions it is establishing,” he said.

This trend is likely to also be felt in the Middle Eastern context, which forms a significant component in China’s Belt and Road Initiative, a global infrastructure development strategy.

The area’s oil and gas supplies, coupled with its traditional role of being a zone of struggle between the great powers over hegemony, mean that it is reasonable to assume that it will continue to be important to China in the long-term future, he assessed.

‘Clear area for expanded cooperation’ between Israel, America

In recent days, the former head of IDF Military Intelligence and the outgoing head of the Institute for National Security Studies in Tel Aviv, Maj. Gen. (ret.) Amos Yadlin, told Ynet news that the clause in the new agreement between Beijing and Moscow calling for joint maneuvers, research and development, and intelligence cooperation is of concern.

Former IDF Military Intelligence chief  Amos Yadlin: “Concern over strategic and intelligence sharing aspects of Iran-China deal” (Photo: Wikimedia Commons | License details)

Regarding the intelligence cooperation, Yadlin said that “on this issue, China is placing itself in a position that until today it has not been in.”

He added that while China opposes the Iranian weapons program, it’s not helping to stop Iran from developing it. Iran, for its part, is using Chinese power to counteract the pressure being placed on it by the United States, he argued. “The Chinese understand that the Biden administration is not the Trump administration and that they can be more aggressive.”

Brig. Gen. (res.) Assaf Orion, senior director of the Israel-China research program at the INSS and former head of the IDF’s Strategic Division in the Planning Directorate, stated in a recent paper that “Beijing’s assistance to Iran in exiting its isolation and recovering its economy is in opposition to Israel’s objectives.”

He added that the military-technology and intelligence cooperation make the military threat to Israel and others in the region more severe, adding that this trend requires coordination between Israel, the United States and Sunni powers in the region.

The challenge to Israel is complex, he argued, since Beijing is an important economic partner to Israel, yet it is cooperating with a regional power that the main and most severe external threat to the Jewish state.

“Chinese-Iranian relations, therefore, form an intersection between the No. 1 threat to the United States and the No. 1 threat to Israel, thereby outlining a clear area for expanded cooperation between Israel and the U.S.,” said Orion.

Is Iran Being Turned into a Chinese Gas Station?

Or is this recently announced investment deal sheer propaganda?

Does the proposed deal for Iran to trade cheap petroleum for Chinese investments actually work? (Photo: rustamxakim, Shutterstock)

Iran did not make the details of the agreement public before the signing, nor did the Chinese government give specifics. But experts said it was largely unchanged from an 18-page draft obtained last year by The New York Times.

That draft detailed $400 billion of Chinese investments to be made in dozens of fields, including banking, telecommunications, ports, railways, health care and information technology, over the next 25 years. In exchange, China would receive a regular — and, according to an Iranian official and an oil trader, heavily discounted — supply of Iranian oil.

I’m dubious. First, this deal was proposed five years ago, in 2016, when Xi Jinping visited Iran. That’s a long time to get to signing — and the terms of the deal have still not been made public. Why not? One theory is that Iran will be selling oil to China at a large discount — large enough to spur resistance and protests in Iran were it to become known. How much will materialize, turning paper into actual commerce, remains to be seen.

Consider the numbers, too. According to the World Bank, total foreign direct investment (FDI) in Iran, from all sources, maxed out in 2017 at $5 billion, but by 2019 had fallen to $1.5 billion. It seems to have fallen further in 2020, to about $1 billion. This agreement with China — $400 billion in 25 years — calls for $16 billion per year from China alone. Does that seem realistic for Iran, a country that has never absorbed more than $5 billion in a single year in FDI from the entire world? There is also good reason to question the notion that China will significantly increase its reliance on Iran for oil: Would China want to rely on a sole, Middle Eastern source rather than diversify its supplies?

There are other ways of evaluating how real the $400 billion figure may be. According to the China Global Investment Tracker produced by the American Enterprise Institute and the Heritage Foundation, in the 15 years between 2004 and 2019, China invested a total of $182 billion in the United States, or an average of $12 billion a year; $98 billion in Australia, or $6.5 billion per year; and $83 billion in the U.K., or $5.5 billion per year. The numbers are lower for countries such as Brazil, Canada, Germany, and Switzerland. How realistic is it, then, that China will invest more annually in Iran than it does — or has ever done — in any other country in the world?

This is not to suggest that a large economic deal between Iran and China has no meaning. One has to assume that Iran will sell more and more oil to China, defying and undermining U.S. sanctions. And one should also assume that China will increase its investments in Iran, in many sectors of the economy. Among other harmful effects, we should consider how this will affect China’s willingness to discipline Iran in the International Atomic Energy Agency for its continuing violations of the JCPOA, the Additional Protocol, and the Non-Proliferation Treaty — violations that bring Iran closer to being able to create a deliverable nuclear weapon.

Finally, one has to wonder about the prospects of Iran selling “heavily discounted” oil to China as its end of the deal, as is suggested in the New York Times report. The regime of the ayatollahs claims that Iran seeks independence and self-determination, comparing its firmness on this subject with the supposed weakness of the Shah. But suppose this deal with China came true. Then Iran would be selling oil cheaply to China, and China would be buying up the whole country. Remember: The maximum amount ever invested in Iran in one year was $5 billion, and under this supposed deal China alone would be investing three times that amount annually for 25 years. At the end of that period, Iran would be a wholly owned subsidiary of China, basically a gas station for the People’s Republic.

Iran and Israel’s Undeclared War at Sea (Part 1): IRGC-Hezbollah Financing Schemes

by Matthew Levitt

Washington Institute for Near East Policy
PolicyWatch 3466
April 6, 2021

Recent maritime clashes between Israel and Iran are actually in large part the result of Iran’s seaborne smuggling operations to fund Hezbollah (Photo: By AlexLMX, Shutterstock). 

Recent maritime escalation between the two countries stems mainly from Iranian efforts to fund Hezbollah, underscoring the financial interdependency between the Lebanese militia, Tehran, and the Syrian regime.

With news of tit-for-tat attacks against their respective shipping interests making headlines recently, Israel and Iran appear to be in the midst of a gray-zone maritime conflict. Yet the oil smuggling operation at the heart of the crisis is not about large-scale Iranian sanctions evasion, but rather about securing funds for the Islamic Revolutionary Guard Corps and its foreign proxies, mainly Hezbollah. When U.S. actions exposed previous financing schemes based in Iraq, the IRGC turned to oil smuggling further afield as an effective trade-based illicit financing scheme, allowing the organization to fund and arm Hezbollah while also benefiting the Assad regime in Syria. Part 1 of this PolicyWatch series analyzes how these schemes work and how the United States and Israel have sought to counter them; Part 2 will assess the military aspects of the ongoing, undeclared war at sea.

The Need for New Financing Pathways

For years, the Israeli navy has been intercepting cargo ships carrying weapons for Iran-backed militant groups such as Hamas and Hezbollah. In 2017, Israel significantly increased the tempo of such activity as part of its wider “campaign between the wars,” a gray-zone military effort that has sought to disrupt Tehran’s buildup in Syria without igniting a regional war. From 2017 through summer 2020, Israeli forces reportedly carried out around 1,000 airstrikes there, and these operations have continued ever since, complicating the IRGC’s efforts to send funds and weapons to Hezbollah via flights from Tehran to Damascus.

Iran also developed plans to finance the group through banks and businesses operating in Iraq. In May 2018, the U.S. Treasury Department took a major step toward disrupting these plans by designating Iranian Central Bank governor Valiollah Seif and another official within the institution. The CEO of Iraq’s al-Bilad Islamic Bank was designated as well, along with senior Hezbollah official Muhammad Qasir. According to Treasury officials, Qasir served as “a critical conduit” for IRGC-Qods Force payments to Hezbollah. Once the Iraqi banking pipeline was exposed, they shifted to a trade-based financing scheme involving Iranian oil.

Matthew Levitt,  Fromer-Wexler Fellow and director of the Reinhard Program on Counterterrorism and Intelligence at The Washington Institute for Near East Policy. 

Hezbollah’s Role in the Oil Smuggling Network

In September 2019, a Treasury report noted that Iran had moved oil “worth hundreds of millions of dollars or more” through an illicit shipping network over the previous year. The IRGC-QF and Hezbollah directed the network, which benefits both organizations as well as the Assad regime. It is this network that reportedly spurred Israel’s maritime disruption campaign.

In November 2018, six months after taking action against Iran’s Central Bank and Iraq’s al-Bilad Islamic Bank, the Treasury Department exposed a convoluted Iranian financing scheme involving Qasir and other Hezbollah members. Working with Iranian operatives, Russian companies, and the Central Bank of Syria, the Hezbollah officials facilitated the shipment of millions of barrels of Iranian oil to the Assad regime. The regime then facilitated the transfer of hundreds of millions of dollars to the IRGC-QF, which in turn sent funds onward to Hezbollah and Hamas. In a letter to a senior official at the Central Bank of Iran, Qasir (identified as “Mr. Fadi” in the document) and a Syrian associate confirmed receipt of $63 million.

According to the Treasury Department, Qasir also heads Unit 108, “the Hezbollah unit responsible for facilitating the transfer of weapons, technology, and other support from Syria to Lebanon.” In February 2019, he appeared as a note-taker in photographs and video clips of President Bashar al-Assad’s secret visit to Tehran for meetings with Iranian president Hassan Rouhani and Supreme Leader Ali Khamenei.

Qasir was reportedly hand-picked for that visit by the late IRGC-QF commander Qasem Soleimani, whose own role in the smuggling effort was reportedly extensive prior to his death last year. According to Iranian media remarks by Vice President Eshaq Jahangiri, Soleimani was personally responsible for selling an undisclosed quantity of crude oil under the direction of the Supreme National Security Council, often using “innovative” and “high risk” methods. At one point, Jahangiri claimed, Soleimani was the sole conduit for the sale of Iranian oil.

IRGC General Qasem Soleimani played the key role in setting up Iranian oil smuggling program to benefit Hezbollah, before he was killed last year (Photo: – Wikimedia Commons | License details). 

Soleimani managed this scheme with help from Qasir, who in turn relied on a coterie of Hezbollah operatives. One such operative was Muhammad Qasim al-Bazzal, who used a network of companies—including the Talaqi Group, Hokoul S.A.L. Offshore, Nagham al-Hayat, Tawafuk, and ALUMIX—to “finance, coordinate, and obscure” illicit oil shipments.

In September 2019, the Treasury Department targeted multiple components of this oil smuggling network, including the Talaqi Group. Qasir, Bazzal, and their companies featured prominently in the exposed network, along with Ali Qasir, Muhammad’s nephew. Based in Tehran, Ali Qasir served as both a Hezbollah representative to Iran and as managing director of the Talaqi Group. In these capacities, he assigned vessels “to deliver shipments for the terrorist network based on the IRGC-QF’s guidance,” according to U.S. government documents. For example, he played a central role in the 2019 Adrian Darya 1 tanker episode, working with others to fund and facilitate this illicit Iranian oil shipment to Syria amid Western objections. He also represented the Lebanon-based Hokoul S.A.L. Offshore in negotiations over its supply of Iranian crude to Syria.

Ultimately, this sprawling network of Hezbollah operatives and front companies was overseen by former Iranian minister of petroleum and IRGC-QF official Rostam Ghasemi, who also heads the Iranian-Syrian Economic Relations Development Committee. In addition to the operatives discussed above, Ghasemi also relied on his son Morteza to finalize illicit oil contracts, including some that they attempted to pass off as originating from Iraq rather than Iran. In October 2020, the U.S. Rewards for Justice program posted a $10 million bounty for information on the network.

Conclusion

For years, Hezbollah has been actively involved in helping the IRGC-QF and its international network of merchants circumvent sanctions and ship oil products directly from Iran to Syria. Thus, Israel’s efforts to disrupt such shipments should come as no surprise—especially after mid-2018, when these deliveries became Tehran’s primary means of financing Hezbollah, and in some cases included arms as well.

To be sure, Israel’s maritime efforts are not nearly as extensive as its aerial campaign in Syria, which has substantially diminished Iran’s ability to send Hezbollah weapons overland via Abu Kamal. The naval effort appears to be aimed at hindering, not crippling, Iranian oil shipments, perhaps due to the vulnerability of Israel’s own shipping lanes through the Arabian Sea. Still, its maritime actions have caused delays that deprive the Syrian regime of gasoline imports and prevent hard cash, weapons, and missile production equipment from reaching Hezbollah. More than anything else, these incidents underscore the growing financial interdependency between Iran, Syria, and Hezbollah.

Matthew Levitt is the Fromer-Wexler Fellow and director of the Reinhard Program on Counterterrorism and Intelligence at The Washington Institute, and creator of its interactive map and timeline project Lebanese Hezbollah Select Worldwide Activities.