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China’s unexpected gains from the Red Sea crisis

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Despite Beijing’s maritime security priority, Yemen’s Red Sea ban on Israeli-linked shipping has boosted China’s regional standing while miring its US adversary in an unwinnable crisis.

By Giorgio Cafiero

Source: The Cradle

The Gaza war’s expansion into the Red Sea has created an international maritime crisis involving a host of countries. Despite a US-led bombing campaign aimed at deterring Yemen’s Ansarallah-aligned navy from carrying out missile and drone strikes in the Red Sea, the armed forces continue to ramp up attacks and now are using “submarine weapons.” 

As these clashes escalate dangerously, one of the world’s busiest bodies of water is rapidly militarizing. This includes the recent arrival to the Gulf of Aden of a Chinese fleet, including the guided-missile destroyer Jiaozuo, the missile frigate Xuchang, a replenishment vessel, and more than 700 troops – including dozens of special forces personnel – as part of a counter-piracy mission. 

Beijing has voiced its determination to help restore stability to the Red Sea. “We should jointly uphold the security on the sea lanes of the Red Sea in accordance with the law and also respect the sovereignty and territorial integrity of the countries along the Red Sea coast, including Yemen,” Chinese Foreign Minister Wang Yi emphasized last month.

As the largest trading nation in the world, China depends on the Red Sea as its “maritime lifeline.” Most of the Asian giant’s exports to Europe go through the strategic waterway, and large quantities of oil and minerals that come to Chinese ports transit the body of water. 

The Chinese have also invested in industrial parks along Egypt and Saudi Arabia’s Red Sea coasts, including the TEDA–Suez Zone in Ain Sokhna and the Chinese Industrial Park in Saudi Arabia’s Jizan City for Primary and Downstream Industries. 

Chinese neutrality in West Asia

Prior to the sending of the 46th fleet of the Chinese People’s Liberation Army Navy, Beijing’s response to Ansarallah’s maritime attacks had been relatively muted. China has since condemned the US–UK airstrikes against Ansarallah’s military capabilities in Yemen, and refused to join the western-led naval coalition, Operation Prosperity Guardian (OPG).

China’s response to mounting tension and insecurity in the Red Sea is consistent with Beijing’s grander set of foreign policy strategies, which include respect for the sovereignty of nation-states and a doctrine of “non-interference.” 

In the Persian Gulf, China has pursued a balanced and geopolitically neutral agenda resting on a three-pronged approach: enemies of no one, allies of no one, and friends of everyone. 

China’s position vis-à-vis all Persian Gulf countries was best exemplified almost a year ago when Beijing brokered a surprise reconciliation agreement between Iran and Saudi Arabia, in which it played the role of guarantor. 

In Yemen, although China aligns with the international community’s non-recognition of the Ansarallah-led government in Sanaa, Beijing has nonetheless initiated dialogues with those officials and maintained a non-hostile stance – unlike many Arab and western states.

Understanding Beijing’s regional role 

Overall, China tries to leverage its influence in West Asian countries to mitigate regional tensions and advance stabilizing initiatives. Its main goal is ultimately to ensure the long-term success of President Xi Jinping’s multi-trillion dollar Belt and Road Initiative (BRI) and keep trade routes free of conflict. 

Often labeled by the west as a “free rider,” China is accused of opportunistically benefiting from US- and European-led security efforts in the Persian Gulf and the northwestern Indian Ocean without contributing to them. 

But given China’s anti-piracy task force in the Gulf of Aden and its military base in Djibouti, this accusation isn’t entirely justified.

Beijing’s motivations for staying out of OPG were easy to understand: first, China has no interest in bolstering US hegemony; second, joining the naval military coalition could upset its multi-vector diplomacy vis-à-vis Ansarallah and Iran; and third, the wider Arab–Islamic world and the rest of the Global South would interpret it as Chinese support for Israel’s war on Gaza. 

Rejecting the OPG mission has instead bolstered China’s regional image as a defender of the Palestinian cause.

Speaking to The Cradle, Javad Heiran-Nia, director of the Persian Gulf Studies Group at the Center for Scientific Research and Middle East Strategic Studies in Iran, said: 

[Beijing’s] cooperation with the West in securing the Red Sea will not be good for China’s relations with the Arabs and Iran. Therefore, China has adopted political and military restraint to avoid jeopardizing its economic and diplomatic interests in the region.

Dropping the blame on Washington’s doorstep

Beijing recognizes the Red Sea security crisis to be a direct “spillover” from Gaza, where China has called for an immediate ceasefire.

As Yun Sun, co-director of the China Program at the Washington-based Stimson Center, informed The Cradle:

The Chinese do see the crisis in the Red Sea as a challenge to regional peace and stability but see the Gaza crisis as the fundamental origin of the crisis. Therefore, the solution to the crisis in the Chinese view will have to be based on ceasefire, easing of the tension and returning to the two-state solution.

Jean-Loup Samaan, a senior research fellow at the National University of Singapore’s Middle East Institute, agrees, telling The Cradle:

Chinese diplomats have been carefully commenting on the events, but in Beijing’s narrative, the rise of attacks is a consequence of Israel’s war in Gaza – and perhaps more importantly the US policy in support [of] the Netanyahu government.

But in January, after the US and UK began their bombing campaign of Ansarallah targets in Yemen, China began to weigh in with serious concerns about the Red Sea crisis. Beijing noted that neither Washington nor London had received authorization for the use of force from the UN Security Council, and, therefore, as Sun explained it, the US–UK strikes “lack legitimacy in the Chinese view.”  

How the Red Sea Crisis benefits Beijing

China has capitalized on intensifying anger directed against the US from all over the Islamic world and Global South. The Gaza war and its spread into the Red Sea have delivered Beijing some easy soft-power gains and reinforced to Arab audiences the vital importance of multipolarity.
This point was drummed home by Victor Gao, vice president of the Center for China and Globalization, when he told the 2023 Doha Forum: 

The fact that there is only one single country which [on 8 December, 2023] vetoed the United Nations Security Council Resolution calling for ceasefire in the Israel-Palestine War should convince all of us that we should be very lucky living not in the unipolar World.

Certainly, China has experienced some economic repercussions from the Red Sea crisis, although the extent of this is difficult to calculate. Yet Beijing’s political gains appear to trump any associated financial losses. As Sun explained to The Cradle, “The crisis does affect China, but the loss has been mostly economic and minor, while the gains are primarily political as China stands with the Arab countries on Gaza.”

In some ways, China has actually gained economically from the Red Sea crisis. With Ansarallah making a point of only targeting Israel-linked vessels, there is a widespread view that Chinese ships operating in the area are immune from Yemeni attacks. 

After many international container shipping lines decided to reroute around South Africa to avoid Ansarallah’s missiles and drones, two ships operating under the Chinese flag – the Zhong Gu Ji Lin and Zhong Gu Shan Dong – continued transiting the Red Sea. 
As Bloomberg reported early this month:

Chinese-owned merchant ships are getting hefty discounts on their insurance when sailing through the Red Sea, another sign of how Houthi attacks in the area are punishing the commercial interests of vessels with ties to the West.

US officials have since implored Beijing to pressure Iran into ordering the de-facto Yemeni government to halt maritime attacks. Those entreaties have failed, however, largely because Washington incorrectly assumes that Beijing holds influence over Tehran and that Iran can make demands of Ansarallah. Regardless, the fact that the US would turn to China for such help amid escalating tensions in the Red Sea is a boost to Beijing’s status as a go-to power amid global security crises.

China also has much to gain from the White House’s disproportionate focus on Gaza and the Red Sea. Since October–November 2023, the US has had significantly less bandwidth for its South China Sea and Taiwan files. In turn, this frees Beijing to act more confidently in West Asia while the US remains distracted. According to Heiran-Nia:

The developments in the Red Sea will keep America’s focus on the region and not open America’s hand to expand its presence in the Indo–Pacific region, [where] America’s main priority is to contain China. The war in Ukraine has the same advantage for China. While the connectivity of the Euro–Atlantic region with the Indo–Pacific region is expanding to contain China and increase NATO cooperation with the Indo–Pacific, the tensions in [West Asia] and Ukraine will be a boon for China.

Ultimately, the Red Sea crisis and Washington’s failure to deter Ansarallah signal yet another blow to US hegemony. From the Chinese perspective, the growing Red Sea conflict serves to further isolate the US and highlight its limitations as a security guarantor – particularly in light of its unconditional support for Israel’s brutal military assault on Gaza.

It is reasonable to call China a winner in the Red Sea crisis.

Why the US needs this war in Gaza

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By Pepe Escobar

The Global South was expecting the Dawn of a New Arabian Reality. 

After all, the Arab street – even while repressed in their home nations – has pulsed with protests expressing ferocious rage against Israel’s wholesale massacre of Palestinians in the Gaza Strip. 

Arab leaders were forced to take some sort of action beyond suspending a few ambassadorships with Israel, and called for a special Organization of Islamic Cooperation (OIC) summit to discuss the ongoing Israeli War Against Palestinian Children. 

Representatives of 57 Muslim states convened in Riyadh on 11 November to deliver a serious, practical blow against genocidal practitioners and enablers. But in the end, nothing was offered, not even solace.  

The OIC’s final statement will always be enshrined in the Gilded Palace of Cowardice. Highlights of the tawdry rhetorical show: we oppose Israel’s “self-defense;” we condemn the attack on Gaza; we ask (who?) not to sell weapons to Israel; we request the kangaroo ICC to “investigate” war crimes; we request a UN resolution condemning Israel.  

For the record, that’s the best 57 Muslim-majority countries could drum up in response to this 21st-century genocide.  

History, even if written by victors, tends to be unforgiving towards cowards.

The Top Four Cowards, in this instance, are Saudi Arabia, the UAE, Bahrain, and Morrocco – the latter three having normalized relations with Israel under a heavy US hand in 2020. These are the ones that consistently blocked serious measures from being adopted at the OIC summit, such as the Algerian draft proposal for an oil ban on Israel, plus banning the use of Arab airspace to deliver weapons to the occupation state.

Egypt and Jordan – longtime Arab vassals – were also non-committal, as well as Sudan, which is in the middle of a civil war. Turkiye, under Sultan Recep Tayyip Erdogan, once again showed it is all talk and no action; a neo-Ottoman parody of the Texan “all hat, no cattle.” 

BRICS or IMEC? 

The Top Four Cowards deserve some scrutiny. Bahrain is a lowly vassal hosting a key branch of the US Empire of Bases. Morocco has close relations with Tel Aviv – it sold out quickly after an Israeli promise to recognize Rabat’s claim on Western Sahara. Moreover, Morocco heavily depends on tourism, mainly from the collective west.  

Then we have the big dogs, Saudi Arabia and the UAE. Both are stacked to the rafters with American weaponry, and, like Bahrain, also host US military bases. Saudi Crown Prince Mohammad bin Salman (MbS) and his old mentor, Emirati ruler Mohammad bin Zayed (MbZ), do factor in the threat of color revolutions tearing through their regal domains if they deviate too much from the accepted imperial script.  

But in a few weeks, starting on 1 January, 2024, under a Russian presidency, both Riyadh and Abu Dhabi will expand their horizons big-time by officially becoming members of the BRICS 11. 

Saudi Arabia and UAE were only admitted into the expanded BRICS because of careful geopolitical and geoeconomic calculations by the Russia-China strategic partnership.

Along with Iran – which happens to have its own strategic partnership with both Russia and China – Riyadh and Abu Dhabi are supposed to reinforce the energy clout of the BRICS sphere and be key players, further on down the road, in the de-dollarization drive whose ultimate aim is to bypass the petrodollar.  

Yet, at the same time, Riyadh and Abu Dhabi also stand to benefit immensely from the not-so-secret 1963 plan to build the Ben Gurion canal, from the Gulf of Aqaba to the Eastern Mediterranean, arriving – what a coincidence – very close to now devastated northern Gaza. 

The canal would allow Israel to become a key energy transit hub, dislodging Egypt’s Suez Canal, and that happens to dovetail nicely with Israel’s role as the de facto key node in the latest chapter of the War of Economic Corridors: the US-concocted India-MidEast Corridor (IMEC).

IMEC is a quite perverse acronym, as is the whole logic behind this fantastical corridor, which is to position international law-breaking Israel as a critical trade hub and even energy provider between Europe, part of the Arab world, and India.  

That was also the logic behind Israeli Prime Minister Benjamin Netanyahu’s UN charade in September, where he flashed the whole “international community” a map of the “New Middle East” in which Palestine had been totally erased. 

All of the above assumes that IMEC and the Ben Gurion Canal will be built – which is not a given by any realistic standards.  

Back to the vote at the OIC, US minions Egypt and Jordan – two countries on Israel’s western and eastern borders, respectively – were in the toughest position of them all. The occupation state wished to push approximately 4.5 million Palestinians into their borders for good. But Cairo and Amman, also awash in US weapons and financially bankrupt as they come, would never survive US sanctions if they lean too unacceptably towards Palestine.

So, in the end, too many Muslim states choosing humiliation over righteousness were thinking in very narrow, pragmatic, national interest terms. Geopolitics is pitiless. It is all about natural resources and markets. If you don’t have one, you need the other, and if you have none, a Hegemon dictates what you’re allowed to have. 

The Arab and Muslim street – and the Global Majority – may rightfully feel dejected when they see how these “leaders” are not ready to turn the Islamic world into a real power pole within emerging multipolarity. 

It wouldn’t happen any other way. Many key Arab states are not Sovereign entities. They are all boxed in, victims of a vassal mentality. They’re not ready – yet – for their close-up facing History. And sadly, they still remain hostage to their own “century of humiliation.”

The humiliating coup de grace was dispatched by none other than the Tel Aviv genocidal maniac himself: he threatened everyone in the Arab world if they don’t shut up – which they already did.

Of course, there are very important Arab and Muslim brave-hearts in Iran, Syria, Palestine, Iraq, Lebanon, and Yemen. While not a majority by any means, these Resistance actors reflect the sentiment on the Street like no other. And with Israel’s war expanding each day, their regional and global clout is set to increase immeasurably, just as in all of the Hegemon’s other regional wars.

Strangling a new century in the cradle 

The catastrophic debacle of Project Ukraine and the revival of an intractable West Asian war are deeply intertwined. 

Beyond the fog of Washington’s “worry” about Tel Aviv’s genocidal rampage, the crucial fact is that we are right in the thick of a war against BRICS 11.      

The Empire does not do strategy; at best, it does tactical business plans on the fly. There are two immediate tactics in play: a US Armada deployed in the Eastern Mediterranean – in a failed effort to intimidate Resistance Axis behemoths Iran and Hezbollah – and a possible Milei election in Argentina tied to his avowed promise to break Brazil-Argentina relations. 

So this is a simultaneous attack on BRICS 11 on two fronts: West Asia and South America. There will be no American efforts spared to prevent BRICS 11 from getting close to OPEC+. A key aim is to instill fear in Riyadh and Abu Dhabi – as confirmed by Persian Gulf business sources.  

Even vassal leaders at the OIC show would have been aware that we are now deep into The Empire Strikes Back. That also largely explains their cowardice. 

They know that for the Hegemon, multipolarity equals “chaos,” unipolarity equals “order,” and malign actors equal   “autocrats” – such as the new Russian-Chinese-Iranian “Axis of Evil” and anyone, especially vassals, that opposes the “rules-based international order.” 

And that brings us to a tale of two ceasefires. Tens of millions across the Global Majority are asking why the Hegemon is desperate for a ceasefire in Ukraine while flatly refusing a ceasefire in Palestine. 
Freezing Project Ukraine preserves the Ghost of Hegemony just a little bit longer. Let’s assume Moscow would take the bait (it won’t). But to freeze Ukraine in Europe, the Hegemon will need an Israeli win in Gaza – perhaps at any and all costs – to maintain even a vestige of its former glory. 

But can Israel achieve victory any more than Ukraine can? Tel Aviv may have already lost the war on 7 October as it can never regain its facade of invincibility. And if this transforms into a regional war that Israel loses, the US will lose its Arab vassals overnight, who today have a Chinese and Russian option waiting in the wings. 

The Roar of the Street is getting louder – demanding that the Biden administration, now seen as complicit with Tel Aviv, halt the Israeli genocide that may lead to a World War. But Washington will not comply. Wars in Europe and West Asia may be its last chance (it will lose) to subvert the emergence of a prosperous, connected, peaceful Eurasia Century.

The Grim Prospects of US Proxies: Ukraine, Israel, and Taiwan

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By Brian Berletic

Source: New Eastern Outlook

As Russia’s special military operation (SMO) approaches two years of intense fighting, having parried Ukraine’s “spring counteroffensive” and with the initiative shifting to Russian forces, Western capitals are now admitting they are reaching the limits to remaining support for Kiev.

During the Ukrainian offensive alone, the Western media has admitted Ukrainian forces have suffered catastrophic losses in both manpower and material. The Ukrainian economy has all but been replaced by heavy subsidies from the United States, Europe, and the International Monetary Fund (IMF). Ukrainian infrastructure including its power grid and ports have suffered severe damage the collective West is unable to repair in a timely manner.

Ukraine’s territory has shrunk. Four oblasts, Lugansk, Donetsk, Zaporozhye, and Kherson are now considered by Moscow as part of the Russian Federation. Crimea had already joined the Russian Federation following a referendum conducted in 2014 after the US-backed overthrow of the elected Ukrainian government.

In fact, from 2014 onward, Ukraine’s sovereignty had been stripped away, with the resulting client regime installed into power by the US answering to Washington at the expense of Ukraine’s best interests. To say Ukraine’s status as a viable nation state hangs in the balance because of this arrangement would not be an understatement.

Ukraine, as a US proxy, has suffered irreversible losses economically, politically, socially, and militarily. In a wider sense, Europe is also politically captured, led by the European Union bureaucracy who, like the Ukrainian government, serves Washington’s interests entirely at the expense of Europe’s collective interests.

Germany stands out as a particularly poignant example, having ignored the destruction of the Nord Stream pipelines, imposing sanctions on Russia to restrict any remaining hydrocarbons required by Germany’s industry and public, beginning a process of recession and deindustrialization.

Europe’s wider economy is suffering from similar setbacks, setbacks that cannot be offset by alternatives such as US liquefied petroleum gas (LPG) moved by ship across the Atlantic Ocean which will always be more expensive than Russian hydrocarbons piped in directly to Europe.

The price of subordination to the United States is in reality the existential threat the US claims Russia poses to Europe in fiction.

It should be noted that the US had long-planned to use Ukraine as a proxy to overextend Russia. Laid out in a 2019 policy paper published by the US government and arms industry-funded think tank, RAND Corporation, titled, “Extending Russia: Competing from Advantageous Ground,” US policymakers would recommend providing lethal aid to Ukraine to draw Russia into the ongoing conflict between Kiev and militants in eastern Ukraine. The idea was to “increase the costs to Russia, in both blood and treasure,” as it dealt with the conflict between Kiev and eastern Ukraine along its borders.

The paper also noted, however, the strategy posed a high risk to Ukraine. Such a move, the paper warned, might:

…come at a significant cost to Ukraine and to U.S. prestige and credibility. This could produce disproportionately large Ukrainian casualties, territorial losses, and refugee flows. It might even lead Ukraine into a disadvantageous peace. 

Despite these acknowledged risks, the United States pressed ahead with the plan anyway. Today, we see that fears expressed by US policymakers proposing this strategy have been fully realized, if not entirely surpassed.

Taiwan is Next… 

As Ukraine is destroyed by a US-engineered proxy war against Russia, with members of the US Congress vowing to fight Russia to the “last Ukrainian,” a similar arrangement is being used to organize the Chinese island province of Taiwan as a heavily US-armed proxy against the rest of China.

Just as was the case with Ukraine, US policymakers acknowledge the existential threat Taiwan faces in its role as a US proxy.

The Center for Strategic and International Studies (CSIS), likewise funded by the US government and arms manufacturers, published a 2023 paper titled, “The First Battle of the Next War: Wargaming a Chinese Invasion of Taiwan.” In it, policymakers acknowledge that during any fighting between a US-backed Taiwan administration and the rest of China, heavy damage would be inflicted on the island.

The paper notes that any infrastructure the People’s Liberation Army (PLA) does not destroy in the fighting, because of its possible use to the PLA, the US itself would target and destroy it:

Ports and airfields enable the use of more varied ships and aircraft to accelerate the transport of troops ashore. The United States may attack these facilities to deny their use after Chinese capture. 

Beyond infrastructure useful to Chinese military forces, US policymakers have also explored the possibility of destroying economically useful infrastructure on Taiwan. An October 2022 Bloomberg article titled, “Taiwan Tensions Spark New Round of US War-Gaming on Risk to TSMC,” would report:

Contingency planning for a potential assault on Taiwan has been stepped up after Russia’s invasion of Ukraine, according to people familiar with the Biden administration’s deliberations. The scenarios attach heightened strategic significance to the island’s cutting-edge chip industry, led by Taiwan Semiconductor Manufacturing Co. In the worst case, they say, the US would consider evacuating Taiwan’s highly skilled chip engineers.

The article also stated:

At the extreme end of the spectrum, some advocate the US make clear to China that it would destroy TSMC facilities if the island was occupied, in an attempt to deter military action or, ultimately, deprive Beijing of the production plants. Such a “scorched-earth strategy” scenario was raised in a paper by two academics that appeared in the November 2021 issue of the US Army War College Quarterly.

CSIS’ paper would analyze the possible outcome of a conflict between China and the US-backed administration on Taiwan, surmising:

In most scenarios, the United States/Taiwan/Japan defeated a conventional amphibious invasion by China and maintained an autonomous Taiwan. However, this defense came at high cost. The United States and its allies lost dozens of ships, hundreds of aircraft, and tens of thousands of servicemembers. Taiwan saw its economy devastated. Further, the high losses damaged the U.S. global position for many years. 

In other words, even under the best-case scenario, following a US-backed defeat of any Chinese military operation aimed at reunification, the US would nonetheless have suffered heavy losses in terms of its military while Taiwan would have suffered catastrophic losses both militarily and economically.

Like Ukraine, Taiwan, in its capacity as a US proxy, would be destroyed.

Israel Will Not Be Spared Either 

US policy papers are also abounding with strategies employing Israel as an eager military proxy in the Middle East. Israel is elected to strike at nations across the region with impunity, freeing Washington of the political, military, economic, and diplomatic baggage of carrying out such military operations itself.

Of course, such military operations expose Israel to the same dangers that have threatened Ukraine’s self-preservation and threaten to undermine Taiwan’s.

With the US having demonstrated a fundamental inability to sponsor and win proxy wars against peer and near-peer adversaries in both Ukraine and Taiwan, there is little reason to believe that an already overstretched US military industrial base could somehow give Israel the ability to wage and win protracted proxy war in the Middle East.

Such a proxy war has already unfolded from 2011 onward both in Syria and Yemen with little success. Israel has already played a role in Syria, carrying out missile strikes across the country in an attempt to provoke Syria into a wider conflict.

Syria and its allies Iran and Russia have only strengthened their positions in the region and are driving a fundamental transformation across the Middle East. Even long-time US allies like Saudi Arabia and Turkey find themselves gradually divesting from a US-led regional order to one that better fits with the wider trend toward global multipolarism.

This has left the US and its remaining proxies in the region more isolated and vulnerable than ever. The US itself finds its own troops illegally occupying eastern Syria in an increasingly precarious position.

Israel, in many ways, finds itself likewise isolated. Should it lend itself to a major US proxy war more directly, it may find itself in a similar position as Ukraine – locked in intense, protracted combat with its US allies unable to provide the arms and ammunition necessary to win.

Unlike either Ukraine or Taiwan, Israel is believed to be in possession of between scores to hundreds of nuclear weapons. While Israel will thus never face the same sort of defeat Ukraine faces, a protracted military conflict will leave Israel exhausted economically and isolated diplomatically. Its Arab neighbors will move on with the multipolar world while Israel exhausts itself fighting to reassert US-led unipolarism.

Because of the deliberate, premeditated manner in which the US uses and then disposes of its proxies around the globe, there is little reason to believe it will spare Israel. While Israel has several advantages over other US proxies in terms of its economy, military capabilities, and diplomatic connections, these advantages will only prevent Israel’s use and disposal by US foreign policy if there is a conscious decision to pivot with the rest of the region away from US subordination and toward regional and global multipolarism.

The Big Stiff: Russia-Iran dump the dollar and bust US sanctions

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News of Russian banks connecting to Iran’s financial messaging system strengthens the resistance against US-imposed sanctions on both countries and accelerates global de-dollarization.  

By Pepe Escobar

Source: The Cradle

The agreement between the Central Banks of Russia and Iran formally signed on 29 January connecting their interbank transfer systems is a game-changer in more ways than one.

Technically, from now on 52 Iranian banks already using SEPAM, Iran’s interbank telecom system, are connecting with 106 banks using SPFS, Russia’s equivalent to the western banking messaging system SWIFT.

Less than a week before the deal, State Duma Chairman Vyachslav Volodin was in Tehran overseeing the last-minute details, part of a meeting of the Russia-Iran Inter-Parliamentary Commission on Cooperation: he was adamant both nations should quickly increase trade in their own currencies.

Ruble-rial trade

Confirming that the share of ruble and rial in mutual settlements already exceeds 60 percent, Volodin ratified the success of “joint use of the Mir and Shetab national payment systems.” Not only does this bypass western sanctions, but it is able to “solve issues related to mutually beneficial cooperation, and increasing trade.”

It is quite possible that the ruble will eventually become the main currency in bilateral trade, according to Iran’s ambassador in Moscow, Kazem Jalali: “Now more than 40 percent of trade between our countries is in rubles.”

Jalali also confirmed, crucially, that Tehran is in favor of the ruble as the main currency in all regional integration mechanisms. He was referring particularly to the Russian-led Eurasian Economic Union (EAEU), with which Iran is clinching a free trade deal.

The SEPAM-SPFS agreement starts with a pilot program supervised by Iran’s Shahr Bank and Russia’s VTB Bank. Other lenders will step in once the pilot program gets rid of any possible bugs.

The key advantage is that SEPAM and SPFS are immune to the US and western sanctions ruthlessly imposed on Tehran and Moscow. Once the full deal is up and running, all Iranian and Russian banks can be interconnected.

It is no wonder the Global South is paying very close attention. This is likely to become a landmark case in bypassing Belgium-based SWIFT – which is essentially controlled by Washington, and on a minor scale, the EU. The success of SEPAM-SPFS will certainly encourage other bilateral or even multilateral deals between states.

It’s all about the INSTC

The Central Banks of Iran and Russia are also working to establish a stable coin for foreign trade, replacing the US dollar, the ruble, and the rial. This would be a digital currency backed by gold, to be used mostly in the Special Economic Zone (SEZ) of Astrakhan, in the Caspian Sea, already very busy moving plenty of Iranian cargo.

Astrakhan happens to be the key Russian hub of the International North-South Transportation Corridor (INSTC), a vast network of ship, rail, and road routes which will drastically increase trade from Russia – but also parts of Europe – across Iran to West Asia and South Asia, and vice-versa.

And that reflects the full geoconomic dimension of the SEPAM-SPFS deal. The Russian Central Bank moved early to set up SPFS in 2014, when Washington began threatening Moscow with expulsion from SWIFT. Merging it with the Iranian SEPAM opens up a whole new horizon, especially given Iran’s ratification as a full member of the Shanghai Cooperation Organization (SCO), and now a leading candidate to join the extended BRICS+ club.

Already three months before the SEPAM-SPFS agreement, the Russian Trade Representative in Iran, Rustam Zhiganshin, was hinting that the decision “to create an analog of the SWIFT system” was a done deal.

Tehran had been preparing the infrastructure to join Russia’s Mir payment system since last summer. But after Moscow was hit with extremely harsh western sanctions and Russian banks were cut off from SWIFT, Tehran and Moscow decided, strategically, to focus on creating their own non-SWIFT for cross-border payments.

All that relates to the immensely strategic geoeconomic role of the INSTC, which is a much cheaper and faster trade corridor than the old Suez Canal route.

Russia is Iran’s largest foreign investor

Moreover, Russia has become Iran’s largest foreign investor, according to Iranian Deputy Finance Minister Ali Fekri: this includes “$2.7 billion worth of investment to two petroleum projects in Iran’s western province of Ilam in the past 15 months.” That’s about 45 percent of the total foreign investment in Iran over the October 2021 – January 2023 period.

Of course the whole process is in its initial stages – as Russia-Iran bilateral trade amounts to only US$3 billion annually. But a boom is inevitable, due to the accumulated effect of SEPAM-SPFS, INSTC, and EAEU interactions, and especially further moves to develop Iran’s energy capacity, logistics, and transport networks, via the INSTC.

Russian projects in Iran are multi-faceted: energy, railways, auto manufacturing, and agriculture. In parallel, Iran supplies Russia with food and automotive products.

Ali Shamkhani, the secretary of Iran’s Supreme National Security Council, is fond of reminding anyone that Russia and Iran “play complementary roles in global energy and cargo transit.” The Iran-EAEU free agreement (FTA) is nearly finalized – including zero tariffs for over 7,500 commodities.

In 2022, the EAEU traded more than $800 billion worth of goods. Iran’s full access to the EAEU will be inestimable in terms of providing a market gateway to large swathes of Eurasia – and bypassing US sanctions as a sweet perk. A realistic projection is that Tehran can expect $15 billion annual trade with the five members of the EAEU in five years, as soon as Iran becomes the sixth member.

The legacy of Samarkand

Everything we are tracking now is in many ways a direct consequence of the SCO summit in Samarkand last September, when Russian President Vladimir Putin and his Chinese counterpart Xi Jinping, in person, placed their bet on strengthening the multipolar world as Iran signed a memorandum to join the SCO.

Putin’s private talks with Iranian President Ebrahim Raisi in Samarkand were all about deep strategy.

The INSTC is absolutely crucial in this overall equation. Both Russia and Iran are investing at least $25 billion to boost its capabilities.

Ships sailing the Don and Volga Rivers have always traded energy and agricultural commodities. Now Iran’s Maritime News Agency has confirmed that Russia will grant their ships the right of passage along the inland waterways on the Don and Volga.

Meanwhile, Iran is already established as the third largest importer of Russian grain. From now on, trade on turbines, polymers, medical supplies, and automotive parts will be on a roll.

Tehran and Moscow have signed a contract to build a large cargo vessel for Iran to be used at the Caspian port of Solyanka. And RZD logistics, a subsidiary of Russian railway RZD, operates container cargo trains regularly from Moscow to Iran. The Russian Journal for Economics predicts that just the freight traffic on INTSC could reach 25 million tons by 2030 – no less than a 20-fold increase compared to 2022.

Inside Iran, new terminals are nearly ready for cargo to be rolled off ships to railroads crisscrossing the country from the Caspian to the Persian Gulf. Sergey Katrin, head of Russia’s Chamber of Commerce and Industry, is confident that once the FTA with the EAEU is on, bilateral trade can soon reach $40 billion a year.

Tehran’s plans are extremely ambitious, inserted in an “Eastern Axis” framework that privileges regional states Russia, China, India, and Central Asia.

Geostrategically and geoeconomically, that implies a seamless interconnection of INSTC, EAEU, SCO, and BRICS+. And all of this is coordinated by the one Quad that really matters: Russia, China, India, and Iran.

Of course there will be problems. The intractable Armenia-Azerbaijan conflict might be able to derail the INSTC: but note that Russia-Iran connections via the Caspian can easily bypass Baku if the need arises.

BRICS+ will cement the dollar’s descent

Apart from Russia and Iran, Russia and China have also been trying to interface their banking messaging systems for years now. The Chinese CBIBPS (Cross-Border Inter-Bank Payments System) is considered top class. The problem is that Washington has directly threatened to expel Chinese banks from SWIFT if they interconnect with Russian banks.

The success of SEPAM-SPFS may allow Beijing to go for broke – especially now, after the extremely harsh semiconductor war and the appalling balloon farce. In terms of sovereignty, it is clear that China will not accept US restrictions on how to move its own funds.

In parallel, the BRICS in 2023 will delve deeper into developing their mutual financial payments system and their own reserve currency. There are no less than 13 confirmed candidates eager to join BRICS+ – including Asian middle powers like Iran, Saudi Arabia, and Indonesia.

All eyes will be on whether – and how – the $30 trillion-plus indebted US will threaten to expel BRICS+ from SWIFT.

It’s enlightening to remember that Russia’s debt to GDP ratio stands at only 17 percent. China’s is 77 percent. The current BRICS without Russia are at 78 percent. BRICS+ including Russia may average only 55 percent. Strong productivity ahead will come from a BRICS+ supported by a gold and/or commodities-backed currency and a different payment system that bypasses the US dollar. Strong productivity definitely will not come from the collective west whose economies are entering recessionary times.

Amid so many intertwined developments, and so many challenges, one thing is certain. The SEPAM-SPFS deal between Russia and Iran may be just the first sign of the tectonic plates movement in global banking and payment systems.

Welcome to one, two, one thousand payment messaging systems. And welcome to their unification in a global network. Of course that will take time. But this high-speed financial train has already left the station.