Iran-China Cooperation in Lithium Industry: Prospects and Challenges

Abstract

The discovery of lithium deposits, primarily used in powering electric vehicles, in Iran has opened avenues for foreign investment in the country. While the recent geopolitical changes in West Asia like the Iran-Saudi rapprochement have increased the number of Iran’s potential partners, China being the world’s major lithium consumer and Iran’s most trusted ally is likely to become a key partner in building up its lithium industry. The partnership will be mutually beneficial since it will help diversify China’s lithium import options and reduce risk in the face of trade war with the US. However, it is safer for Iran to diversify its options.

Introduction

In late February 2023, the Industry, Mining and Trade Ministry of Iran announced the discovery [3] of 8.5 million metric tonnes of lithium deposits in the western Hamedan province, which roughly accounts to 10 percent of the total global reserves. Lithium, also known as white gold, is a lightweight metal primarily used in the cathodes of lithium-ion batteries, which power electric vehicles (EVs). The lithium discoveries are of paramount value since it is one of the most sought-after minerals in the world. According to World Economic Forum, the lithium production needs to triple [4] by 2025 and increase six-fold by 2030 to meet the global demand. Domestically, the recently adopted Clean Air Act (2017) in Iran mandates [5] various ministries to work together to incentivise the production of EVs by exempting them from Value Added Tax (VAT). Having a domestic source of lithium would improve its prospects of expanding EV production.

Although Iran has seven percent of global mineral resources, Iran, compared with other countries, struggles to operate its mining industry at a decent capacity due to its limited mining and refining capacity. To provide the context, researchers differentiate [6] between resource and reserves in lithium deposits, where the former refers to the estimated amount of declared or undeclared deposits while the latter refers to those deposits that are economically viable to extract. Moreover, lithium is found in a raw state that needs to be refined before use. The ability of processing, including the purification and refinement of lithium is critical to lithium battery production. The importance of processing is showcased by Australia’s example in lithium industry. As per the recent data [4], Australia is the biggest producer of lithium with 52 percent of the total global production even though it has the fifth largest reserves. Therefore, Iran will require foreign direct investment (FDI) and the technological know-how to efficiently mine and refine lithium.

Geopolitical Realignment in West Asia Favourable for Iran

Iran is the first [7] country in West Asia to discover lithium deposits. This makes it a favourable hub for foreign investment as countries would want to ensure a cheap and regular supply of lithium to cut their dependence of fossil fuels in the automobile industry. For Iran, securing FDI had been a challenge since it has been under varied economic sanctions imposed for reasons like its covert nuclear programme and alleged role in sponsoring terrorism in the region.

The recent overhauling in West Asian geopolitics gives hope for a renewed engagement and cooperation in the region. The China-brokered Iran-Saudi rapprochement, the reinstating of Iran’s crucial ally Syria into the Arab League and the resumption of Iran-Kuwait diplomatic ties are among some positive developments which signal that the region is witnessing a wave of reconciliation which has created more room for diplomatic manoeuvring by Iran. The recent US-Iran prisoner swap deal has resulted in the unfreezing of US$ 6 billion in Iranian assets from South Korea. This is arguably the first breakthrough in the US-Iran engagement since Donald Trump unilaterally withdrew from the JCPOA in 2018 and launched the ‘maximum pressure’ campaign against Iran.

During the Iranian Foreign Minister Hossein Amir-Abdollahian recent visit to Jeddah on August 18 2023, he discussed “future opportunities for cooperation” with the Saudi Crown Prince Mohammed bin Salman. A probable area of cooperation can be in the lithium industry, since it is critical to meet Saudi Arabia’s ‘Vision 2030’, which aims [8] at EVs makingup to 30 percent of all vehicles on the road. However, things are far from perfect between them as of now and there are no clear solutions in sight. As Mohammed Soliman, Director of Strategic Technologies and Cyber Security Programme at Middle East Institute, has rightly suggested [9] that tactical de-escalation in West Asia should not be confused with strategic alignment. Despite the resumption of diplomatic ties, the issues of discord between them are numerous and complex which will take time and efforts before the beginning of large-scale cooperation in lithium industry.

China-Iran Economic Partnership

China, arguably being Iran’s most trusted strategic ally and a major lithium producer will most likely act as its key partner in building up its lithium industry. China has been able to become the third largest producer of lithium by building a mutually beneficial cooperation in lithium trade with other countries. The Chinese company Tianqi lithium has a joint venture with Australia’s Greenbushes, the largest [10] lithium producer in the world. In 2022, Chinese EV manufacturer BYD surpassed [11] Tesla as the leading EV brand by sales, with 18 percent market share.

To counter China’s dominance and build a diversified global lithium supply chain, the US launched [12] a ‘Sustainable Critical Minerals Alliance’ with Canada, France, Germany, Japan, Australia, the UK at the COP 15 in 2022. Due to the on-going trade war between China and the US, the latter has also imposed many economic sanctions [13] on the former. So far, Australia, a member of this Alliance, has served as the primary [14] source of lithium to China. The existing key lithium suppliers of China like Australia, Brazil and Canada may have to walk a tightrope in the future as the US may increase pressure on them to curb their lithium exports to China.

The discovery of lithium deposits in Iran, and subsequent partnership with China, may provide the latter with a possible countermove to this alliance. China facing many international sanctions will be able to reduce dependence on its current suppliers who have strong relations with the US by building partnership with Iran in lithium industry. This will help China obviate a scenario where it may face constraints in lithium imports. According to Alireza Nader, International Policy Analyst at RAND Corporation, Iran’s abundant energy resources and China’s growing energy needs are the foundation of economic partnership between them(Nader, 2012). In March 2021, China and Iran signed a 25-year comprehensive cooperation agreement which focuses [15] on Chinese investments in Iran’s key industries such as energy and infrastructure and assures regular supply of Iranian oil and gas to China. Considering the geographical proximity and fortification of China-Iran economic ties through Belt and Road Initiative, Iran will be a cheaper and safer source of lithium since China is the biggest [16] consumer of lithium in the world.

Iran’s lithium discovery has been followed by it becoming a part of two China-led major multilateral groupings – the Shanghai Cooperation Organisation (SCO), where it gained full membership in July 2023, and the BRICS grouping, which it will become a full member of beginning January 1, 2024, making the prospects of forging a partnership in lithium production and processing increasingly promising. Building sustainable ways of mining, keeping in mind the ecology and dislocation of the local population, joint research programmes, setting up of key manufacturing units, sharing of relevant information and ideas and regular exchange of scholars and experts can be the potential areas of collaboration. Given China’s deep pockets and its increasing lithium demand, it is likely to invest in research and development of key aspects of Iran’s lithium industry which will help transforming the EV industry of both countries.

Challenges

The China-Iran bilateral trade may be on the rise despite the US sanctions but the same cannot be said about Chinese investment in Iran. Thestrategic accord signed in March 2021 estimated at $400 billion worth of investment has so far not resulted in any significant increase in Chinese investment in Iran. On his first official visit to China on January 15, 2022, Amirabdollahian marked [17] it as the day of the implementation of the strategic accord. However, 22 months on from his assertion, China is yet to make any significant investment in Iran, particularly in the energy sector. On the contrary, China Petroleum and Chemical Corporation or Sinopec, the last Chinese oil company operating in Iran, exited [18] the country in the same month when President Ebrahim Raisi was on his first official visit to China in February 2023.

Strengthening of relations with China and Russia are a result [19] of growing influence of Islamic Revolutionary Guard Corps (IRGC) in Iran as it promotes a security-oriented mindset in Iran which in turn reinforces authoritarianism at the domestic level. However, among some circles in Iran, there is some scepticism [20] regarding Xi Jinping’s ambitious project Beijing’s Belt and Road Initiative (BRI) which involves large-scale investments in developing the infrastructure to get access to many countries. The scepticism has some merit since China has long been accused of engaging [21] in debt-trap diplomacy to exert undue influence over the world, especially in low-income countries. The term was coined [21] in 2017 after China made a deal with Sri Lanka to receive a 99-year lease of Hambantota Port from Sril Lanka after the latter fell behind debt payment and since then has been widely used to describe Chinese overseas projects under BRI. To obviate such a situation, it is safe for Iran to strategically look for other potential partnerships rather than solely relying on China.

Indo-Iran Cooperation

The recent lithium discoveries in India open up avenues for New Delhi and Tehran to build partnership in the lithium industry. In February 2023, the Geological Survey of India discovered reserves of about 5.9 million tons of lithium in the Salal-Haimana area of Reasi district of Jammu & Kashmir. On August 24, 2023, Indian Prime Minister Narendra Modi met with Iranian President Ebrahim Raisi on the sidelines of the 15th BRICS summit in Johannesburg where they discussed [22] prospects of strengthening bilateral cooperation in sectors like energy and transport.

The bilateral relationship has seen ups and downs due to India’s issues-based alignment with the US, Iran’s strategic adversary. Iran used to be one of the key oil suppliers to India, fulfilling 10 percent [23] of its oil needs. However, once the Donald Trump administration unilaterally walked out of the Joint Comprehensive Plan of Action (JCPOA) in 2018, sanctions were reimposed [24] on Iran. In May 2019, the US ended the six months waiver [23] given to a few top buyers of Iranian oil, including India, to bring Iran’s crude oil export down to zero. India complied with the US sanctions and stopped importing oil from Iran and since then, there has been no breakthrough.

India seeks strong relations with Iran to counter Chinese strategic encirclement, minimise Pakistan’s influence, diversify its oil and gas imports and become an important gateway to Central Asia (Pethiyagoda, 2018). The 2003 Delhi Declaration [25] signed between India and Iran envisioned an enhanced regional and global cooperation in areas like counterterrorism, energy, science, information technology etc., but could not be fully realised. A lithium-industry based partnership may go a long way in reviving the bilateral relations, but uncertainties persist due to international sanctions imposed on Iran.

Conclusion

The scale of lithium reserves found in Iran is significant. If proven commercially viable, it may help Iran in making the switch to electric vehicles and reducing dependence on fossil fuels and imports of lithium-ion cells. Iran would require foreign assistance in mining and refining lithium and building-up of the battery manufacturing units. In light of the recent changes sweeping the geopolitical landscape of West Asia, countries like India and Saudi Arabia may make use of these positive developments by building a strong collaboration with Iran in the lithium industry to ensure regular supply of the mineral critical to their EV industry. However, given Iran’s strong economic relations with China and the latter being a significant global player in the lithium industry, Iran is likely to find China as a major partner in building key aspects of its lithium industry. Iran’s lithium discovery provides China a golden opportunity to cut dependence on its existing lithium suppliers who, unlike Iran, may succumb to the US pressure and hamper regular supply of lithium. The success of a long-term cooperation on building lithium industry will probably depend on how well Iran is able to obviate complete reliance on China by diversifying its options.

(The paper is the author’s individual scholastic articulation. The author certifies that the article/paper is original in content, unpublished and it has not been submitted for publication/web upload elsewhere, and that the facts and figures quoted are duly referenced, as needed, and are believed to be correct). (The paper does not necessarily represent the organisational stance... More >>