Iran's SCO Entry Turning Into A Road To Nowhere

2025-09-04 06:09:50

(MENAFN- Asia Times) TEHRAN – For a nation under the crush of international sanctions, membership in the Shanghai Cooperation Organization (SCO) was never just about diplomatic photo-ops. For Iran, it was pitched as a strategic pivot – a litmus test of its economic viability beyond the Western financial system.

The objectives were clear and pragmatic: first, to forge an alternative financial channel to bypass the US dollar and banking sanctions; second, to attract vital capital for strategic infrastructure projects.

Years after its full accession, as the dust settles on another summit, it is time to audit the books. Did Iran achieve its core economic goals? The balance sheet so far delivers a stark verdict.

De-dollarization mirage

The banner cause of SCO economic summits has consistently been the ambitious goal of“de-dollarization” and trading in national currencies. For Tehran, this was framed as a lifeline for its isolated banking sector. A closer inspection, however, reveals a harsh reality.

The SCO still lacks a unified financial messaging system (a SWIFT alternative) or a multilateral clearing house to settle complex trades. Existing agreements are largely bilateral and ill-suited for a non-convertible currency like the Iranian rial.

Moreover, the de-dollarization initiative is not creating a democratic basket of currencies; it is paving the way for the gradual hegemony of the Chinese yuan. In practice, the roadmap for using local currencies has remained a political statement, not a functional economic tool for Iran.

A post-mortem on stalled megaprojects

Iran's primary economic showcase at the SCO has been the International North-South Transport Corridor (INSTC), a project meant to connect Russia to the Indian Ocean. The expectation was that the SCO's political umbrella would unlock the financing needed to complete it. The table below tells a different story.

Map: Wikipedia

Table 1: Reality Check on Key International Rail Corridor Segments (Iran portion)

Strategic segment	Length (km) / technical specs	Est. total cost (€ billion)	Key pledges from '23-'24 summits	Realized funding (source)	Current funding gap (€ billion)	Status & key obstacle
Rasht-Astara Railway	162 km (technically complex)	~ 1.6	Russian state loan agreement announced at Astana '24 summit	Zero (the loan is not operational; no funds disbursed)	1.6	Obstacle: secondary sanctions risk; Russian banks are unwilling to engage in a project with uncertain returns due to sanctions on Iran
Chabahar-Zahedan Railway	628 km	~ 2.1	Verbal emphasis on importance by India at '23 summit	0.3 (Iran's internal funds – insufficient)	~ 1.8	Obstacle: Indian financing is effectively suspended over fears of US secondary sanctions; the project proceeds at a snail's pace on a shoestring domestic budget
Tehran-Tabriz Electrification	~600 km (upgrading existing line)	~ 1.2	Talks with China on the sidelines of most summits	Chinese finance (signed but not executed)	1.2	Obstacle: Iran's inability to provide internationally accepted sovereign guarantees for Chinese banks; lower priority compared with new projects

Sources: Iran's Ministry of Roads and Urban Development, Islamic Republic of Iran Railways (RAI) and announced international agreements. China: strategic ally or risk-averse investor?

The most glaring paradox in Iran's economic strategy is the lack of tangible investment from China, despite the fanfare of a 25-year strategic partnership agreement. The refusal of Chinese state-owned banks and firms to commit to major Iranian projects is rooted in a cold, pragmatic calculation that transcends political rhetoric:

Commerce over politics : Chinese banks are ultimately commercial entities. The high risk of investing in a sanctioned environment, coupled with the lack of credible international bank guarantees from Tehran, makes any large-scale project financially unjustifiable.

Beijing's strategic priorities : Iran's transit projects, especially the INSTC, are a strategic priority for Russia and India, not China. Beijing's capital and focus are directed at its own Belt and Road Initiative, whose main arteries run through Central Asia and Pakistan. Investing in a rival corridor holds little strategic appeal.

The sanctions reality : China's industrial and banking giants are deeply integrated into the global dollar-based economy. Engaging in massive projects in Iran would expose them to the potent risk of US secondary sanctions – a risk Beijing is unwilling to take.

Thus, China has played the role of a supportive political partner for Iran on the world stage but has balked at being a committed financial stakeholder willing to underwrite its economic risks.

A tale of two corridors

To grasp the depth of Iran's failure, a comparison with fellow SCO member Pakistan is illuminating. Pakistan also views the SCO as a platform to advance its infrastructure goals, namely the China-Pakistan Economic Corridor (CPEC).

The fundamental difference is that CPEC is not a multilateral SCO project; it is a bilateral Chinese strategic project that uses the SCO's political cover for regional legitimacy. Its financing is guaranteed by Chinese policy banks.

Iran's projects lack such a powerful, dedicated patron. The INSTC is caught in the middle of the competing interests of Russia and India and China's strategic indifference. This proves the problem is not just sanctions but the very structure of the SCO: it is not a financing institution, but a platform for advancing projects that already have powerful bilateral backing.

Steep price for an empty promise

The answer to the central question is an unequivocal no: Iran has not achieved its primary economic objectives through the SCO. The consequences of this failure are severe and paint a grim picture for Iran's economic future:

Financial consequence : Entrenchment in the Grey Economy. With no formal financial channels opening up, Iran is forced to remain reliant on its grey-market oil sales and opaque, high-risk financial networks to survive. This keeps the economy in a permanent state of vulnerability.

Geo-economic consequence : Losing the transit race. As Iran's INSTC projects stall from a lack of capital, rival corridors are gaining ground. Specifically, the“Middle Corridor” running through Azerbaijan and Turkey, backed by Western and Turkish interests, is rapidly developing and capturing transit cargo. Iran is not just failing to advance; it is actively falling behind in the regional competition to become a logistics hub.

For Iran, SCO membership has been a significant political victory against Western isolation efforts. But in the unforgiving arena of geo-economics, it has so far been a bounced check. The organization gave Iran a seat at the regional political table, but the door to its treasury remains firmly locked.

A senior economic analyst and deputy CEO of an oil & gas company based in Tehran, Amirreza Etasi (... ) has worked for more than a decade at the intersection of public finance, energy and development policy, both in executive roles and as a contributor to major media outlets in Iran and abroad.

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