Following the end on the 18th of October of the 13-year United Nations’ embargo on Iran buying or selling weapons, the roll-out of the military component of the 25-year deal between China and Iran will begin in November, as exclusively revealed by Oil Price.com. After a series of meetings in China on the 9th and 10th of October between Iran’s Foreign Minister, Mohammad Zarif, and his China counterpart, Wang Yi, this military component may now also feature the deployment in Iran of North Korean weaponry and technology, in exchange for oil, according to sources very close to the Iranian government spoken to by OilPrice.com last week. Most notably this would include Hwasong-12 mobile ballistic missiles, with a range of 4,500 kilometres, and the development of liquid propellant rocket engines suitable for intercontinental ballistic missiles (ICBMs) or satellite launch vehicles (SLVs). This will all be part of a broader triangular relationship co-ordinated by Beijing and further facilitated by the imminent launch of a new digitised currency system by China.

This sort of co-ordination – between North Korea and Iran and also between North Korea, Iran, and China – is nothing new, although its resumption at such a scale and in such products is. According to a number of defence industry sources – and recorded in various ‘Jane’s Intelligence Reviews’ (JIR) – over the first five-year period from the onset of Iran’s ballistic missile program in 1987, Iran bought up to 300 Scud B missiles from North Korea. Pyongyang, though, did not just sell Iran weapons but it was also instrumental in helping Iran to build-out the infrastructure for what has become an extremely high-level ballistic missile program, beginning with the creation in Iran of a Scud B missile plant that became operational by the end of 1988. According to JIR and other defence sources, this early-stage co-operation in this area between North Korea and Iran also included Iranian personnel travelling to North Korea for training in the operation and manufacture of these missiles and the stationing of North Korean personnel in Iran during the build-out of missile plants. This model of knowledge and skills transference, of course, has been a key part of the 25-year deal between Iran and China since it was formally agreed back in 2016, including the training of up to 130 young, fast-tracked officers from the Islamic Revolutionary Guard Corps (IRGC) every year at various military institutions across mainland China. The simple idea of paying North Korea in oil is also far from new, having been a key method by which Iran helped to fund the development of North Korea’s more powerful Nodong series of missiles as early as the 1990s, according to Kenneth Katzman, Middle Eastern affairs specialist at the Congressional Research Service, in Washington. According to sources close to Iran’s Petroleum Ministry spoken to by OilPrice.com last week, oil shipments are the number one suggestion from North Korea to any country that has oil and wants weapons as a means of payment for any weaponry that Pyonyang has available. Related: ISIS Calls For Attacks On Saudi Oil Industry

The Hwasong-12, first revealed internationally in a military parade on 14 April 2017 celebrating the birthday anniversary of North Korea’s founding President, Kim Il-sung, is being made available to Iran in such a way and, from Tehran’s perspective, fits neatly into the delicate military strategy in which it is currently involved. This is founded on the fact that decades of various sanctions have left the Islamic Republic with a severely constrained ability to defend itself against attacks from hostile aircraft or missiles with its own air force, which leaves a massive standing army as the primary deterrent for land invasion and its own missile defence systems as the primary deterrent for aerial attacks. On the other hand, though, the Islamic Republic is aware that any major long-range missile attack on any foreign power allied with the U.S. will end in absolute disaster for it. As former U.S. Secretary of State Henry Kissinger once said:  “The threat of committing suicide is a poor deterrent to being murdered.”

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Consequently, Iran has consistently stated since 2017 – by order of the Supreme Leader, Ali Khamenei – that it will limit itself to developing ballistic missiles with a maximum range of 2,000 kilometres. Clearly, the Hwasong-12 has a range of double this but, crucially from Iran’s political impact modelling undertaken over recent months, this is unlikely to make the existing relationship with the U.S. worse. “The U.S. wanted more specific prohibitions on ballistic missiles in a new JCPOA [Joint Comprehensive Plan of Action] to be drawn up at the beginning of 2018 but that did not happen, so it withdrew,” said one of the Iran sources. “Iran believes that the next U.S. President, be it Trump or Biden, will want to do a deal to get some form of JCPOA back on track, so from that perspective being able to offer the withdrawal of the Hwasong-12s would be a useful negotiating tool,” he said. “At the same time, though, there is the threat that the Hwasong-12 IRBM [intermediate range ballistic missile] could be upgraded through the addition of an 80-ton thrust engine to either the Hwasong-14 [two-stage, 10,000 km range] or the Hwasong-15 [two rocket engines cluster in first stage, 13,000 km range] ICBMs,” he added. Related: Biden’s $2 Trillion Energy Plan Could Crush Natural Gas

This ‘upgrade’ would be regarded by the U.S. as a serious proposition, as there have been signals over the years that Iran might already have been working on such a higher-powered rocket booster configuration. According to a New York Times report from December 2011, the previous month had seen the destruction of a supposed development site in Iran for long-range solid-propellant missiles. “This was the first public indication that Iran was working on such systems, which would need much more energetic – and thus, explosive – propellants than used in Iran’s current Fateh-110-based solid-propellant short range ballistic missiles and Sejil medium range ballistic missiles, and press reports in May 2018 indicate that the program has continued at a new location where ICBM-class solid rocket motor production facilities and evidence of ground testing of ICBM-class motors have been detected in open source imagery,” said Robert Einhorn, senior fellow in the foreign policy program at Brookings Institution in Washington. He added that various sources since 2013 suggest Iran has been receiving cooperation from North Korea in the development of a large, liquid-propellant rocket engine suitable for ICBMs or SLVs and that a U.S. Treasury Department sanctions notice from January 2016 refers to Iranian work on a North Korean ‘80-ton rocket booster.’

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China, for its part, has been warned by the U.S. in the past for failing to adhere to the Missile Technology Control Regime in supplying missile equipment and technology to various countries, which is why it has frequently used North Korea as an agent to do so, allowing itself to plead ignorance of any illegal activity. It is obvious, however, that there are many benefits for China in seeking to expedite the movement of such missile technology from North Korea to Iran as part of the 25-year deal’s military component. First, as Iran is paying North Korea in oil it takes some pressure off China in its obligations to its neighbour. Second, it cements China’s clear position to the U.S. as having influence over not just one but two nuclear and near-nuclear states. Third, it further binds Iran (and the rest of the Shia crescent of power, especially Iraq) into China’s geopolitically game-changing ‘One Belt, One Road’ project. Fourth, it creates a counterpoint of influence and power in the Middle East akin to the U.S.-Israel axis. And fifth, it will shift more of the U.S.’s attention on the Persian Gulf and away from the Asia-Pacific region that China regards as its backyard of power.

All of this is set to be facilitated further by the imminent roll-out of China’s digital currency electronic payments system (DC/EP), on which the People’s Bank of China (PBOC) has been working since at least 2014. The DC/EP will operate on a two-tiered system, with the digital currency itself, like cash, being a direct claim on the central bank denominated in renminbi (RMB), Rory Green, Asia analyst for TS Lombard, in London, told OilPrice.com last week. The PBoC will exchange CBDC with chosen banks and financial intermediaries, which, in turn, will make the funds available to users via existing electronic banking platforms, and clients will be able to convert RMB to CBDC (at a rate of 1:1) via their digital wallets. “The digital RMB could certainly help the integration of Iranian financial companies into the Chinese banking system and avoiding the US$/Swift monopoly,” highlighted Green. “China could set up an entity completely unconnected to its traditional banking system to receive all the payments via digital RMB, with the payments then sent on via digital RMB,” he added. “This would be similar to the function currently performed by the Bank of Kunlun, and some of the North Korea trading houses but with fewer of the downside risks for other banks/companies in China to associate with the processing entity,” he concluded.

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By Simon Watkins for Oilprice.com

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