M. Soltani on the role of the SCO in economic relations in the era of sanctions

Mehdi Soltani, an independent researcher from the Islamic Republic of Iran, wrote for the journal “Международный бизнес | International Business” edited by the Moscow State Institute of International Relations, also known as MGIMO University, a detailed and comprehensive article on “The role of the SCO in economic relations in the context of sanctions, with an emphasis on Russia and Iran | The role of the SCO in economic relations in the context of sanctions with emphasis on Russia and Iran”. The article can be found in issue 4 (6) of 2024 and you can read it here in Russian and here in English.

The author clearly points out the role and impact the SCO has on global economy: ”With a combined GDP reaching $25.3 trillion in 2023, accounting for nearly a quarter of the global GDP, SCO member states, play a significant role in maintaining regional stability and enhancing confidence in the region. Growing trade figures, such as China’s $343.1 billion trade with other SCO members in 2021, illustrate the organization’s potential to drive economic prosperity in line with the charter’s goals”.

He further adds that ”For nations navigating the complex terrain of sanctions, particularly Iran and Russia, the SCO emerges as a haven of economic cooperation. The organization’s commitment to economic security, counteraction to threats, and the promotion of human rights, as stipulated in Articles 1 and 2, provide a framework for overcoming difficulties posed by external pressures”.

In Article 1 of the charter it is clearly stated that, among other aspects the member countries aim towards the ”development of multifaceted cooperation in the maintenance and strengthening of peace, security and stability in the region and promotion of a new democratic, fair and rational political and economic international order” while regarding human rights it is written that ”promoting enjoyment of human rights and fundamental freedoms in accordance with the international obligations of the member States and their national legislation” is part of the goals and tasks.

Article 2 is title ”Principles” and contains the paragraph ”mutual respect of sovereignty, independence, territorial integrity of States and inviolability of State borders, non-aggression, non-interference in internal affairs, non-use of force or threat of its use in international relations, seeking no unilateral military superiority in adjacent areas”.

Regarding the sanction mechanism enforced by the Western group, M. Soltani recognizes that ”sanctions have emerged as a potent geopolitical tool, shaping the dynamics of trade and cooperation among
nations”. He goes on to argue that ”EAEU membership acts as a mitigating factor against external pressures. Regional integration serves as a buffer, preventing isolation during times of sanctions”.

Kazahstan is an interesting case study regarding the impact of sanctions on the way Russia conducts business with its traditional and regional partners. The author believes that ”Kazakhstan faces the delicate task of balancing its commitment to integration with the preservation of national sovereignty. President Kassym Jomart Tokayev’s pragmatic approach surprises many, as he declares Kazakhstan’s adherence to the sanctions regime while maintaining ties with Russia, Its main trading partner. Kazakhstan positions itself as a unifying mediator between the East and West, showcasing post-Soviet realism in its foreign affairs. Despite sharing extensive borders with Russia and being a member of the Eurasian Customs Union, It emphasizes that it will not allow its territory to be used to circumvent sanctions, highlighting a commitment to international norms”.

Many have criticized Kazahstan for this dualistic positioning, neither here nor there, but mostly leaning towards the Western side. Soltani is among those who see pragmatism în this approach.

The ramifications of sanctions are actually even broader, these ”also influence the political context within the EAEU, exposing competition among member states. Belarus and Kazakhstan, as driving forces, emphasize economic integration while cautiously navigating Russian influence. Armenia and
Kyrgyzstan prioritize national security, potentially leading to continued emphasis on national sovereignty”.

Entering the main body of the article, the author starts by mentioning some of SCO’s main initiatives like the Energy Club, the Interbank Consortium, and the proposed free trade zone. ”For Iran and Russia, both under U.S. and European sanctions, the SCO Energy Club has offered a lifeline for economic resilience and energy security”.

The SCO Interbank Consortium was established during the 2005 summit as a ”nominal union of leading banks in SCO countries, its primary objective is to stimulate financial activity and encourage investment for economic development”. Among its members we find the Development Bank of Kazakhstan, the RSK Bank (Kyrgyzstan), China Development Bank, VEB.RF (Russia), the Amonatbonk State Savings Bank (Tajikistan), the National Bank of the Republic of Uzbekistan for Foreign Economic Activity, Habib Bank Limited (Pakistan) and India Infrastructure Finance Company. There is no update of any Iranian presence in this initiative.

Regarding the activity of the Interbank Consortium ”by 2017, the Consortium reported an impressive allocation of $98 billion in financial resources across SCO countries, reflecting its potential impact on economic development”. However a series of issues have been pointed out ”One critical limitation
stems from the lack of clear regulations governing financial activities within the SCO. Despite the substantial reported allocations, the majority of these resources originate from the China Development Bank, highlighting a potential imbalance in contributions”.

One could consider that the mechanism has faild to achieve its objectives since the ”Consortium’s impact on the economic development of the region has been considered limited, with analysts pointing out that it functions nominally and does not significantly contribute to the promotion of trade and economic cooperation”. The new climate of Western sanctions warfare could give a boost to this initiative.

The SCO Free Trade Zone was first proposed by former Chinese Prime Minister Wen Jiabao in 2003 as a platform to enhance economic cooperation among SCO member states. Most member states were reluctant because they feared China’s economic domination. Seeing this, the Chinese came with a series of other projects like the SCO Development Fund which first offered 900 million USD în 2004. After that the SCO Business Council was established.

”China’s Belt and Road Initiative (BRI) and Russia’s Greater Eurasia join forces within the Shanghai Cooperation Organization (SCO), fostering economic progress and collaboration”, this is one of the most important phrases because here we have the real engine for the multipolar world order. The author goes on to analize the impact both the BRI and the Greater Eurasia project have on the SCO.

The BRI aims to connect Asia, Europe, and Africa through extensive infrastructural development and economic cooperation while the ”Greater Eurasia” concept was developed by Sergei Karaganov and promoted by Russian president Vladimir Putin since 2015. Greater Eurasia ”endeavors to weave a macro-regional integration fabric that encompasses political, security, and economic dimensions”.

”Despite concerns about the economic viability of certain projects, the ‘Greater Eurasia’ concept, characterized by its emphasis on state sovereignty and non-interference, provides Iran with an avenue to overcome international isolation. Through engagement with Moscow on economic and security issues, Iran seeks to legitimize its role and contribute meaningfully to the evolving geopolitical landscape”.

The author goes on with analizing the Eurasian economic integration between the SCO and the ASEAN and EAEU (Eurasian Economic Union, also abbreviated at EEU). Regarding SCO – ASEAN relationship, ”both organizations, as independent international entities, are emerging as alternatives to traditional Western-dominated institutions” while the EAEU – SCO cooperation ”encompasses a range of areas such as economic policy, trade, investment, energy, and transport”.