Iran charts new course with Shanghai bloc partnership

As President Masoud Pezeshkian attends the 25th summit of the Shanghai Cooperation Organization (SCO) in China, the visit underscores Iran’s growing engagement with a bloc that is increasingly shaping the future of regional and global economics and security.

For over a decade, Iran has faced inhuman sanctions primarily imposed by the United States and its Western allies. These measures have severely constrained Tehran’s access to global financial markets, restricted its oil exports, and distanced it from traditional Western trade partners.

Against this backdrop, Iran’s engagement with the SCO—an influential bloc comprising China, Russia, India, and Central Asian republics—offers a vital platform to expand its international partnerships beyond the traditional Western-dominated frameworks.

As European markets shrink in significance due to political and sanction-related barriers, Iran’s economic focus is decisively moving eastward.

SCO members collectively represent nearly half of the world’s population and about one-fourth of the global GDP, making them indispensable partners for Tehran’s economic diversification and growth plans.

Although the SCO originated primarily as a regional security alliance, it has evolved over its 24-year history into a multifaceted organization encompassing economic, cultural, and technological cooperation.

For Iran, which joined as a full member only recently, the SCO presents a platform to not only expand trade but also learn from advanced diplomatic and economic practices within a cooperative multilateral framework.

Tehran’s plans are ambitious but realistic: to more than double trade volume with SCO countries from approximately $35-36 billion currently to over $50 billion.

Realizing this goal could unlock the potential of SCO membership, transforming it from a geopolitical necessity into a robust engine for sustainable economic growth.

Many SCO member states are also partners with Iran in other regional organizations such as the Eurasian Economic Union and the Economic Cooperation Organization (ECO).  

Agreements such as the one currently under negotiation to eliminate 87% of tariffs between Iran and Russia, Belarus, and Uzbekistan could effectively double or triple current trade volumes.

Additionally, Iran’s multidimensional engagement with SCO countries—many of which are its immediate neighbors, including Afghanistan, Pakistan, Kazakhstan, and Kyrgyzstan—further strengthens regional connectivity.

The overlapping memberships in these various organizations create interconnected trade corridors that enhance economic resilience and provide Iran with multiple avenues to diversify and expand its trade relationships, reducing reliance on any single market and reinforcing regional stability.

Iran’s natural endowments and industrial strengths complement the needs of SCO members, particularly in energy, agriculture, technology, and security cooperation.

In 2022-2023, it recorded record exports worth over $58 billion and unprecedented transit volumes exceeding 22 million tons. These figures highlight Tehran’s capacity to adapt and maintain economic momentum in the face of external pressures.

Iran is a crucial energy supplier, with China alone accounting for over 26% of its total trade—oil exports being the largest component. The bilateral energy relationship is pivotal, especially since China remains Iran’s biggest oil customer, absorbing over 90% of its oil exports.

Given the breadth of their relationship—including a 25-year cooperation agreement and participation in China’s Belt and Road Initiative—such collaboration could deepen Iran’s integration into Asia’s dynamic economic network.

Russia and India also stand as key energy partners, enabling Iran to diversify its customer base and hedge geopolitical risks.

SCO countries like Kazakhstan, Kyrgyzstan, and Russia offer fertile ground for agricultural collaboration. Together with India and Pakistan, they provide ample opportunities to stabilize food supplies, an essential factor given Iran’s ongoing need to secure its domestic food market under sanctions.

China and India’s technological prowess can support Iran’s plans in modernizing its industrial and digital sectors. Moreover, cooperation in defense and security—with SCO members possessing nuclear capabilities—could enhance regional stability, indirectly benefiting Iran’s economic environment.

A significant theme within the SCO—and a shared priority for Iran—is reducing dependency on the US dollar in trade settlements.

Dollar-denominated transactions have been a channel for enforcing sanctions, and by promoting “de-dollarization,” SCO members aim to develop alternative payment systems and strengthen their financial resilience.

Iran’s SCO membership also sends a strong geopolitical message that the US-led sanctions regime has not succeeded in isolating the country. The presence of permanent UN Security Council members such as Russia and China within the SCO amplifies Iran’s leverage and diplomatic capital.

Moreover, the organization’s condemnation of recent Israeli attacks on Iranian nuclear and energy infrastructure reflects solidarity that bolsters Iran’s security assurances.

Businesses and governments in the SCO space are increasingly willing to engage with Iran despite sanctions, especially when those engagements are insulated by multilateral support or involve non-dollar settlement structures.

Iran’s engagement with the SCO is emblematic of a broader strategic recalibration away from a Western-centric economic model towards a multi-polar, Asian-focused paradigm.

As Iran deepens ties with SCO members, it is poised not only to mitigate the adverse impacts of sanctions but also to tap into the dynamic growth engines of Asia and Eurasia.

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