The new ‘Central Powers’? China, Russia and Iran solidify relations, targeting petrodollar and Western dominance

Across human history, geopolitics has largely been the story of the rise and fall of major powers, empires, and the rivalry between the established and emerging powers of the age.

By far, the most central characteristic of this history is the utter dominance of a small number of nations, empires or kingdoms over others, which created what is often described as a lopsided approach to the geopolitical concept of polarity, making the world a tricky environment in which to operate, particularly for middle and emerging powers.

The reality of our modern world is no different, this is despite the post-Second World War dominance of the United States over the global leavers of power, institutions, and commons, which was heightened in the aftermath of the Cold War.

Fast forward to today and the jubilation and hubris which characterised the years immediately following the collapse of the Soviet Union has now transformed into a far less optimistic vision of the future, as once again, the historical “norms” of great power competition and multipolarity are alive and well.

In recent years, the post-Second World War global order has come under assault both directly and indirectly in a new wave of “grey zone” or “hybrid” warfare, which has resulted in the creation of parallel network of economic, political, and strategic organisations and arrangements to challenge the US-led post-war global order.

Adding to this seemingly coordinated pushback against the US-led world order, Putin’s Russia and Xi’s China have equally sought to directly subvert and undermine the legitimacy and reputation of the United States and its multilateral international organisations that serve as the foundation of this order.

Leading the charge for this new, increasingly contested multipolar world is Mao and now Xi’s China, seeking to leverage its now immense economic, political, and strategic might to right the wrongs of the past, namely the “century of humiliation” at the hands of colonial empires, with its eyes firmly set on usurping the global status quo.

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In contrast for the United States, the incumbent global hegemon, the last three decades of unrivalled dominance and optimism post-Cold War have equally seen a hollowing out of the once-unrivalled US economic and industrial base, and an overdependence on the oil-backed/linked US dollar to reinforce its global might.

Compounding this, disastrous forays in military adventurism in the Middle East and Central Asia, all the while the world’s emerging powers are rapidly developing their own immense economies and strategic capabilities to reshape the world in their image.

Spearheaded by Brazil, Russia, India, Indonesia, China, South Africa and Iran, the BRICS multilateral organisation – an emerging economic, political and burgeoning strategic bloc – is giving rise to an increasingly disrupted and contested global environment that will directly impact global economic, political, and strategic security for nations like Australia.

Reinforcing the impact of these organisation and the increased coordination between China, Russia and Iran, in particular, is a piece for The Economist, titled, How China, Russia and Iran are forging closer ties: Assessing the economic threat posed by the anti-Western axis, which established, “United by a common foe, the trio (China, Russia and Iran) now vow to advance a common foreign policy: support for a multipolar world no longer dominated by America. All see stronger economic ties as the basis for their alliance.”

Confronting their common foe

Against the mounting regional and broader global shifts in the balance of power and a seemingly unifying bloc of revisionist powers, the Western world appears fractured, chaotic, and divided.

Facing mounting economic pressures and the potential for stagflation, domestic political atomisation and polarisation, disenfranchisement and a phenomenon of “managed decline” that is now increasingly characterising the public policy making of many Western governments.

Standing in stark contrast are the bold, invigorated, and ambitious designs for the global order spearheaded by China, Russia and Iran which are increasingly being consolidated, built upon and expanded to challenge the United States and its world order.

Highlighting this, The Economist stated, “All three countries are members of the same multilateral clubs, such as the BRICS. Bilateral trade is growing; plans are being drawn up for tariff-free blocs, new payment systems and trade routes that bypass Western-controlled places.”

This has rightfully raised the alarm for the West, although you could be forgiven for wondering whether or not we’re really playing the long game and truly thinking through the second, third and even fourth order effects of our international political movements.

Again, The Economist added, “For America and its allies, this is the stuff of nightmares. A thriving anti-Western axis could dodge sanctions, win wars and recruit other malign actors. The entente involves areas where links are already strong, others where collaboration is only partial and some unresolved questions. What might the alliance look like in five to 10 years?”

This question is particularly poignant for Australia’s own future economic, political, and strategic security as we straddle both the Indian and Pacific Oceans and neighbour an increasing number of BRICS member states and potential member states spread throughout the Indo-Pacific.

At the core of confronting and undermining the US-led global order is the push to circumvent US and, more broadly, Western sanction regimes and build independent, yet vibrant and resilient economies buoyed by cooperative trade relationships within the confines of BRICS and BRICS-adjacent countries.

Russia and Iran, in particular, have benefited from the voracious demand for energy from China and other growing economies, including India, Indonesia, Vietnam, Brazil and others which have provided both pariah states with avenues for countering the US-led sanctions regimes on both powers, while providing secure energy with which these nations continue to build their own economies.

“Start with booming business. China has long been a big customer of petrostates, including Iran and Russia. But these two also used to sell lots of oil to Europe, which was close to Russia’s fields and easy to reach from the Gulf. Since Europe started snubbing them, China has been buying barrels at bargain prices. Inflows from Russia’s western ports have risen to 500,000 barrels a day (b/d), from less than 100,000 pre-war, reckons Reid l’Anson of Kpler, a data firm,” The Economist explained.

Unpacking this further, The Economist added, “Russia and Iran have little choice but to sell to China. In contrast, China is only subject to restrictions on imports of Western technology – it does not face financial bans or trade embargoes. Therefore it can, and does, buy oil from other countries, which gives it the upper hand in negotiations with its allies. China gets Russian and Iranian supplies at a discount of US$15–30 a barrel on the global oil price, and then processes the cheap hydrocarbons, turning them into higher-value products.”

This economic focus is reinforced by a “trade not aid” approach taken by China through initiatives like the Belt and Road Initiative (BRI) and organisations like the Shanghai Cooperation Organisation (SCO) and under the auspice of the broader collaboration between China, Russia, and Iran providing mutually beneficial outcomes and opportunities for domestic economic stabilisation and growth.

The Economist added, “China’s exports to Russia have duly soared. As COVID-19 rules strangled its economy, China sought to compensate by boosting manufacturing exports. Instead of shoes and T-shirts, it tried to sell high-value wares, such as machinery and mechanical devices, for which Russia acted as a test market. Last year the biggest importer of Chinese automobiles was not Europe, a destination for its electric vehicles, but Russia, which purchased three times as many petrol cars it did as before the war.”

Going further, “Since 2022 Iran has sold Russia drones and weapons systems that are causing damage in Ukraine – its first military support for a non-Islamic country since the revolution in 1979. Early this year Iran also sent Russia 1m barrels of crude by tanker, another first. But sanctions make deeper ties tricky. Although Russia stopped releasing detailed statistics in 2023, ship-traffic data in the Caspian Sea show only a modest rise since 2022, when the country’s leaders set an ambitious target to boost bilateral trade.”

This all goes a long way to enhancing the economic, political and strategic integration and collaboration between the new tripartite organisation, while also establishing a powerful model for expansion to the broader BRICS and SCO member states, bringing it into direct conflict with the often heavily conditional Western aid funding that traditionally helped to uplift the emerging world.

Building interconnected economies

As Russia and China continue to enhance their “no limits strategic partnership”, their broader collaboration with Iran provides an important mechanism for building interconnected and growing national economies.

The Economist explained, “Various forums aim to promote co-operation and cross-border investment. Last July Iran became the ninth member of the Shanghai Cooperation Organisation, a China-led security alliance that also includes Russia. In December it signed a free-trade agreement with the Russia-led Eurasian Economic Union, which covers much of Central Asia. In January it joined the BRICS, an emerging-market group that includes both China and Russia.

“These get-togethers give the trio more chances to talk. At recent summits, Iranian and Russian ministers have revived negotiations to extend the International North-South Transport Corridor (instc), a 7,200-kilometre route connecting Russia to the Indian Ocean via Iran. At present Russian grain must travel to the Middle East through the NATO-controlled Bosporus. The proposal, which includes a mixture of roads, rail and ports, could turn Iran into an export outlet for Russia.”

This would expand the integration and attractiveness of Russian exports via the Iranian middleman particularly among the broader BRICS and SCO members, who are eager to capitalise on cheap commodity and raw material prices from Russia, while simultaneously benefiting from cheap consumer goods made in China all while conveniently sticking the middle finger up to the US and the West.

However The Economist explained that while it is a powerful economic, political, and strategic bloc and increasingly so, it isn’t necessarily the end of the US-led world order, at least not just yet anyway, saying, “At this stage, then, the anti-Western entente is worrying but not truly scary. How will it develop over the years to come? The likeliest scenario is that it remains a vehicle that serves China’s interests, rather than becoming a true partnership. China will use it for as long as it can reap opportunistic gains and stop short of giving it full backing. The country’s officials will decline to put weight behind alternative trade routes or payment systems, not wanting to put at risk business in the West.”

This would have major implications for the US and Western allies, like Australia, who have become increasingly dependent on China as the “factory of the world” and the junior partners of the BRICS and SCO alike, with The Economist explaining, “Junior partners may not be pleased: their manufacturing industries would suffer as China redirected its exports. America would also suffer: its consumers would pay more for their imports, and in time its leaders would see the first serious challenge to their dominance of the global trading system.”

Either way, for nations like Australia, a lower-tier middle power, the emerging economic, political and strategic mass of these organisations in direct competition to the US and Western alliance necessitates that Australia take these challenges more seriously and build greater domestic capability via models like “homeland economics” as a means of enhancing national resilience and competitiveness in this newly emerging global order.

Final thoughts

If Australia is going to survive and thrive in this new era, Australia’s policymakers and the public are going to have to accept that while the world is increasingly becoming “multipolar”, the Indo-Pacific, in particular, is rapidly becoming the most hotly contested region in the world.

All of this is underpinned by the emerging economic, political, and strategic might of powers like China, India, Pakistan, Thailand, Vietnam, and the established and re-emerging capability of both South Korea and Japan in particular, are serving to create a hotbed of competition on our doorstep.

Recognising this array of challenges and opportunities, both the Australian public and its policymakers urgently need to look beyond the myopic lens that has traditionally dominated our diplomatic, strategic, and economic policymaking since Federation.

Ultimately, we need to see Australia begin to play the long game to fully capitalise on the opportunities transforming the Indo-Pacific.

The most important question now becomes, when will we see a more detailed analysis and response to the challenges and opportunities facing Australia and when will we see both a narrative and strategy that better helps industry and the Australian public understand the challenges faced and opportunities we have presented before us?

As events continue to unfold throughout the region and China continues to throw its economic, political, and strategic weight around, can Australia afford to remain a secondary power, or does it need to embrace a larger, more independent role in an era of increasing great power competition?