TEHRAN – Iran’s membership in the Shanghai Cooperation Organization (SCO) was initially hailed as a strategic pivot to counter Western sanctions and bolster its economic independence. However, years after its full accession, the results paint a starkly different picture. Despite high hopes, Iran has struggled to achieve its core economic objectives through the SCO, raising questions about the organization’s effectiveness as an alternative to the Western financial system.
One of Iran’s primary goals was to establish an alternative financial channel to bypass US dollar-based sanctions. The SCO’s ambitious ‘de-dollarization’ initiative, aimed at promoting trade in national currencies, was seen as a lifeline for Iran’s isolated banking sector. However, the lack of a unified financial messaging system or a multilateral clearing house has rendered this initiative largely symbolic. Instead of fostering a democratic basket of currencies, the initiative has inadvertently paved the way for the Chinese yuan’s dominance, offering little practical benefit to Iran.
Another key objective was to attract vital capital for strategic infrastructure projects, particularly the International North-South Transport Corridor (INSTC). This project, designed to connect Russia to the Indian Ocean, was expected to unlock significant financing under the SCO’s political umbrella. Yet, the reality has been far from promising. Key segments of the INSTC remain underfunded, with pledges from Russia, India, and China failing to materialize into tangible investments. Secondary sanctions and Iran’s inability to provide credible sovereign guarantees have further deterred potential financiers.
China, despite its 25-year strategic partnership agreement with Iran, has been notably risk-averse. Chinese state-owned banks and firms have refrained from committing to major Iranian projects, prioritizing commercial viability over political rhetoric. This has left Iran reliant on opaque financial networks and grey-market oil sales, perpetuating its economic vulnerability.
In contrast, fellow SCO member Pakistan has successfully leveraged the organization to advance its infrastructure goals through the China-Pakistan Economic Corridor (CPEC), a bilateral project with guaranteed Chinese financing. Iran’s inability to secure similar backing highlights the SCO’s limitations as a financing institution.
Ultimately, Iran’s SCO membership has been a political victory against Western isolation but an economic disappointment. The organization has provided a seat at the regional table but failed to unlock the financial resources needed to transform Iran’s economy. As rival transit corridors gain momentum, Iran risks falling further behind in the race to become a regional logistics hub.