The SCO, a Eurasian political, economic and security forum founded in 2001, is comprised of eight member states: China, India, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, Pakistan and Uzbekistan (with Iran soon to join). Afghanistan, Belarus, and Mongolia are observer states, while Armenia, Azerbaijan, Cambodia, Nepal, Sri Lanka and Turkiye are dialogue partners.

During the latest summit in Samarkand, SCO leaders came together for the first time in person following a period of virtual meetings. It was a widely anticipated event, particularly for two key SCO leaders: Russian President Vladmir Putin and his Chinese counterpart President Xi Jinping, who met on the side-lines of the summit, a first not only since the pandemic but also since the start of the Russia-Ukraine war. Other Heads of State also attended the summit to discuss mutual security concerns, such as Afghanistan.

ODI analysts were observing the summit in Uzbekistan and were particularly interested in the following themes:

• China’s expanding national security narrative
• the significance of an Iran-Turkiye-China-Russia SCO alliance and why the SCO shouldn’t simply be viewed as an anti-Western alliance
• the economic opportunities and risks through infrastructure development and trade.

China’s expanding national security narrative

Since its inception, China has sought to use the SCO to tie strategically important states into an international organisation (largely directed by Chinese principles of foreign policy) and as a way for China to build political capital in the region for its priorities. So, against the backdrop of the United States (US) Senate Committee on Foreign Relations passing of the Taiwan Policy Act (a bill to provide $6.5bn to fund weapons and other support for Taiwan), Xi’s call to “to seize the opportunity to build consensus, deepen cooperation and jointly create a bright future for the Eurasian continent” came as no surprise.

At the summit, Beijing was clear in its support for advancing SCO expansion, signing off on Iran’s admission for membership, endorsing the review of Belarus’ membership application, and adding Bahrain, the Maldives, the United Arab Emirates, Kuwait and Myanmar as dialogue partners. Certainly for China, garnering support for its anti-US narratives and its Taiwan position is critical, but that is only part of the appeal of the SCO.

Since the announcement of China’s Overall National Security Outlook on 17 February 2014, there has been a shift in how the Party sees traditional and non-traditional risks to national security, reflecting a shift in China’s assessment of the external environment from one of “period of strategic opportunity” first announced by Jiang Zemin in 2002, to one requiring vigilance against a myriad of risks.

As expected, Xi called for expanding security cooperation on traditional threats such as combating terrorism, separatism, extremism, drug trafficking and transnational organised crime. These have been long-standing objectives of the SCO and its predecessor, the Shanghai Five (1996–2000). The summit saw China commit to train 2,000 law enforcement personnel for SCO member states in the next five years to enhance capacity-building for law enforcement of SCO member states.

Reflecting Beijing’s redefinition of what constitutes a threat to national security, Xi called for collaboration around non-traditional risks issues such as food and energy security, outer space security, and maintaining the security, stability, and diversification of supply chains. In this spirit, Xi has also used the summit to push China’s Global Security Initiative (GSI), first announced in April 2022 at the Boao Forum for Asia Annual Conference. The GSI pushes the “indivisible security” based on the idea that no country can strengthen its security at the expense of others. SCO countries such as Iran and Pakistan are likely to see “indivisible security” as well, aligned with their views on international security. Beijing needs major SCO countries like India and Russia to make the GSI truly global.

Chinese risk assessments are not static. What defines National Security is broad and getting broader, and Beijing will expect organisations such as the SCO to further enhance its political capital building. Under Xi, China’s threshold for risk-taking to secure core interests is increasing, and its position will possibly become even more assertive after the 20th National Congress in October 2022. Expect more engagement in Afghanistan, Central Asia and energy security transition.

Rebecca Nadin
Director of Global Risks and Resilience programme , ODI

Iran and Turkiye pursue permanent positions in the Shanghai Cooperation Organisation

The recent SCO summit in Samarkand was of particular significance due to Uzbekistan’s current chairmanship, especially within the context of Uzbek President Shavkat Mirziyoyev’s ‘New Uzbekistan’ programme, following the launch of a series of reform initiatives since 2016. Yet while all eyes were focused on the much-anticipated meeting between Russian President Vladimir Putin and Chinese leader Xi Jinping, two new powers made notable advances within the Eurasian political and economic forum. The role of Iran and Turkiye at the Samarkand summit was of much greater importance when compared to previous summits, with Iran signing a membership agreement to become a permanent SCO member and Turkiye announcing its bid for permanent membership.

Turkiye’s decision to elevate its position from a dialogue partner of the SCO (since 2012) to becoming a full member is significant considering a successful bid would make Turkiye the first NATO member to join the China-led bloc. Many have viewed this as an unexpected move by Turkish President Recep Tayyip Erdogan, although suggestions of joining as a permanent member were first indicated as early as 2013 when Erdogan had initially compared the SCO to the European Union (EU) claiming that the former serves as a “much more powerful, better organisation”. The membership bid is therefore simply the latest development of a dialogue that has lasted more than a decade. Following years of unsuccessful attempts to attain EU membership, looking to join an alternative economic union is in line with Turkiye’s policy of engaging in balanced relations globally, which has become even more pertinent since the start of the Russia-Ukraine war.

By joining a regional organisation which accounts for over 40% of the world’s population and over 30% of the globe's gross domestic product, SCO membership would also grant Erdogan economic leverage ahead of next year’s general election against the backdrop of continued domestic economic challenges. Membership would also present an opportunity for Ankara to consolidate its regional position as a balanced intermediary, as well as adding significant strategic value to the organisation’s political and security agenda. As of yet, there has been no official reaction from NATO members on Turkiye’s membership announcement, although it is likely to cause tension with allies particularly at a time of considerable geopolitical volatility.

Another key development during the summit was Iran’s formal inclusion as a permanent member, which is scheduled to take effect from April 2023. The decision was formalised following the signing of a membership agreement, building on Iran’s SCO observer status which it has held since 2005. Previous attempts to join the organisation had been blocked due to United Nations sanctions, with the latest step recognised as a way for Tehran to overcome economic barriers, specifically in relation to its disputed nuclear programme. By aligning itself with powers such as China and Russia, Iran has signalled that despite the restrictions associated with Western sanctions, alternative options exist as it seeks to position itself as a key player among the Eurasian community. Becoming a permanent member will also support the International North-South Transport Corridor, a multi-network route for trade connectivity, in which Iran plays a significant role.

Although many observers label the SCO merely as an anti-NATO bloc that functions as part of a weak multilateral framework – mainly due to its various internal disagreements – the SCO has been successful in expanding its scope, particularly in relation to intraregional trade and investment. The SCO is also increasingly evolving into an economic alliance and presenting itself as a reliable alternative for its members to thwart economic shocks and financial uncertainty stemming from sanctions associated with the global geopolitical climate.

The latest addition of Iran and potential inclusion of Turkiye as permanent members should not be simply overlooked as lightweight anti-Western backlash. An Iran-Turkiye-China-Russia coalition has the potential to be a powerful alliance against the Western liberal order. The power shifts to the East have been in the works for a while, particularly noted with Turkiye’s pivot away from the West and its growing dependency on Russia. The continued expansion of SCO membership will not only add to the organisation’s status and reach, but it will also provide it with political leverage to balance the role of the West and challenge powers such as the US against financial pressures. The future of the alliance will be shaped by the SCO’s key members, which will subsequently influence the dynamics across the wider Eurasia region.

Ilayda Nijhar
Global Risks Analyst, Global Risks and Resilience, ODI

Economic opportunities and risks in the SCO

Trade among SCO members had risen to US$6 trillion in 2020 from US$667 billion when the group was founded in 2001. Since many transport routes through Russia are affected by sanctions due to the war in Ukraine, the countries are looking for new ways to trade with the world. Thus, the SCO Summit in the historic town of Samarkand in Uzbekistan is significant for at least two important reasons: first, from a security and political perspective, and second, due to the potential to impact the region’s economies through cooperation and trade.

The SCO’s scope in terms of its market and its energy resources should not be underestimated. The population of the SCO member countries combined is 3.33 billion (2021), or 42.49% of the world’s population. The combined GDP of the eight member states is US$23.307 trillion (2021), or 24.2% of the global GDP (calculations based on the World Bank data for 2021 for eight permanent member states and Iran). Collectively, SCO members account for almost 20% of the world’s oil reserves and 44% of its natural gas (calculations based on the BP data for 2021 for eight permanent member states and Iran). All of the member states are also large food producers and have produced a joint statement on food security as well as an agreement on diversified supply chain development.

On 16 September 2022, members of the bloc agreed to expand trade in national currencies. The idea has been around for some time and SCO members have already been increasing trading in their own currencies, e.g. Russia and China have increased trading using rouble and renmibi since 2014 after Western sanctions were imposed on Russia. Clearly, trading in national currencies reduces the dependency on the dollar in bilateral trade but increases the dependency on the national currency fluctuations.

Another important area under consideration was in infrastructure development as a pathway to accelerate trade in the region. Infrastructure development would benefit countries by facilitating access to raw materials and reducing transportation costs. Given that the average poverty rate in proportion to the population in SCO member countries is 14.2% (calculations based on the World Bank data for 2021 for eight permanent member states and Iran), there is immense potential for economic development and poverty alleviation through regional trade.

The construction of the two railways will help strengthen economic connectivity. The first one, Termez–Mazar-e-Sharif–Kabul–Peshawar, estimated to cost US$5 billion, will open Pakistani seaports on the Arabian Gulf to Uzbekistan. The project promises economic benefits not only for Uzbekistan but also for all countries of Central Asia. Thousands of jobs will be created in Afghanistan. Moreover, the cost of transporting one container from Tashkent to Karachi will be around US$1400–1600, significantly lower than the cost using the Tashkent–Bandar Abbas route. Uzbekistan previously announced that the project would be financed almost entirely by the World Bank with a loan of US$4.8 billion.

The second is a new route from Torugart to Jalalabad, connecting the Chinese border with Kyrgyzstan. The project, under discussion for 15 years, was finally approved at the SCO meeting on the 15 September 2022. It has been agreed that the costs of the feasibility study to be conducted in the first half of 2023 will be divided equally between Kyrgyzstan, Uzbekistan and China. The project’s estimated cost is US$4.1 billion. Given the economic boost both routes will bring to the economies of Central Asia in general and Uzbekistan and Kyrgyzstan in particular, the big question is regarding the trade-off between the economic costs and potential benefits of these projects and the mode of financing. It is not a secret that Kyrgyzstan’s external debt stands at more than US$5.1 billion, of which US$1.8 billion is owed to the Export-Import Bank of China.

SCO brings many opportunities of economic collaboration and trade through infrastructure development. However, economic connectivity often comes at the cost of a heavy debt burden, and it is important to analyse the costs and benefits of these opportunities bearing in mind the growing number of developing countries today facing difficulties repaying their debts.

Elvira Mami
Senior Economic and Risk Analyst, Global Risks and Resilience, ODI