China’s Great Game in Iran

Iranian Foreign Minister Mohammad Javad Zarif’s visit to the G-7 summit in France late last month was a surprise to many in the West. Some even viewed it as a good omen. But for the Iranian leadership, Zarif’s quick trip to Biarritz was always a long shot and with little chance to turn the tide in the U.S.-Iranian standoff. Such doubts were confirmed in the days that followed. U.S. President Donald Trump’s administration still refuses to lift sanctions on Iranian oil, and Tehran will not engage in direct talks with Washington until some unequivocal relief from sanctions is first provided by the U.S. side.

Feel-good symbolism aside, Zarif departed Biarritz empty-handed. His next trip held more promise, anyway. Before he even arrived in Beijing, Zarif had already put pen to paper for China’s prominent Global Times. His call in that op-ed for consolidating what he labeled a “strategic partnership” with China is a recurrent aspiration of the leadership in Iran. But despite Tehran’s deep need for Beijing to come to its rescue, the prevailing view there is that a qualitatively different relationship with the Chinese government is needed before Iran can commit itself to becoming China’s anchor in Western Asia. The question is how China sees its own long-term interests in Iran.

In the big geopolitical clash that is underway between the United States and China, it makes little sense for Beijing to submit to Washington’s agenda of isolating Tehran. In fact, the Chinese have already openly breached U.S. economic sanctions on Iran by continuing to buy Iranian oil, among other things. Some observers go as far as predicting a wholesale Chinese bailout to rescue Iran from the claws of the Trump administration: “Iran is the key to China’s plans, just as China’s plans are key to Eurasia’s destiny,” the author Robert Kaplan recently wrote in the New York Times.

There is no doubt that Beijing sees Iran as prime real estate in Western Asia. It is a country with first-rate natural resources, plenty of human capital, and a hungry and relatively untapped market. China is already Iran’s largest trading partner, and, as a bonus, Iran is also a political outlier on the global stage that with the proper cultivation could become a Chinese client state of sorts.

Put simply, from China’s perspective, there is no reason why it would want the Trump administration’s maximum pressure campaign on Iran to succeed. And yet, that is not the whole of the story. Ties between the two are more complicated than first meets the eye.

Since the early 2000s, China has become Iran’s top trading partner and oil customer; cooperation extends to arm sales and geostrategic balancing against the United States. Chinese planners have identified Iran as one of the most important countries in connecting Asia to Europe through its Belt and Road Initiative. Belt and Road is the flagship foreign-policy initiative of Chinese President Xi Jinping’s tenure. The ultimate goal of the initiative is to restructure the system of global trading rules and investment practices into one that is more favorable to China. It also aims both to project of soft power and to establish the foundations for China’s hegemony in Eurasia.

Much of the vision for Iranian-Chinese cooperation was laid out in Xi’s January 2016 state visit to Tehran. The two states agreed to expand trade to $600 billion over a 10-year period while also building stronger cooperation as part of a 25-year plan. In addition to trade, China is a leading investor in the Iranian market. About 100 major Chinese companies invest in Iran’s key economic sectors, especially energy and transportation. For example, the China National Nuclear Corporation is redesigning Iran’s Arak IR-40 heavy water reactor to address nonproliferation requirements as part of the 2015 Iran nuclear deal.

The Chinese government has extended a $10 billion loan to Chinese companies to build dams, power generators, and other infrastructure in Iran.

The Chinese government has extended a $10 billion loan to Chinese companies to build dams, power generators, and other infrastructure in Iran, such as the recent installment of a rail link between Bayannur in China’s Inner Mongolia region and Tehran. Other transportation projects include building or funding rail lines to the eastern city of Mashhad and to the Persian Gulf port of Bushehr. China also wants to help speed up the construction of a port in Chabahar on the Gulf of Oman, a project initially intended for cooperation with India. Another prominent example is Tehran’s five metro lines, which are all built by Chinese companies. The rail cars are built by an Iranian-Chinese joint venture enterprise, Tehran Wagon Manufacturing Company.

Elsewhere, although they still lack some of the most advanced technologies available to Western companies, Chinese energy corporations have become important developers of oil and natural gas fields in Iran, which respectively holds both the second-largest gas (after Russia) and one of the larges conventional crude oil reserves in the world. According to Iran’s Ministry of Petroleum, in August China “reengaged” in three key energy projects in Iran: the South Pars gas field, which is the world’s largest and shared with Qatar; the Yadavaran oil field on the border with Iraq; and the development of the Jask oil terminal, which sits east of the Strait of Hormuz. No doubt that China has benefited economically from the absence of Western energy firms in Iran due to U.S. pressures.

In Zarif’s words, China and Iran are “indispensable … strategic partners on many fronts.” On his recent trip, the Iranian foreign minister pleaded with Beijing to strengthen ties so the two countries could tackle a host of issues, including suppressing extremism and terrorism. While he made no references to China’s ongoing and highly controversial crackdown on ethnic Muslims in Xinjiang, Zarif was explicit in criticizing U.S. policies. “[We] both face overseas hostility by populist unilateralist bigotry,” he said, in an unmistakable jab at the Trump administration.

China, in Zarif’s thinking, should pick up the challenge of ending supposed U.S. bigotry around the world, and Iran would happily throw its support behind such an effort. Criticizing the Trump administration’s decision to abandon the 2015 Iran nuclear deal, Zarif explicitly asked for Beijing’s immediate support to keep the agreement alive. “How we respond to this [U.S.] maximalism and this blatant violation of international commitments and law may have a defining impact on our ability to reach for that shared vision of our continent’s future.” He appealed to Chinese sympathies by highlighting the China-U.S. trade war as a prime example of how American unilateralism is a danger to what he called a “rules-based” international order.

And yet, a sense of trepidation about China’s reaction to his pitch was evident in the very same words voiced by Zarif. His call for a “strong foundation of economic relations that benefits both parties” was a peek into widespread worries in Iran that the existing economic ties are skewed in China’s favor. Iranian officials quietly bemoan the fact that U.S. pressures on Iran have turned their country into a captive customer for Beijing. The formula of discounted Iranian crude oil going to China in return for whatever China is willing to offer is unfit for Iran’s vision of strategic partnership. Instead, Zarif urged the Chinese to let Iran “contribute effectively to China’s plan to build a world-leading base for science, technology and innovation.” It was an Iranian request to be included in what many in Tehran have evidently judged to be a Chinese golden era yet to fully emerge.

In its quest to entice the Chinese nation, Tehran is said to be ready to scrap visa requirements for Chinese tourists. This is merely the latest chapter in Iran’s “Look East” policy, which is as old as the Islamic Republic itself.

It is easy to reject “Look East” as pure necessity for a country that has continuously rejected the West. Yet there is little doubt that China is increasingly ready to exploit the Trump administration’s penchant for unilateral action to establish Beijing’s reputation as a responsible stakeholder. China will hence play its Iran cards accordingly. It will fill the trade and investment vacuum left behind by departing Western firms in Iran and encourage greater trade denominated in yuan. Politically, the Chinese will tap into the nuclear standoff to argue that multilateralism is the way forward in solving tensions in the Middle East. Not only is this a swipe at U.S. unilateralism, but Beijing also genuinely fears a wider conflict in the Middle East, which would disrupt its energy imports.

That said, China does not consider Iran as its closest friend. Even when Iran-China relations accelerated quickly in the 2000s, when China overtook Germany as Iran’s biggest trading partner, Beijing still paid close attention to Washington’s sensitivities on Tehran. Even the most recent economic figures from the first five months of 2019 show China’s trade with Iran dropped significantly as compared to the same period in the previous year, when U.S. sanctions on Iran were not in place.

But not everything in Iran-China relations is shaped by U.S. actions. Take China’s recent posture toward the longtime Iranian bid to join the Russia and China-led Shanghai Cooperation Organization as a full member. The Iranians are not sure about Beijing’s openness to the idea. The organization has repeatedly declined to begin accession talks with Tehran, much to Iran’s disappointment. It is not a secret to Iran, however, that China has relations with every single state in the Middle East—including Iran’s rivals Israel and Saudi Arabia—an achievement that might be put at risk if Beijing moves overly close to Tehran.

Put simply, despite Zarif’s spirited plea to the Chinese leadership, Tehran does not expect China to pick its side against the United States at any cost. China is expected to play its Iran cards carefully. But the Iranians will hope that the U.S.-Chinese spat will continue and provide some opportunities for Tehran.

From Beijing’s perspective, the short-term effects of Washington’s decision to withdraw from the 2015 nuclear deal will be mixed. Due to the global impact of renewed U.S. sanctions, the Iranians will have less money to buy Chinese goods, and there is the risk that the withdrawal could induce Iran to resume its nuclear program, raising the potential for a military conflict in the Persian Gulf.

Yet, the Iranians will at the same time also need more loans and investment from China and will likely be willing to offer Chinese purchases of Iranian oil at continued discounts. Chinese policymakers taking a long-term perspective will likely see opportunities for larger gains from an Iran alienated from the West and dependent on Chinese economic and security support. An early indication of Beijing’s approach to the Iran sanctions issue will be how China responds to the Trump administration’s demands that it cease importing Iranian oil—waivers that had previously allowed it to continue such imports expired in May. If Beijing were to take a bolder stance in defense of Tehran and in defiance of Washington, such as by providing Europeans and Iranians alternative financial networks to help them evade U.S. sanctions, it could signal Chinese calculations that the Trump administration is a paper tiger and that its Iran strategy will be nothing but a temporary campaign.

Middle East Institute research assistant Yida Xiao contributed research for this article.