China’s Interests in Iran
China values its relations with Iran for both economic and geopolitical reasons. Iran has vast energy resources, especially natural gas and oil, which are vital to developing China’s economy. With its mostly young population, Iran is also a large market for Chinese goods. China sells a wide variety of products from household goods to technology including smartphones, notebooks, machinery and equipment for nuclear plants. Politically, Tehran challenges and weakens Washington’s positions in the Middle East, which provides Beijing with more room to maneuver in the region. Iran is a very important crossroads, connecting the Gulf with the Caspian Sea, West Asia with Central Asia and the Middle East with the Black Sea through the Caucasus, and India with Russia.
The key is the Gulf, which is the main route for China’s imports of crude oil from the Middle East. For this reason, China sees Iran as an important strategic partner in its grand infrastructure-focused Belt and Road Initiative (BRI). In January 2016, during Chinese President Xi Jinping’s visit to Tehran, Iran and China signed a bilateral memorandum of understanding on joint promotion of the BRI. A month later, in a journey evoking the ancient Silk Road, a train left Yiwu, a city in Zhejiang province in eastern China, and traversed Kazakhstan and Turkmenistan before arriving in Iran, having traveled a distance of 10,399 kilometers.
Iran’s interests in pursuing relations
Iranians trust China because it supplied weapons during the 1980-1988 Iran-Iraq war. As a permanent member of the United Nations Security Council (UNSC), China has for years run interference on US moves to impose sanctions on Iran for its nuclearization program and has, often with Russia, been instrumental in watering down UNSC action against Tehran. Thus, Iran sees China as a partner and protector.
When a secret Iranian uranium-enrichment site was discovered in 2002, leading to suspicions that the country was trying to make nuclear weapons, crippling sanctions were instituted to press Tehran to abandon its strategic ambitions. More than a decade of diplomacy resulted in the Joint Comprehensive Plan of Action (JCPOA), which was signed with Iran in July 2015 by China and the other four permanent UNSC members – France, Russia, the UK and the US (with Barack Obama as president) – as well as Germany and the European Union.
Under the JCPOA, Iran was to dismantle much of its nuclear program and mothball thousands of centrifuges needed to enrich uranium. It agreed to a stringent inspection regime. In return, the most onerous of the international sanctions were lifted, providing relief for Iran’s battered economy.
The agreement enabled China and Iran to cooperate economically. In 2016, China and Iran established a “comprehensive strategic partnership”. After the adoption and implementation of the JCPOA, the two states set the ambitious goal of increasing bilateral trade tenfold to US$600 billion by 2026. They reached a US$10 billion deal to construct two nuclear plants in southeast Iran. Tehran, meanwhile, joined the Asian Infrastructure Investment Bank (AIIB). By 2017, their bilateral trade volume exceeded US$37 billion. As part of BRI, China’s CITIC Group in September 2017 announced that it would extend a US$10 billion credit line to Iran. In July 2017, China agreed to invest US$1.5 billion to electrify the Tehran-Mashhad railroad line.
The decision by the US to withdraw from the JCPOA and its imposition of wide-ranging unilateral sanctions on Iran disrupted the growing Sino-Iranian cooperation. Because the measures sought to exclude Iran from the international economic and financial systems, it made it very hard for Chinese companies to continue investment projects in Iran. Many of them have had to leave. The US showed its determination to punish Chinese companies for allegedly breaching sanctions when at the end of 2018 it pressured Canada to arrest Meng Wanzhou, the chief financial officer of Huawei Technologies, who was in transit through Vancouver. The impact was swift. In 2019, Iran-China trade fell by 34 percent over the previous year to US$23 billion, mainly as a result of sanctions.
Iran looks east
Tehran’s political elite are divided over the direction of the country’s foreign policy. Rouhani is considered the head of the faction seeking to improve relations with the West, while his predecessor Ahmadinejad is influential among the cohort that would rather court China and Russia. But the US withdrawal from the JCPOA in 2018 persuaded Rouhani and his influential ally, Foreign Minister Mohammad Javad Zarif, that Beijing and Moscow might be better partners than the EU in solving Tehran’s nuclear impasse.
The Syria crisis has proven to be another opportunity for Iran to develop its relations with China and Russia. The leading Shia Muslim state, Iran backs the ruling Assad family’s Shia-linked Alawite sect over the majority Sunni Muslims. Russia supports President Bashar al-Assad militarily, keeping an airbase and a naval facility on Syria’s Mediterranean coast. China, meanwhile, provides diplomatic support, mindful that many Chinese Muslims from restless Xinjiang province joined anti-Assad militias, including Islamic State.
Iran has observer status at the Shanghai Cooperation Organization (SCO), the multilateral group led by Beijing and Moscow, and is seeking full membership, which is unlikely to be granted until all UN sanctions are lifted. Iran may also seek to join the BRICS (Brazil, Russia, India, China and South Africa), which does not include any Muslim member state. Membership in the SCO and BRICS – non-Western multilateral groupings led by China and Russia in tandem – could help ease Iran out of its isolation.
In line with a “Look East” policy, Iran has been trying to improve relations with Russia. In May 2018, Iran concluded an Interim Agreement for a free trade area with the Russian-led Eurasian Economic Union (EAEU). The framework came into force in October 2019, soon after Iran attended the meeting of the Supreme Eurasian Economic Council in Yerevan, Armenia.