Iran and China get cozy

Scattered among the hundreds of kiosks that made up the massive China–Eurasia Expo held in the western Chinese city of Urumqi in late September were a handful of Iranian rug merchants plying their wares. They didn’t seem to sell much, but they weren’t worried. The merchants, like the Iranian government itself, were looking ahead—and there are plenty of opportunities these days, particularly in China.

Inaugurated in 2011, the yearly Expo has become part of Chinese President Xi Jinping’s much-touted “One Belt One Road” initiative. An outgrowth of the larger foreign policy expansion that accompanied Xi’s ascent to power in 2013, One Belt One Road is an ambitious attempt to revive the ancient trading route known as the Silk Road through economic (and eventually political) partnership with countries to China’s west.

Iran is one of those nations. Once an international pariah, the Islamic Republic is now looking forward to sustained economic recovery, thanks to last year’s controversial nuclear deal with the P5+1 nations. The agreement yielded the country more than $100 billion in direct sanctions relief and other Western concessions in exchange for a temporary halt to its nuclear development. Throughout the negotiations, China’s role in keeping Iran at the diplomatic table was widely praised by the other parties. In November of 2014, for example, U.S Secretary of State John Kerry lauded “China’s serious engagement on the Iran negotiations as a full partner in the P5+1.”

But it is actually Iran that should be thanking China. A recent report from an IMF fact-finding mission to the country concluded that, thanks to the fruits of the nuclear deal, economic conditions “are improving substantially” in Iran, with GDP poised to grow by at least 4.5 percent in the coming year. And that economic rebound is getting a further shot in the arm from China’s westward opening. Xi paid a high-profile visit to Tehran in January that yielded no fewer than 17 trade and industrial accords. It also marked the start of a major Chinese tilt toward Iran, with the Chinese president pledging to increase bilateral trade more than ten-fold, to $600 billion, over the coming decade.

That plan is well underway. Government officials in Beijing now openly acknowledge that Iran—now flush with cash and with massive infrastructure needs—will continue to be a valued trading partner. In fact, this summer, an undisclosed Chinese firm committed some $550 million to the construction of a new oil terminal atop the Strait of Hormuz in a project clearly linked to China’s westward push. And in recent weeks, Chinese state-owned oil giant Sinopec signed a $1.2 billion deal with the Iranian oil ministry to build a new mega-refinery in Abedan as part of Beijing’s burgeoning energy stake in the Islamic Republic.

Chinese consumption of Iranian oil is soaring as well. A surge in Chinese imports of crude from the Islamic Republic quickly followed the conclusion of the nuclear deal. That trendline has continued since the summer of 2014; Iranian press reports this spring noted that China’s oil imports from Iran had risen by nearly 20 percent from a year earlier.

What does the White House think of all this? Since the start of the year, a spate of designations by the U.S. Treasury Department has taken aim at Beijing’s still-bustling ballistic missile trade with Tehran, demonstrating official concern over ongoing proliferation between China and the Islamic Republic. Officially, however, the Obama administration has remained mum about the dark side of this deepening bilateral.

For their part, Chinese policymakers are still talking tough. During a recent visit to China, one official told us that Beijing is willing to drop the hammer and “snap back” sanctions on Iran if the latter violates the nuclear deal. As a practical matter, however, it’s not at all clear that it can. As China invests more and more deeply in Iran, and as other countries do so as well, Beijing’s appetite to impose meaningful economic pressure will diminish. Indeed, with every new Chinese investment, Iran’s leverage increases. The result, in the words of one Chinese Iran-watcher, is that Beijing “does not have much influence over Iranian behavior.”

Nor does it seem to want any. In meeting after meeting in the Chinese capital, one official after another stressed to us that their government’s policy is not to interfere in the affairs of others. But even more disconcerting was the idea raised by one Middle East analyst in Beijing who conceded that China’s Iran policy will reap dividends for Beijing regardless of the outcome of the nuclear deal. If Iran abides by the terms of the agreement and sanctions relief continues, Beijing gets access to a broader market and more investment opportunities. If Iran cheats and new sanctions are enforced, China, which has proven itself willing to absorb the risks of working with a rogue state, will have a commanding slice of a smaller pie. Either way, Beijing wins.

It’s this kind of transactional outlook that reinforces concerns in Washington and foreign capitals about the implications of China’s rise as a global power, and raises questions about its willingness to shoulder a constructive role in solving some of the international system’s most pressing problems. After all, Beijing now has billions of reasons to turn a blind eye to Iranian infractions, if and when they occur. Iran, for its part, can breathe a little easier, confident in the knowledge that it has China in its corner, whether or not the nuclear deal holds.


This article was written by Jonathan Schanzer for Defend Democracy on Oct 27, 2016. Jonathan Schanzer is the VP for Research at the Foundation for Defense of Democracies.