After the Nuclear Deal: China and Iran Tread Carefully

The West lost its credibility with Iran when it betrayed President Hassan Rouhani. After constant conflict with the turbulent administration of the conservative Mahmoud Ahmadinejad (in office from 2005-2013), Iranians elected the moderate Rouhani and expected international relations to improve, resulting in a relaxation of international sanctions, more robust economic growth and improving the chances of prosperity for Iran’s 80 million or so people.

Instead, relations with the US have deteriorated since President Donald Trump took office in 2017. In May 2018, he announced that the US would back out of an international deal to address Iran’s nuclear program and applied tough unilateral sanctions on Tehran. Now, Iranians see that no matter who is the president of Iran, the US will try to prompt regime change by applying sanctions and other pressure. Tehran, meanwhile, has come to the realize that, with the changing order, it needs to look to China as a strategic partner.

But what benefits do China and Iran anticipate from closer cooperation? What challenges does a partnership pose for the two countries? And can Iran fit into the emerging Sino-Russian relationship?

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.

A critical moment will come in the fall when the US has said it will seek to have the UN arms embargo on Iran extended and the so-called sanctions snapback, a mechanism included in the JCPOA, activated. China has already criticized the US plan, arguing that Washington withdrew from the nuclear deal and therefore has no right to extend the arms embargo or trigger the snapback.

The impact of Covid-19

As it has many of its other relationships, Covid-19 has become a factor in the budding China-Iran partnership. Both countries have helped the other. In March, Chinese Ambassador to Iran Chang Hua hailed the cooperation between the two nations in fighting against the coronavirus. The pandemic hit Iran badly mainly because Mahan Airlines, an Iranian carrier, kept flying between Tehran and Chinese cities for some weeks even after the Rouhani government had officially suspended flights.

The outbreak posed another great challenge for a country already deep in an economic and political crisis. According to official data, as of June 9, 8,425 people have died of Covid-19. Because of its isolation from the outside world, Iran struggled to keep its physical links with China open, even though such contact proved to be a public-health risk for both countries that would put pressure on their national health services.

The Red Cross Society of China sent volunteer medical experts to Iran. According to Iranian Ambassador to China Mohammad Keshavarzzadeh, Chinese contributed over 10 million face masks, 500,000 coronavirus test kits, 350 ventilators, 500 prefabricated hospital rooms and other medical equipment. Beijing even let the Iranian Embassy organize a fundraising campaign through the social-media platform Weibo, which raised about US$576,000 from Chinese people.

The China-Iran relationship is not without its challenges. In the face of US efforts to choke off supplies of Iranian oil to Chinese buyers, Tehran’s biggest customers, Beijing has cut most of its recorded oil imports from Iran. Since January 2020, Iran is reported to not be receiving much revenue at all from its petroleum exports to China.

Scenarios going forward

As the pandemic hit Iran hard at a time when the government was already dealing with mounting public discontent, the regime is likely to strengthen controls on freedom of speech and media, as the worsening economic situation could fuel further protests.  

Tehran could decide it has nothing to lose by going ahead with its threat to restart its nuclear military program, which it had halted with the adoption of the JCPOA. Already, Iran is reported to have increased its stockpile of nuclear material, halving the time it would need to produce weapons-grade fuel for a bomb.

China, Russia and the EU, meanwhile, could pressure the US to rejoin the JCPOA or temporarily lift sanctions on Iran while the Covid-19 outbreak continues so Iran can buy medical supplies and at least partially revive its economy. Washington is unlikely to budge, however. The EU could activate INSTEX, the EU-Iran trading mechanism designed to allow European firms to bypass US sanctions and continue to trade with Tehran. But this will only attract the ire of President Trump at a time when transatlantic relations are already fraught. It would seem that the best hope the Iranian regime has for a lifeline during the crisis is if Joe Biden, who served as vice-president in the administration of Barack Obama, which spearheaded the JCPOA, becomes US president in January.

The enemy of my enemy

But a Biden victory is not guaranteed. And Tehran will have to be prepared for the prospect of a second Trump administration. It is hard to avoid the conclusion that Iran is poised to give up on any accommodation with the West. From interviews I conducted during a visit to Iran in February, it is clear that Iranian scholars and diplomats have been utterly dismayed by the US withdrawal from the JCPOA and the EU’s inability to stop it. Iran appears prepared to make a full-on pivot to China. But one all-important question remains: “Is China ready to accommodate Iran and intervene in any Iran-US confrontation in the region?”

It should be noted that China has a comprehensive strategic partnership with Saudi Arabia, Iran’s archrival in the Middle East and the wider Arab world, and China’s main supplier of crude oil. China also cooperates strongly in the fields of technology and infrastructure development with Iran’s longtime adversary, Israel. Beijing will try to not choose sides in the Middle East. It will aim to continue cooperating with Iran and helping it in a limited way so that its economic and political systems do not collapse. But it is unlikely to go so far as to harm its relations with Washington (such as they are), Riyadh and Tel Aviv. Iran must expect that Beijing, while fostering closer ties, will walk a careful line as it seeks to maintain its key relationships without stirring any major confrontation.