Chinese President Xi Jinping, and his entourage met with Ali Khamenei, the Supreme Leader of Iran. From official website of Ali Khamenei, Supreme leader of Iran.
A pragmatic partnership: Why China and Iran try to collaborate

China and Iran are in the spotlight for their reported talks on a long-term partnership agreement even before any details of it have formally emerged. The green light for these negotiations came shortly after the finalisation of the Iran nuclear deal in 2016, when Chinese President Xi Jinping made a historic visit to the country and met with Supreme Leader Ali Khamenei. Back then, the two countries issued a broad statement of intent to pursue a more formalised partnership. According to Iranian officials, the partnership road map was approved by the Rouhani government a few weeks ago and further negotiations with China will follow. This reported 25-year deal – which has political, economic, and security dimensions – and the negotiations around it have important economic and geopolitical implications.

It could take months for the details of the agreement to become public. According to speculation in the media and an alleged leaked draft, the deal is designed to pave the way for considerable Chinese investment in Iran’s strategically important sectors, including transport, energy, telecommunications, tourism, and healthcare. The deal is rumoured to involve security cooperation and intelligence sharing. Any Chinese-Iranian military and security collaboration – while viewed as a provocative move by the West – is likely to be a slow-burner. When Iran, China, and Russia took the unprecedented step in 2019 of conducting joint naval drills, one Chinese security expert outlined in discussions with the European Council on Foreign Relations that this was much more about signalling to the United States rather than Beijing’s appetite to engage heavily in security operations with Iran.

Tehran and Beijing largely have a pragmatic, business-oriented, and non-ideological relationship with each other. Iran fully understands the implications of China’s swift rise as a global power. Indeed, in light of the extensive impact of U.S. secondary sanctions on European trade with Iran, Iranian leaders now view China as the only major world power that can challenge U.S. economic dominance – and, therefore, provide their country with economic and political protection against mounting U.S. pressure. China, meanwhile, understands that Iran is a major regional power located at the crossroads of the Middle East and Central Asia – an area that is important to its Belt and Road Initiative (BRI). While China ranks as one of its top trade partners, Iran still has a great deal of untapped potential for foreign investment – something that Beijing can capitalise on.

After Xi’s 2016 visit, talks over the partnership agreement were slow to begin. During an ECFR research trip to Beijing last year, Chinese experts discussed how China’s government and commercial actors were disappointed that, following the nuclear deal, Iran seemed fixated on attracting European and U.S. companies at the expense of their Chinese counterparts. This precedent came back to bite Iran when, in 2018, the Trump administration brashly withdrew from the nuclear agreement and reimposed secondary sanctions on Iran.

So far, China has been unwilling to allow Iran issues to jeopardise delicate trade talks with the U.S.

It was also clear from discussions with Chinese experts and officials that, so far, China has been unwilling to allow Iran issues to jeopardise its delicate trade talks with the U.S. According to Iranian interlocutors, following the U.S. withdrawal from the nuclear deal, China began to levy heavy commissions on Iranian actors in return for access to its financial networks. Some Chinese state banks reportedly stepped back from most of their business with Iran. In October, China pulled out of a major gas project in Iran. Moreover, after the U.S. attempted to impose an oil embargo on Iran in May 2019, China’s purchases of the product from Iran also nosedived (although China remains the top destination for Iranian oil exports).

It now seems that, in the past year, Iran and China – both of which have been left in a precarious position by the Trump administration – have accelerated their talks. For Iran, formalising its bilateral relations with China in a more concrete fashion can bring tangible economic benefits as well as serving a geopolitical goal. In recent years, Iran has been keenly aware that it has not benefited from the kind of increase in Chinese investment and infrastructure projects seen in Israel and Gulf Cooperation Council countries. A long-term partnership agreement can lock in Chinese commitments in ways that help Tehran demand greater economic cooperation with Beijing and ensure that lofty statements about Iran’s importance to the BRI translate into projects in Iran that create jobs.

The Sino-Iranian deal also has a large political dimension. For Tehran, pursuing this partnership is as much about Beijing as it is about Washington. Iran is clear-eyed about the fact that great power competition between the U.S. and China is likely to intensify in the coming years. Negotiations over the Sino-Iranian deal present Iran with an opportunity to gain Western states’ attention as they debate their economic ties with China. This can provide Iran with some useful bargaining chips in future negotiations with Europe and the U.S. over sanction easing: Tehran can portray itself as a balancing force in Western capitals’ relationships with Beijing and Moscow.

Iran has looked to both China and Russia for protection against U.S. pressure at the United Nations, and will push for a bold response from them if the Trump administration attempts a highly contentious move to snap-back UN sanctions on Iran in the coming months. China has become a more vocal defender of Iran at the International Atomic Energy Agency, even pushing back last month against a European-led resolution that rebuked Iran. And Iran has sought to exchange its observer status in the Shanghai Cooperation Organisation for full membership – a move that requires China’s approval.

Iran’s enthusiasm for a partnership agreement with China also plays heavily into domestic politics. The supreme leader has long been a proponent of forming more strategic alliances with non-Western powers, which he has viewed as more trustworthy than the U.S. or Europe – a sentiment that only became stronger after the U.S. withdrawal from the nuclear deal. President Hassan Rouhani may have pushed for an opening with the West, but he has also supported greater integration with Asian economies such as those of China, Japan, and South Korea. His mentor, former president Akbar Hashemi Rafsanjani, was a major advocate of modelling Iran’s economy on that of Deng Xiaoping’s China. And Rouhani has his legacy to consider as he enters the final year of his administration. After the failed attempt to reopen Iran’s economy to the West following the nuclear deal, he is now looking to cement an equitable arrangement with the only major world power whose economic weight can match that of the U.S. or Europe.

After years of attacking him for opening up to the West, Rouhani’s domestic opponents – who are eyeing a run for the presidency in 2021 – are now attacking him for conducting “secret” negotiations with China. Such a major deal will require approval from Iran’s new ultra-conservative parliament – some members of which have already voiced strong opposition to the move. There is also a polarised public debate over deepening relations with China. Ultimately, however, the final call on Iran’s participation in the deal will be made by the supreme leader.

Both Iran and China stand to gain from a formal and long-term framework that organises their bilateral relations. While an overarching agreement will almost certainly make their partnership stronger, it is highly unlikely to develop into a full strategic alliance. Clearly, such a move would face strong resistance from within Iran. China – which has yet to substantively comment on the deal – will also need to carefully balance deepened relations with Iran against the concerns of Israel, Saudi Arabia, and the United Arab Emirates – which have in recent years become important economic partners in the Middle East. And it is unclear how far China’s commercial and banking sectors will be willing to engage with Iran under the threat of U.S. sanctions. Moreover, the extent to which Beijing and Tehran develop this partnership will be tied to the fate of their respective relations with Washington.

This article has been republished with permission from the European Council on Foreign Relations.

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