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US-Iran Tensions: Impact on China-Iran Ties

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Trans-Pacific View

US-Iran Tensions: Impact on China-Iran Ties

Insights from Amin Saikal.

US-Iran Tensions: Impact on China-Iran Ties
Credit: Official website of Ali Khamenei, Supreme leader of Iran

Trans-Pacific View author Mercy Kuo regularly engages subject-matter experts, policy practitioners, and strategic thinkers across the globe for their diverse insights into U.S. Asia policy. This conversation with Dr. Amin Saikal — professor of political science and director of the Center for Arab and Islamic Studies (the Middle East and Central Asia) at the Australian National University, and author of Iran Rising: The Survival and Future of the Islamic Republic is the 190th in “The Trans-Pacific View Insight Series.”

Explain the impact of rising U.S.-Iran tensions on China.

The tensions between the United States and Iran have escalated at a time when U.S.-Chinese relations are going through a similar experience. This has widened the space for closer Chinese-Iranian ties based on shared trade and geostrategic interests. The populist neonationalist President Donald Trump has proved to be instrumental in this development.

President Trump’s withdrawal of the U.S. from the landmark multilateral July 2015 Iran nuclear agreement, officially known as the Joint Comprehensive Plan of Action (JCPOA), in May 2018 and his subsequent imposition of unprecedented harsh sanctions on Iran have had two important ramifications. Trump’s policy of maximum pressure, involving lately a beefing up of American forces in the Persian Gulf, has seriously impacted Iran’s already dire economic and financial situation, and raised the specter of a confrontation between the two sides. It has also upset all the other signatories to the JCPOA – Britain, France, Germany, Russia, and China – not to mention its damage to the Nuclear Non-Proliferation Treaty.

Analyze the historical and geopolitical aspects of Iran-China relations.

This development has paralleled President Trump’s escalating trade and geopolitical disputes with China – the world’s second largest economic and potentially military power. The overall result is a reconfiguration of forces in the international order, where the U.S. has become very much a solo actor, enabling China to make a common cause with U.S. adversaries, of which Iran is one.

The rise in Iran-China relations, defined by growing shared geostrategic interests, is not new. They go back nearly 40 years when the 1978-1979 Iranian revolution toppled the Shah’s pro-Western monarchy, enabling the Shah’s chief religious and political opponent, Ayatollah Ruhollah Khomeini, to transform Iran into a revolutionary Islamic Republic, hailing primarily from the Shia sect of Islam. Khomeini’s Islamic regime consolidated in defiance of the United States and its regional allies, Israel and Saudi Arabia as well as Saddam Hussein’s secularist Iraq in particular. Khomeini’s Islamist anti-hegemonic stance challenged America’s traditional geopolitical dominance in the region and Washington engaged in a policy of sanctioning and isolating Iran. In countering the U.S., the Islamic regime turned pragmatically to other powers for better relations, especially with the USSR (and now its successor, Russia), China, and India, irrespective of its ideological and political differences with them.

As Iran’s top trading partner, China is also Iran’s top oil export destination. How would U.S. tariffs on Iran oil exports affect China’s energy security? 

Iranian-Chinese relations have had an upward trajectory, although with some fluctuations in the light of U.S.-led international sanctions over Iran’s controversial nuclear program and the lifting of those sanctions following the signing of the JCPOA and Trump’s prohibitive actions to halt even the export of Iranian oil. The two sides have grown to share a common outlook in world affairs, resulting in the formidable growth of bilateral economic, trade, and military cooperation. China’s need for oil and Iran’s richness as a source of supply has played a critical role in the process. Until recently, China imported some 9-11 percent of its annual oil requirements from Iran on the basis of cash payments or barter arrangements. It has presently indicated that it may defy America’s extraterritorial penalization of any third party doing business with Iran.

Concurrently, China has become an indispensable economic partner of Iran. Over the last decade, Chinese companies have invested more than $5 billion in upgrading Iran’s gas refinement and oil infrastructure, and in other developmental projects, including expanding highways, updating Tehran’s metro system, which was originally built with Chinese assistance, and the development of the Mehran Petrochemical Complex. China has also provided funding and technical assistance for projects ranging from railways to hospitals. In 2018, the Chinese state-owned investment arm, CITIC Group, established a $10 billion credit line, and China Development Bank promised $15 billion more. During President Xi Jinping’s visit to Iran in January 2016, President Hassan Rouhani announced that “China and Iran plan to build economic ties worth up to $600 billion.” China has grown to be Iran’s second largest trading partner, after the United Arab Emirates. The volume of trade between the two sides has seen exponential growth: from $1.6 billion in the 1980s to $15 billion in 2007, and some $45 billion in 2014-2015, although in 2018, it was valued at $33.39 billion.

In addition, China has been a major arms provider to the Islamic Republic, especially since 1986. China’s supply of weapons has included HY-2 Silkworm anti-ship missiles, and the country has played an instrumental role in Iran’s ballistic missile program, particularly in the area of the provision of technologies and design. The two sides signed a defense agreement in November 2016, pledging “closer cooperation in military and counterterrorism cooperation.”

How might Iran benefit from escalation in the U.S.-China trade war?  

An escalation of the trade war between the U.S. and China is likely to benefit Iran, as the latter would be able to increase its volume of imported Chinese goods on a barter, if not cash, basis. Under U.S. pressure, China would need to diversify its trade away from the U.S. to other markets, and Iran has already served as a lucrative destination, in return for Iranian oil irrespective of America’s warnings.

What are foreign policy implications of strong Iran-China relations vis-à-vis the United States?   

Should there be a war between the U.S. and Iran, China is most likely to throw its diplomatic weight behind Iran, but it cannot be expected to play a military role in the conflict. Yet, this would not exclude Chinese operations to evacuate hundreds of their personnel involved in various spheres of activities in Iran. In the process, one could anticipate close diplomatic Tehran-Beijing-Moscow coordination, with Pyongyang being strongly supportive.

Having said this, it must be noted that Washington and Tehran are fully aware that a confrontation could prove very costly not only for Iran, but also the Middle East and therefore American interests in the region. Iran does not have anywhere near the firepower of the U.S., but it has built a capability within an asymmetrical fighting strategy to make an attack very costly for its perpetrator. This may well caution them against engaging in a war, just in the same way that Washington and Beijing know that an escalation of the trade war and geopolitical rivalry would ultimately be damaging to both sides. In other words, all parties have good reasons not to go beyond posturing.