Burgeoning Sino-Iranian strategic partnership

The outbreak of the Islamic revolution in Iran in 1979 marked the beginning of a new era in Tehran’s foreign policy. Committed to its promise of a revolutionary foreign policy based on Islamic principles of just peace, the new rulers of Iran chose a foreign policy of “neither East nor West.” However, this policy ran into immediate difficulties when Tehran faced the specter of war with its archenemy, Iraq. Baghdad, with the help provided by conservative Arab monarchies and bankrolled by Saudi money, imposed a war of aggression on Tehran.

This episode left a deep scar on Iran’s strategic psyche and Tehran learned one geopolitical lesson: surrounded by your enemies, you have to have friends in the world to ensure your survival and security. And the centrality of this search for friends is on full display in recent developments in Beijing’s relations with Tehran.

Much before the rise of China as an influential global actor, Tehran intensified its efforts to strengthen economic, diplomatic, and military ties with Beijing. During the Iran-Iraq War, China was vital to Iran’s war effort. It was the only arms supplier that was willing to provide Tehran with weapons and military equipment. When the war ended, “China occupied a central role in the country’s post-conflict reconstruction efforts, particularly in Iran’s infrastructure projects and the supply of consumer goods.”

Beijing remains involved in building up Iran’s infrastructure, including electricity, dams, cement plants, steel mills, shipbuilding, motorways, and airports. Defense cooperation, including arms and technology trade and joint military drills, has become an increasingly significant part of Iran’s relationship with China in the Persian Gulf. China effectively shelters Iran from complete diplomatic isolation and provides it with political support, defense assistance, and economic relief, undermining Western efforts to pressure Tehran for compliance with their demands.

Faced with American sanctions, Chinese state-owned investment arm CITIC Group established a $10 billion credit line for Iran. In 2017, China-Iran trade exceeded $37 billion, with year-on-year growth of 19 percent. Following the U.S. withdrawal from the Iran nuclear deal in 2019, Beijing remains determined to enhance its trade and investment relationship with Tehran.

Beyond these diplomatic overtures, China has ramped up its military engagement across the Middle East. The Chinese Navy has made efforts to demonstrate its presence in the vicinity of strategic chokepoints such as the Strait of Hormuz, the Bab el-Mandeb strait, and the Suez Canal. In June 2017, China and Iran conducted a joint naval exercise on the fringe of the Strait of Hormuz. Building on port visits and exercises and leveraging dual-use infrastructure created by its regional investments. Beijing looks at Tehran as a “country with first-rate natural resources, plenty of human capital, and a hungry and relatively untapped market.”

Key elements of the vision for Iranian-Chinese cooperation were spelled out during President Xi’s January 2016 state visit to Tehran. The two states agreed to expand trade to $600 billion over a 10-year period while also building stronger cooperation as part of a 25-year plan. In addition to trade, China is a leading investor in the Iranian market. About 100 major Chinese companies invest in Iran’s key economic sectors, especially energy and transportation. For example, the China National Nuclear Corporation is redesigning Iran’s Arak IR-40 heavy water reactor to address nonproliferation requirements as part of the 2015 Iran nuclear deal.

The Chinese government has extended a $10 billion loan to Chinese companies to build dams, power generators, and other infrastructure in Iran, such as the recent “installment of a rail link between Bayannur in China’s Inner Mongolia region and Tehran. Other transportation projects include building or funding rail lines to the eastern city of Mashhad and to the Persian Gulf port of Bushehr. China also wants to help speed up the construction of a port in Chabahar on the Gulf of Oman, a project initially intended for cooperation with India.” Another prominent example is Tehran’s five metro lines, which are all built by Chinese companies. The rail cars are built by an Iranian-Chinese joint venture enterprise, Tehran Wagon Manufacturing Company.

Chinese energy corporations have become important developers of oil and natural gas fields in Iran, which respectively holds both the second-largest gas (after Russia) and one of the larges conventional crude oil reserves in the world. According to Iran’s Ministry of Petroleum, in August China “reengaged” in three key energy projects in Iran: the South Pars gas field, which is the world’s largest and shared with Qatar; the Yadavaran oil field on the border with Iraq; and the development of the Jask oil terminal, which sits east of the Strait of Hormuz. “No doubt that China has benefited economically from the absence of Western energy firms in Iran due to U.S. pressures. Even when Iran-China relations accelerated quickly in the 2000s, when China overtook Germany as Iran’s biggest trading partner, Beijing still paid close attention to Washington’s sensitivities on Tehran.”

That China has relations with every single state in the Middle East—including Iran’s rivals Israel and Saudi Arabia is a complicating factor, especially when burgeoning relations between Tehran and Beijing are seen negatively by other GCC Arab states.

From Beijing’s perspective, the short-term effects of Washington’s decision to withdraw from the 2015 nuclear deal is a mixed blessing Due to the global impact of renewed U.S. sanctions, the Iranians will have less money to buy Chinese goods, and there is the risk that the withdrawal could induce Iran to resume its nuclear program, as is being done by Tehran now. The several rounds of Vienna talks on JCPOA remain deadlocked and there seem to be a little hope for a breakthrough to settle the issue. Yet, given the dire state of the Iranian economy, there is evident need more loans and investment from China and Beijing will likely be willing to offer Chinese purchases of Iranian oil at continued discounts.

Beijing and Tehran have struck a grand bargain recently. It was agreed to take their bilateral relations to strategic partnership level. The 25-year strategic partnership, which Beijing and Tehran signed in March 2021, offers major benefits for Beijing and Tehran. The $400 billion deal would see China invest in several sectors of Iran’s economy, from finance to infrastructure. It would also see both powers forge closer military ties.

By building relations with Iran, China strengthens its foothold in the Middle East, undermines the influence of the United States and ensures access to Iranian oil and other important commodities. For its part, Iran will get billions of dollars in Chinese energy and infrastructure investment, undercutting the effectiveness of U.S. sanctions against the Iranian regime.

How long would this partnership endure between a theocratic regime and China as a responsible state that is a beneficiary of the existing order? Will Tehran show signs of moderation and become a normal state? Scholarly opinion is divided on this issue. Scholars who have argued for moderation have pointed to the enormous costs that the Iranian people have suffered since 1979, and those who have argued for status quo point towards the benefits that accrue to those who rule the roost. As Karim Sajjadpur has recently argued, the “ultimate decision will be made by the people of Iran.”

The writer is a political scientist and defence analyst