Partnership, Chinese Style: Iran’s Risky Reliance on China

Iranian Foreign Minister Mohammad Javad Zarif’s first visit to China since the outbreak of COVID-19 came at a quite critical time, less than a month after the administration of US President Donald Trump unilaterally declared on September 19 the reinstatement of former UN sanctions against Tehran, and shortly before the US presidential elections on November 3.

“Fruitful talks in beautiful Tengchong with my friend Wang Yi on Iran-China Comprehensive Strategic Partnership. Rejected US unilateralism and US attempts to create unipolar world [sic]. Agreed on strengthening our ties [including] 25-yr plan, regional coop, preserving JCPOA & vaccine collab,” Zarif tweeted on October 10, the last day of his two-day visit.

In August and September respectively, Beijing had vociferously dismissed Washington’s ultimately abortive attempts to first extend a UN arms embargo on Iran that expired on October 18 — as part of the 2015 nuclear deal, officially known as the Joint Comprehensive Plan of Action (JCPOA) — and then to trigger “snapback” of international sanctions annulled under the JCPOA and its sister UN Security Council resolution 2231.

Tehran has been subject to the US “maximum pressure” policy of economic asphyxiation since 2018, when President Trump jettisoned the nuclear agreement and reimposed collective sanctions on the Islamic Republic, which has responded with a “maximum resistance” policy of its own.

Iranian Foreign Minister Mohammad Javad Zarif’s primary plan on the agenda was to “accelerate” negotiations on the finalization of Iranian-Chinese Comprehensive Strategic Partnership.

Against this backdrop, Zarif’s primary plan on the agenda was to “accelerate” negotiations on the finalization of Iranian-Chinese Comprehensive Strategic Partnership (CSP), as later confirmed by Iranian Ambassador to Beijing Mohammad Keshavarzzadeh. Adopted in early 2016 during President Xi Jinping’s first official trip to Tehran, CSP is basically a broad-based multi-area cooperation accord that promises large-scale Chinese investment in Iran over a 25-year period in return for a “stake” in its territorial resources, such as oil and gas, and infrastructure sectors.

While CSP’s details are yet to be announced, the Tehran-Beijing strategic partnership is unlikely to pan out in ways that would secure Iran’s long-term national interests, regardless of what the Iranian leadership might hope to achieve by clinching it. The accord might, however, help ensure the continuity of the Islamic Republic’s rule in the face of American “maximum pressure,” but even if that is seriously entertained as the ultimate gain from CSP in decision-making circles in Tehran, it will be an unsustainable pyrrhic victory at best, accomplished at the expense of broad Iranian interests in the long haul.

Such an uneven dynamic is driven by a number of structural factors, including Iran’s “strategic loneliness” as a consequence in part of its revisionist tendencies and hostility with the United States, China’s understandable prioritization of ties with Washington and aggressive pursuit of primarily economic interests in Iran, and burgeoning ties between Beijing and Tehran’s regional nemeses such as Saudi Arabia and Israel.

“Friendship, Chinese Style”: Structural Constraints

Bilateral negotiations over the Iranian-Chinese CSP terms and conditions are taking place as Tehran is struggling to sell its oil, but more importantly, to bring home billions of dollars’ worth of funds from exports of crude and other goods trapped in foreign banks due to secondary US sanctions. Although China is occasionally hailed as an “all-weather” friend that has not abandoned Iran in times of hardship and still keeps purchasing Iranian petroleum, it tops the list of state debtors that refuse to release Tehran’s frozen assets under American pressure.

Iran has a total of around US$40 billion in foreign exchange reserves stuck in international banks, and Beijing accounts for half .

Less than a week after Zarif’s significant China visit, Iranian daily Jahan-e San’at (The World of Industry) published a home-page report on October 15 — titled “Friendship, Chinese Style” — noting that Iran has a total of around US$40 billion in foreign exchange reserves stuck in international banks, and Beijing accounts for half of it with a whopping US$20 billion debt. The next states in order of debt magnitude are India (US$7 billion), South Korea (US$6 billion), Iraq (US$2 billion), and Japan (US$1.5 billion).

Meanwhile, according to official Chinese customs data, cited by Radio Free Europe, China’s imports from Iran in August plummeted to US$322 million, a record low in over a decade. More specifically, Iran’s total volume of exports to China in the first eight months of 2020 (January-August) fell as low as US$3.85 billion, marking a 62 percent drop compared to the same period in 2019. In contrast, Beijing’s exports to Iran decreased by 6.7 percent only, hitting US$5.95 billion and reversing Tehran’s traditional trade surplus with China into a deficit for the first time.

Lastly, Beijing’s crude imports from Iran in the first seven months of 2020 (January-July) shrank to an average of around 77,000 bpd, suggesting a nearly tenfold plunge compared to the period before Washington scrapped the JCPOA and reimposed sweeping sanctions on Tehran in 2018, Radio Free Europe reported.

This significant contraction in Iranian-Chinese trade volume at the expense of Iran — and at a time when it is relentlessly squeezed by the US maximum pressure policy and needs financial and economic support the most — clearly demonstrates where China’s major interests lie. Beijing’s natural prioritization of ties with the United States — Beijing’s second biggest export market after the European Union in 2019 — over its partnership with Iran forms a pattern of foreign policy behavior that has manifested itself in the past as well, in both political and economic realms.

Beijing’s natural prioritization of ties with the United States over its partnership with Iran forms a pattern of foreign policy behavior.

For one, China voted in favor of all six UN Security Council resolutions against the Islamic Republic from 2006 to 2010, of which four slapped sanctions against Iran. Yet, the top Iranian leadership, bent on preserving the state’s “revolutionary path,” seems to be neglecting or deliberately overlooking this structural reality. This even though Chinese and Iranian strategic interests did happen to align when Beijing openly opposed the US attempt to trigger the “snapback” mechanism of sanctions reinstatement under UNSC 2231, which had nullified all the aforementioned UN resolutions against Iran.

It bears noting, however, that China’s pushback against unbridled American unilateralism in this case was about much more than the Islamic Republic and bilateral ties.

But the tale of caution does not end there.

While President Xi Jinping’s government is negotiating the 25-year mega plan with Iran, it is also playing a decisive role in the development of Saudi Arabia’s nuclear and missile programs, well aware that Tehran perceives those capabilities at the hands of its regional arch rival as grave national security threats.

In March 2019, a few months after satellite imagery revealed rocket engine tests for ballistic missiles at a military base near the town of al-Dawadmi in central Saudi Arabia, Iran’s Supreme Leader Ayatollah Ali Khamenei vowed in his Persian New Year speech that Saudi military capabilities “will fall into the hands of Islamic combatants in the not-so-distant era.” In one sense, Khamenei implicitly threatened, to provide Iran-allied Houthi rebels in Yemen with similar deterrent and offensive military assets.

Beijing arguably considers Iran as one, if not last, among many regional partners, most of which are incidentally on hostile or rivalrous grounds with Tehran, from Saudi Arabia to Turkey to Israel.

In March, China rushed to take advantage of steeply reduced global oil prices as a consequence of the coronavirus pandemic and raised its crude imports to 9.68 million bpd, but oil imports from Iran declined to about 350,000 barrels a day, down 89 percent year on year and yielding only US$115 million, the lowest monthly figure in bilateral crude trade in 20 years. In the same month, however, Beijing imported approximately 1.7 million bpd from Saudi Arabia, down only 1.6 percent from a year earlier, and an all-time high of 2.16 million in May 2020, compared to 255,000 barrels a day from Iran.

Prior to the US abandonment of the JCPOA and reintroduction of nuclear penalties against Tehran in 2018, Chinese purchases of Iranian petroleum had risen to as high as 1 million bpd, with the subsequent sharp decline suggesting quite unsurprisingly that Beijing attaches more strategic weight to its bigger economic and trade partners than it does to Tehran, a traditional nemesis of both Washington and Riyadh.

This was the case during the pre-JCPOA era sanctions as well, except that China was more accommodating of crude imports from Iran — largely because of the Obama administration’s parallel pursuit of diplomacy and lack of interest in senseless pressure — but even then Beijing flooded the Iranian domestic market with poor-quality commodities in return, under a de facto bartering scheme that publicly came to be known as “oil for trash.”

China’s structurally bound and pragmatically devised foreign policy towards Iran is unlikely to be replaced with a new mode of protective and preferential treatment.

The bulk of evidence since 2002, when the Iranian nuclear controversy erupted, indicates that China’s structurally bound and pragmatically devised foreign policy towards Iran is unlikely to be replaced with a new mode of protective and preferential treatment under a strategic partnership deal as long as Beijing has to choose between two conflicting, and at times mutually exclusive, sets of strategic interests: those of the Islamic Republic and those of the United States and/or its allies.

On October 21, some critics of the Rouhani administration claimed that the Chinese government held off signing the 25-year agreement during the latest round of negotiations with Iran’s Foreign Minister Javad Zarif on October 9-10, until the US presidential election results are in.

Perhaps the riskiest component of the Iran-China “Comprehensive Strategic Partnership” is that Tehran does not have many counter-options to leverage for balancing purposes in the context of bilateral relations, and also to fall back on in the event Beijing decides to play hardball as its priorities and preferences shift. In fact, Iran’s “geopolitical exclusion” under American maximum pressure and lack of powerful allies drive it closer to China, but those very realities will also render this growing reliance more precarious and costly.