Iran China Cooperation – Fraught with Contradictions

The recent visit of Iranian President Ebrahim Raisi to Beijing (Feb 14-16), marked the first of any Iranian President to China in 20 years. The visit has generated much discourse over the further deepening of Iran and China’s bilateral relations. China’s geoeconomic presence in Middle East has increased with close economic ties with several key players in the region, Saudi Arabia, UAE, Iraq including Iran. However, despite the geopolitical significance of this Middle East ‘pivot,’ geoeconomics plays a much more significant role in the dynamics of China’s relations with Iran. Tehran and Beijing’s historic ties and future possibilities are often alluded to by their respective political leaders but questions remain with regard to the actual substance of their ‘partnership.’

Raisi Calls out Beijing for Ties “seriously falling behind”:

Prior to his departure for Beijing, President Ebrahim Raisi expressed dissatisfaction that the two countries’ relationship has not lived up to expectations implying that China had not given enough support to Tehran, economically. Referring to trade and economic ties, he said, “unfortunately, I must say that we have seriously fallen behind in these relations.”

Tehran’s view is that the China-Iran Strategic Partnership Plan (CISPP), as per which Beijing was to invest up to $3.5billion in Iran’s oil, gas and petrochemical sectors as well as manufacturing, agriculture and transportation, over a 25 year period in exchange for a steady supply of Iranian oil is far from being realised. 

China and Iran fleshed out their ‘Comprehensive Strategic Partnership’ by signing the strategic ’25-Year Deal’ and while the deal is an attempt to solidify the partnership, relations between Tehran and Beijing  remain complicated. Understanding Iran – China relations entails examining the dynamics that preceded and contributed to this deal. Arriving at the ‘Comprehensive Strategic Partnership’ took nearly five years. In 2016, during Xi Jinping’s visit to Iran, China and Iran signed seventeen economic and security agreements, and laid the foundation of the ’25-Year Deal.’ Finalised in 2021, during Foreign Minister Wang Yi’s trip to Iran, the text of the Strategic Cooperation Agreement, as it is officially known,  commits China to invest at least $3.5bn in Iranian traditional and green energy sector, transport, manufacturing, telecommunications, free economic zones, ports, industrial parks, among other things are yet to be made public, reportedly at the request of the Chinese.  Iran and China, have however disclosed that the plan contains no “quantitative, specific contracts” and is a “non-binding document.” Expansive in terms of its ambition, the agreement which provides no methods for enforcement, measurable goals, or specific programs, is at best a ‘roadmap’ without any measurable benefits to Iran.

Beijing’s Doublespeak:

The US reimposed sanctions on the Islamic Republic of Iran and its petroleum exports in 2018 after pulling out of the Joint Comprehensive Plan of Action (JCPOA), aimed at containing its nuclear program. It has since been ratcheting up sanctions aimed to cut Iran’s oil revenue. Contradictory to its vote in favour of multilateral U.N. Security Council sanctions resolutions against Iran, Beijing has been repeatedly circumventing additional unilateral sanctions on normative grounds as illegitimate. It has done this to retain its crude oil shipments from Iran, which have surged in recent months.

During Raisi’s recent visit, China’s doublespeak was again exposed. The joint communique railed against “efforts by certain governments to politicise the work” of the International Atomic Energy Agency (IAEA) in Iran, but at the China-GCC summit in December 2022 it had not only  called on Tehran to fully cooperate with the IAEA, and had stressed dialogue on Iran’s “destabilising regional activities.”

Regional Rivalries Preclude a Balanced approach by Beijing:

China often iterates that it doesn’t pick sides in the Middle East, but given the level of discord in the region, Beijing might have discerned that keeping a balanced approach is easier said than done. It had played a significant role in persuading Iranian leaders of the multiple benefits, primarily economic development by ceding to international concerns over its nuclear program. Riyadh’s opposition to the JCPOA placed it at direct odds with China’s diplomatic efforts to bring the accord to fruition. Trump’s withdrawal from the deal and Biden’s failure to arrive at another negotiated deal mean that Iran continues to expand weapons grade plutonium enrichment programs, which might set off regional uncertainties due to growing tensions be it the Saudi-Iranian or Israeli-Iranian rivalries. Iran’s relations in the Middle East to a large extent are driven by sectarian and other identity markers. This may preclude a balanced approach by Beijing towards Iran and Saudi Arabia or the UAE.

In December 2022 Chinese President Xi Jinping attended two summits with Gulf and Arab leaders in Riyadh. Discontinuing its usual position of non-interference in Middle East security issues, China issued a joint statement that endorsed the main security and foreign policy objectives of the  Gulf Cooperation Council (GCC) member states—including over territorial disputes with Iran. Tehran had taken umbrage at the joint statement that Xi Jingping had signed with leaders of the six-nation GCC. The  Iranian foreign ministry expressed its “strong dissatisfaction” at the statement which in effect called into question Iran’s ownership of three islands in the Strait of Hormuz. To appease Iran, China established its first direct shipping line to Iran’s Chabahar Port after one of its container ships docked at the strategically located port. This is more a  symbolic gesture, what Chabahar port development needs is investment which remains contingent on clarity regarding the potential imposition on third entities sanctions.

Sluggish Economic Ties – Symptom of Sanctions Receptiveness by China:

As it steadily overcomes its zero Covid market downturn it is unlikely that China will reduce imports of oil despite US threats to sanction entities involved in the trade. China imports the bulk of Iranian oil, through third parties and unofficial channels.  But it is taciturn about this oil purchase, reporting only $6.5 billion of imports from Iran in 2021. Data from firms such as TankerTrackers that monitor shipments and vessel movements worldwide, shows that China imported more than $20 billion of Iranian crude and oil byproducts. And Chinese customs data shows no increase year-on-year in Iranian imports indicating a level of receptiveness to the economic leverage of the US dominated international financial mechanisms. The energy trade with Iran lies at the  heart of their economic relationship, but overall economic ties between Iran and China have regressed. And aside from continuing to trade oil for goods, China has been circumspect towards Iranian investments.

Reports have emerged that Sinopec, China’s state-owned energy giant, has pulled out of the strategically important 30bn bl Yadavaran oil field in southwest Iran on the border with Iraq. Sinopec was awarded a contract by National Iranian Oil Company (NIOC) in 2007 for the first phase of development at Yadavaran, but kept falling short of production targets. The deal, which covered a second phase of development, was terminated quietly in 2019 without any formal explanation and NIOC reclaimed operatorship. China’s pace of involvement in Iran’s other oil fields like for instance West Karoun has also slowed. According to energy expert Simon Watkins, China knows that Iran doesn’t have many international options left, so it is looking to optimise the deals it can get. In OilPrice he explicates how Chinese discount for Iranian crude oil to the international benchmark over the last 12 months has been almost 44 percent -China pays Iran up to 10 percent less for its crude oil than it pays Russia for its crude oil, and the price it pays for Russian crude oil is discounted from the international benchmark by a minimum of 30 percent. Added to this China has been paying Iran in non-convertible Yuan which can only be used for buying Chinese goods.

China has positioned Iran as especially significant in the realisation of its new Silk route initiative. But even as part of the BRI, Iran has only seen a continuation of existing energy related trade investment. Mindful that Dubai and Doha provide a more stable and lucrative environment for its capital, Chinese investment in Iran has not been particularly forthcoming. Without specific projects and investments, Iran-China cooperation lacks solid substance. Despite references to historic linkages, and allusions of a common enemy China remains reticent to make deeper commitments in Iran making it a cooperation fraught with contradictions.

Vaishali Basu Sharma
Vaishali Basu Sharma
Vaishali Basu Sharma is an analyst of strategic and economic affairs. She has worked as a consultant with India’s National Security Council Secretariat (NSCS) for nearly a decade. She is presently associated with New Delhi based think tank Policy Perspectives Foundation.