26 - 28 Sep 2018

Tehran Goftegoo Park

The Lion and the Dragon: Iran looks to China for trade and development

The Joint Comprehensive Plan of Action (JCPOA) last week entered its third year of implementation under a cloud of uncertainty from Washington. As President Trump threatens to withdraw from the deal absent major changes, Tehran increasingly views China as a reliable partner and model for economic development.

Iran and China are two ancient and proud civilizations with strong nationalistic sentiments. Both were victims of frequent foreign intervention in the past. More recently, while Shah Mohammad Reza Pahlavi, an ally of the United States, was not inclined to establish close relations with communist China, the Islamic Republic, despite ideological differences, has maintained relatively close relations with Beijing.

Prior to the signing of the JCPOA, China was one of the few countries that continued to buy Iranian oil despite US sanctions requiring substantial cuts in oil imports from Iran. In the post-JCPOA environment, Iran is actively seeking to reestablish its place in the energy market, and China’s energy-thirsty economy is the perfect destination for Iran’s oil and gas.

China, on the other hand, values Iran as one of the largest Muslim countries in the region with vast natural resources. It was no surprise that Chinese President Xi Jinping was the first foreign leader to visit Iran after the JCPOA was implemented in January 2016. Meeting with Xi, Iran’s Supreme Leader, Ayatollah Ali Khamenei, stated that “Iran is the only independent country in the region that can be trusted in the field of energy…”

In June 2017, Iran’s President Hassan Rouhani told President Xi’s special envoy that Iran is a “trustable source of energy for China. The Islamic Republic of Iran has estimated more than $200 billion for projects in oil, gas and petrochemicals in its five-year development plan and China can invest in these fields.”

Iran has already increased oil exports to China. In October, 2017, for example, Iran exported 786,060 barrels per day to China, a 59 percent increase over 2016. China’s large oil and gas exploration company, CNPC, took a 30 percent share last year of a major project in Iran’s South Pars gas field and has expressed a willingness to assume a majority stake if the French company, Total, pulls out due to fear of US sanctions.

Iran views China as an attractive partner for other development projects, such as the long overdue Tehran-North Freeway. China has also been the major contractor for Tehran’s metro rail system, starting the project from scratch in 1990s. Recently, the Export-Import Bank of China, in cooperation with Iranian banks, financed the electrification of the Tehran-Mashhad railway, one of the busiest religious tourist destinations in Iran.

Iran is a major beneficiary ofChina’s Belt and Road Initiative, which aims to more efficiently link China to global markets in Asia, Europe and Africa. Iran, because of its location, is a key element of this initiative. This opportunity is not only important from a trade perspective, but from a geostrategic perspective as it will restore Iran to its historic role as a land bridge between Central Asia and Europe. This could help Iran shield itself against US efforts to isolate it from global markets.

At an event at the Atlantic Council on Friday, Wu Bingbing, the director of the Institute of Arab-Islamic Culture at Beijing University, said that China would continue trade and investment in Iran if the US pulls out of the JCPOA. “Iran is an important partner for us in the region,” Wu said. Unlike the United States, which has strongly sided with Saudi Arabia, the United Emirates and Israel, Wu added that China would not “take sides with anyone in the region.”

Iran, in deference to China, did not protest after China cracked down on its Uighur Muslim minority despite Tehran’s traditional support for Muslim communities around the world. China returned the favor after recent protests in Iran, expressing hope that Iran “can maintain stability and achieve development.” On Friday, Wu said that China sees Iran’s system of government as “relatively stable” despite the unrest and that Rouhani “has done a fairly good job” of implementing economic reforms.

Along with economic relations, Iran has also maintained a level of military cooperation with China. In fact, China was one of the very few countries that provided Iran with anti-ship Silkworm missiles during the Iran-Iraq war of the 1980s.

Iran currently produces the Chinese C-802 (Noor) and C-801 (Kowsar) anti-ship missiles. Iran also makes C-704 short range anti-ship missiles under the name, Nasr-1. These missile procurements have substantially increased Iran’s ability to target surface vessels, increasing its deterrent capabilities against naval adversaries.

Iran is reportedly interested in procuring the Chinese J-10 Chengdu fighter aircraft, once a United Nations arms embargo is lifted in 2020 under the terms of the JCPOA. It has been reported that the commander of Iran’s Air Force, Brig. Gen. Shah-Safi, recently visited China, perhaps setting the foundation for future cooperation. The Iranian and Chinese navies have also performed naval exercises in the Persian Gulf, presaging further military cooperation.

As developing countries under non-democratic systems that have often been at odds with the United States, Iran and China both oppose a US-led global order. While Iran objects to US hegemony in the Persian Gulf, China continues to challenge the US in East Asia and the Pacific.

Both countries, after centuries of humiliation by foreign powers, seek to boost their roles in the international system.  Iran, as a third-tier power, not only sees China as a successful economic model that offers substantial trade opportunities, but as a major power and wielder of a vote in the UN Security Council that can defend Tehran against US pressure. China, along with Russia and European Union, has also been one of the strong supporters of the full implementation of JCPOA. It is likely that if the US decides to unilaterally pull out of the Iran nuclear deal, China will continue to implement it. At the same time, China has its own trade and security interests with the US and is unlikely to jeopardize them for Iran.

Source: Atlantic Council/Sina Azodi

Published: 01/22/18