Will China Undermine Trump's Iran Strategy?

By Dina Esfandiary and Ariane M. Tabatabai

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In May, President Donald Trump announced that he was pulling the United States out of the Iran nuclear deal. A few weeks later, U.S. Secretary of State Mike Pompeo outlined the administration’s aggressive new Iran policy, which was designed to prevent the country’s emergence from isolation. This strategy, the Trump administration believes, will force Iran to return to the table and make a “bigger and better” deal that addresses the president’s concerns with the existing agreement. For Tehran, a full economic recovery and renewed ties with Western countries now seem unlikely. But this doesn’t mean that the Trump administration’s plans will succeed.

For the better part of two decades, Iran’s leadership has been hedging against international isolation by developing deeper ties with China and Russia. Today, as Washington once again seeks to tighten the screws, Tehran sees its relationship with Beijing as key to remaining afloat. China has announced it will likely continue importing oil from Iran, even after the United States moves to cut down Iranian oil sales down to zero by November. And Chinese engagement with Iran might pave the ground for others to follow suit, which would undermine the new U.S. pressure campaign.

LONG-TERM RELATIONSHIP 

Chinese officials often characterize their relationship with Iran as “20 centuries of cooperation,” but the two countries’ contemporary partnership began in the final days of monarchical rule in Iran. In August 1978, the chair of the Chinese Communist Party (CCP), Hua Guofeng, traveled to Iran—the first time that a Chinese communist leader visited a non-communist country. Although the Islamic revolution toppled Shah Mohammad Reza Pahlavi just a few months later, Hua established a basis for cooperation that would outlast the shah. After the revolution, Hua quickly made amends with the new regime by apologizing for his earlier visit and expressing his desire for greater ties with the Islamic Republic. After the Iran hostage crisis and the country’s subsequent international isolation, China became a vital partner. During the Iran-Iraq War, which lasted from 1980 to 1988, China was a key arms supplier to the Iranians. And in the decades that followed, it slowly but surely established itself as a major player in Iran’s economy, trade relations, foreign policy, and military affairs.

As Washington once again seeks to tighten the screws, Tehran sees its relationship with Beijing as key to remaining afloat.

In the mid-2000s, when the United States and its partners began ramping up sanctions in an effort to curtail Iran’s nuclear program, Beijing undermined U.S. efforts by providing the struggling country with economic relief, a direct channel to the UN Security Council, and military support. This relationship was mutually beneficial. China saw Iran as a major source of energy and an important market. Iran’s position at the crossroads of the Middle East, South and Central Asia, and Europe, along with its access to the Persian Gulf and the Strait of Hormuz, made it significant to China’s vision of integrating these key regions through infrastructure and transportation projects designed to expand Chinese political and economic influence.

Although China supported UN sanctions against Iran in 2010, it continued to engage the Islamic Republic and, by doing so, capitalized on the Middle Eastern country’s isolation. As other international suppliers and companies withdrew, Chinese goods and services flooded Iran’s market. Iranians welcomed China’s continued cooperation at a time in which no other nation (except for Russia) was willing to engage. The bilateral relationship further picked up with the announcement of the One Belt, One Road initiative, in which Iran plays an important role. Still, these ties stopped well short of a strategic alliance. Both states wanted to pursue their own interests without jeopardizing ties to other relevant players. China, in particular, did not want its support of Iran to harm its relationship with the Western powers.

Although the two countries maintained a pragmatic partnership, over time the relationship began to sour. By the time that nuclear talks resumed in 2012, Iranian consumers had come to see Chinese products as subpar and the political elite deemed Beijing untrustworthy. During the period of international sanctions, Iran struggled to meet the needs of its population and often had no choice but to turn to China, which faced no competition on the Iranian market. As a result, Iran became flooded with low-quality Chinese products. But the quality of the products wasn’t the only Iranian grievance with China. Chinese involvement in Iran didn’t create jobs; instead, Iranians watched as Chinese workers replaced them on various projects that had been outsourced to China, even as unemployment rates continued to climb up in Iran. Iranians were also frustrated with the conditions and pace of business. For example, they complained about the slow progress on the construction of the Tehran metro and cancelled a contract with China’s national oil company in 2014 due to recurring delays. The nuclear negotiations, which began in 2012, offered Iran an irresistible opportunity to diversify its suppliers and reestablish trade links and political ties with other countries, in particular those in Europe. 

The Iranian public and leadership alike were keen to open their country up to the West. Still, many Iranians urged caution and called for the government to maintain good ties with China in case things did not work out. The events that followed would prove them right. Trump’s election made it clear to Iran that it couldn’t turn away from China. Trump had made his disdain of the nuclear deal known throughout the presidential campaign. And after months of heated rhetoric and push and pull within the administration, he put the deal on life support by announcing the U.S. withdrawal.

CHINA'S GROWING ROLE

Today, as the United States pressures other countries and businesses to leave the Iranian market and to stop importing Iranian oil, Tehran is hoping that Beijing will shield it from greater economic harm. At the moment, China is assessing its options. On the one hand, Chinese businesses do not want to be found in overt noncompliance with U.S. sanctions. They have become more global, which means that they are more vulnerable to U.S. pressure than they were in the past. And Washington hasn’t hesitated to investigate and sanction Chinese companies such as the telecommunications giants Huawei and ZTE for doing business with Tehran. Still, Iran has reason to remain optimistic. Major Chinese companies remain actively involved in Iran and many of them are poised to take over as European businesses pull out. For example, China continues to invest heavily in the Iranian railway and energy sectors. In July 2017 China agreed to invest $1.5 billion to electrify the Tehran-Mashhad railroad. China is more flexible on payment processes, having used bartering in the past, and its efforts to become less dependent on the U.S. dollar by using its national currency to pay for oil imports are intended to create a bulwark against U.S. economic pressure. This means that Chinese-Iranian economic ties and trade will likely continue, even as the Trump administration levies new sanctions. 

China will also play a significant role in ensuring that the nuclear provisions of the agreement continue to be implemented. With Washington out of the equation, Beijing is now in the driver’s seat on the redesign of a key nuclear facility, the Arak Heavy Water Reactor. It is also poised to complete two nuclear reactors in Iran in the years to come. This makes Beijing an even bigger player in the Iranian nuclear sector, which was long dominated by Moscow. On the one hand, increased foreign involvement in the Iranian nuclear sector is positive, as it will help keep Iran’s nuclear activities in check. On the other hand, with China heavily involved in yet another Iranian industry, it will be even more difficult for the United States to isolate the country effectively. 

China already has a great deal of influence in Iran and this will only grow as the nuclear deal continues to falter. At the moment, Europeans are negotiating among themselves to develop a package of incentives that will encourage Iran to continue complying with the terms of the deal. But Europe is limited in its ability to stand up to the United States. The EU member states ultimately lack the political will to undermine Washington’s efforts to isolate Iran, as they must balance their interest in upholding the deal with other priorities that require U.S. cooperation. Even as it pursues talks with the Europeans, Tehran is counting on Beijing to serve as a bulwark against U.S.-imposed isolation. China’s willingness to continue trading with Iran will stymie U.S.-led efforts to isolate the country and make sanctions less effective than they were in the past. What’s more, because Trump is unilaterally reimposing sanctions even though Iran has not violated the deal, other countries aren’t on board with the U.S. pressure campaign. As a result, they’ve begun to earnestly explore ways to isolate their businesses from unilateral U.S. sanctions. In the long run, this will greatly diminish U.S. efforts to forge a new deal.