What drives the Sino-Iranian Partnership?

Ahmed S. Cheema

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Iran and China established diplomatic relations in 1971. It was a significant milestone in the relationship since the regime of Shah Mohammed Reza Pahlavi was a firm American partner, and China at that time was under the rule of Chairman Mao. After the Iranian revolution, the relationship saw slow progress until the 1990s, when both countries agreed to broaden their economic ties. At first glance, Iran’s theocratic regime would possess little in common with the Chinese Communist Party. However, the bilateral relationship has grown more robust over the past few years, with China becoming Iran’s preeminent economic partner and regime supporter. Realpolitik, economic benefits, and geopolitical goals compel both countries to work together, especially since both view the United States as the prime impediment to their strategic objectives.

Economic cooperation is the cornerstone of Sino-Iranian ties. China is Iran’s largest trading partner and has been increasing its investments in Iran. In March 2021, both countries signed a twenty-five-year strategic partnership agreement, amounting to $400 billion, to develop Iran’s infrastructure and transportation sectors. The deal was a substantial step forward in the partnership between the two countries. Subsequently, Chinese banks provided Iran with $10 billion in loans for power plants, railways, and other infrastructure projects. Chinese companies have helped construct a high-speed railway between Tehran and Mashhad and develop ports and airports. These investments have been vital to Iran’s modernization efforts. Iran has been under substantial U.S. pressure since President Trump withdrew from the JCPOA in 2018 and reimposed economic sanctions. These sanctions have made it challenging for Iran to access international markets, resulting in a recession, skyrocketing inflation, and a significant devaluation of the Iranian Rial. China stepped in and injected much-needed capital and expertise into Iran’s economy. These capital inflows have stimulated economic activity, created jobs, mitigated the impact of the sanctions, and continued the development of Iranian infrastructure. The Iranian government uses this Chinese engagement to demonstrate to its population that the country is not diplomatically isolated, thereby assuaging domestic concerns and retaining a semblance of legitimacy.

The energy sector has been a principal focus of collaboration, and Chinese companies have invested heavily in Iran’s oil and gas industry. After Washington reimposed sanctions, Iranian oil exports declined. China is the largest importer of Iranian oil, and Iran is one of China’s largest suppliers of crude oil. It has helped Iran generate sufficient revenue to withstand crippling sanctions. Iranian oil has strategic implications for China’s energy security. Iran has the world’s third-largest oil reserves, and Chinese investment in Iranian oil and gas fields provides China with a reliable energy source. Additionally, Iran is an essential partner for China’s Belt and Road Initiative. Chinese companies have planned substantial investments in Iran’s transport sector to support this endeavor. Iran’s strategic location and natural resources make it a critical partner for this initiative, as it provides a gateway to the Middle East and Europe.

The chief geopolitical factor pushing Iran and China together is their opposition to American hegemony. Both countries oppose American unilateralism and support a “multipolar” world order. Consequently, they have strengthened political ties and worked together in international forums, such as the UN, to promote common interests. China played a crucial role in diffusing Saudi-Iranian tensions by presiding over a landmark summit in March, demonstrating Beijing’s rising clout in the region. This is especially significant since Saudi-American ties are at a relatively low point. Recently, the BRICS invited Iran, Saudi Arabia, and the UAE to join. The message reverberating in the region is that while America might be withdrawing, the Chinese are just getting started.

China and Iran have also increased their military collaboration. Both countries signed a military cooperation agreement in 2021 and have conducted joint naval exercises in the Gulf of Oman, marking a significant advance in military cooperation. Chinese military expertise played a role in the Iranian hypersonic missile program, much to the chagrin of the United States. Nevertheless, sales of advanced equipment such as stealth fighters are improbable. Chinese ties with Saudi Arabia and the UAE are also significant, which would factor into China’s strategic deliberations. Beijing will deepen ties with Tehran, but not at the expense of its relations with the Saudis and Emiratis.

Additionally, China has not waded into the complex conflicts of the Middle East, such as Iranian-Israeli hostility, and there is no evidence to indicate Chinese backing for Iranian adventurism and arming of proxy militaries. Beijing would prefer that Washington remain tied down in the Middle East and will support the Iranians on the political front. However, such patronage might not extend to a conflict with Israel or Saudi Arabia. A major regional war would disrupt oil flows, disrupting the economy.

Despite opportunities, there are also potential challenges to the relationship between Iran and China. Iran’s domestic politics include periodic protests against the regime. Iran has a complex political system, and there are often tensions between different factions within the government, which creates uncertainty for Chinese investors. In addition, corruption and bureaucratic inefficiencies in Iran can make it difficult for foreign companies to do business. So far, the $400 billion promised in 2020 has yet to materialize.

The Sino-Iranian partnership has raised concerns among other global powers, notably the United States. Washington has expressed apprehensions about China’s growing influence in the Middle East and its support for Iran. Since the Iranian revolution and the hostage crisis, relations between the United States and Iran remain contemptuous. The theological and revolutionary nature of the Iranian regime attracts few admirers in the West. The United States sees Iran’s nuclear program and its support of proxy groups such as Hamas and Hezbollah as a strategic challenge to its interests and a peril to the security of its ally, Israel. American sanctions on Iran force the regime to turn to China for support, raising American trepidations about Chinese regional designs. Therefore, the prospect of a revival in American-Iranian ties remains slim.

Meanwhile, strategic competition between the United States and China and the clash over Taiwan further exacerbate tensions. Consequently, it is self-evident that the Chinese and Iranians will find a common cause against a shared adversary, albeit with Sino-Saudi ties also featuring in Beijing’s calculus. Chinese backing has hampered American efforts to dissuade the Iranians from ceasing their nuclear program and permitted them to seek a strategic balance vis-a-vis the United States. If Sino-American ties continue to deteriorate, China might consider an “arms for oil” agreement with Iran. These weapons might compel Israel or the United States to think twice before any potential strikes on Iranian nuclear assets but will not jeopardize Saudi and Emirati security. As recent events indicate, Iran is now firmly in the Chinese camp, along with Russia and North Korea, and this partnership will be a defining feature of the Middle East for the foreseeable future.