The Iran-China 25-Year Comprehensive Strategic Partnership: Challenges and Prospects

https://rasanah-iiis.org/english/?p=8960

ByRasanah

China signed a landmark partnership agreement with Tehran on March 27, 2021. The importance of this agreement lies in its timing, the nature of its provisions, its longevity, the amount of investment, and its potential  ramifications  on the regional and international scenes, especially in light of  China’s desire to expand its political and economic influence in the Middle East while permitting Iran to join  its strategic “Belt and Road Initiative” to reach out to European markets.

According to the strategic partnership, China will provide investments as well as economic and security services worth $400 billion over 25 years in return for a steady supply of oil from Iran to the Chinese economy. The agreement is nothing new, but its timing is important as it indicates signals and motives.  The agreement was first floated in 2016 during the visit of Chinese President Xi Jinping to Iran but it did not take off at that time.  

It came in the aftermath of Iran’s signing of the nuclear deal, which resulted in an openness towards Western investments. But it gained significance last year after the grave economic consequences caused by the US withdrawal from the nuclear deal. The agreement has faced extensive criticism in Iran.  

This position paper aims to analyze the motives behind the timing of the agreement, its major economic, security and military provisions and its potential ramifications for China, Iran, the United States and the Middle East, as well as the challenges facing the implementation of this agreement and ultimately the agreement’s prospects.  

I-The Motives Behind Signing the China-Iran Strategic Partnership

Though the agreement was floated five years ago, it was announced by Iran only in the summer of 2020. At that time, it stirred up massive controversy among  Iran’s political currents and opposition at home and overseas. They utilized the agreement  to attack the government and political system, because they believed it did not take into consideration  Iran’s sovereignty and interests and  contradicted  the foundations of ‘the Islamic Republic’ and  its foreign policy principles that were established  by Khomeini. There must be signals and motives behind  the recent visit of the Chinese foreign minister to Tehran and the signing of   the agreement with China,  with  Iran’s foreign minister describing Beijing  as “a friend for hard times.” The signals and motives  are likely to be related to the current developments and interactions in the region.

For its part, China is waiting on Biden’s policies and is acting cautiously.  The new US administration plans to redirect its resources and capabilities to Southeast Asia  to contain China, a rival superpower seeking to lead the global order, according to Chinese interpretations of remarks made by Biden on March 26, 2021. Biden’s vision seeks to continue the policy of  former US President Barack Obama, which  he was not able to accomplish due to timing and developments in the Middle East. When Donald Trump took office in 2017, he reversed  Obama’s foreign policy.

Since Biden took office, the United States has focused on strengthening its position as leader  of the world order.  The new US administration has worked to forge international and regional alliances to curb the growing political and economic clout of Beijing. The US secretary of state met with European leaders in Brussels on March 24, 2021, and unified their views in regard to addressing China as a rival posing a threat to the current world order. Biden also held a virtual meeting on March 12, 2021 with the prime ministers of Japan, Australia, and India to forge an alliance to curb China’s clout. Furthermore, the United States plans a military and security redeployment to emphasize  its domination and clout in addition to bolstering its military growth  to maintain the power gap with its closest rival China, which prompted the latter to act out of necessity.

As for Iran, despite the domestic controversy surrounding  the agreement, it seems that a directive  from the supreme leader led to the signing of the agreement.  Perhaps this can be attributed to his and the government’s feeling that the domestic  crisis-riddled economic situation is extremely dangerous. The move is also in line  with the supreme leader’s directive for Iran to turn to  the East, turning away from Europe or because the massive wave of expectations that followed Biden’s election have vanished to a great extent. This agreement was signed against the backdrop of the Biden administration attempting  to set conditions for Iran to return to the  nuclear deal, and it is clear  that Biden wants to take advantage of a host of factors to ensure  that Iran is in a weak negotiating  position. This includes taking advantage of  Trump’s maximum pressure campaign, exploiting  Iran’s deteriorating internal situation, reaching a cross-Atlantic consensus  to impose more pressure on Iran to amend  the existing nuclear deal, opening up discussions about the outstanding issues, particularly regarding Iran’s ballistic missile program and  its regional behavior.

Biden’s moves are likely to have played a role at this time in pushing China and Iran to sign the strategic partnership agreement.  China seeks to counter US pressure and is attempting  by signing the agreement with Iran  to contain its clout and curb  its political and economic hegemony. Iran is a credible partner for China and a hostile regional rival to the United States.

China’s relationship with Iran could be used to concentrate  its conflict with the United States in the Middle East instead of moving it to Southeast Asia, as was the case during the term of Obama. All in all, China has sent a message that it will not stand by idle in the midst of the challenges that the United States is attempting to impose on it.

For its part, Iran needs a strong  ally like China to counter  US pressure, especially regarding the revival of the  nuclear deal. It also needs more economic openness  with China, which is  its most important trade partner to withstand  US sanctions and help it to alleviate its  deepening economic crisis.

II-The Most Important Provisions of the Agreement and  Its General Features

Iran did not announce the details of the agreement neither before nor after signing it, nor did the Chinese government, for its part, provide details. Tasnim News Agency, aligned with the IRGC and the clerical political system, explained this by arguing that  “it is not necessary to publish the details of the nonbinding agreements, and due to the US sanctions, not publishing it was better.”

The agency added,  “The Parliament won’t need to approve the agreement as it’s a framework roadmap, not a binding agreement.”

Even the agreement’s $400 billion investment was not mentioned by either of the two countries’ officials.  But an 18-page draft containing the agreement’s provisions was leaked to  Iranian and US newspapers that confirmed this large investment sum. Even when pressure was imposed  on the spokesman for the Chinese Foreign Ministry Zhao Lijian regarding the total sum of  Chinese investments, he declined to answer, according to  his remarks published in The Diplomat. He said,

“The plan focuses on tapping the potentials in economic and cultural cooperation and charting course for long-term cooperation […] It neither includes any quantitative, specific contracts and goals nor targets any third party, and will provide a general framework for China-Iran cooperation going forward.”

The International Institute for Iranian Studies (Rasanah) has previously addressed the details of the agreement in its 2020 Annual Strategic Report.  Here we briefly shed light on the most important details of the leaked agreement:

III-The Agreement’s Outcomes and Ramifications

 There is no doubt that there are several potential ramifications of this agreement for China, Iran, the United States, and the entire region, whether in the short or longer term in case China proves serious about implementing and abiding by the provisions of the agreement. Some of these outcomes are  as follows:

  1. China’s Gains

The agreement undoubtedly enables China to make several gains in case it is implemented,  mainly  gaining more geopolitical clout in West and Central Asia, playing a bigger political role in the Middle East, countering  US policies intending to  contain it and curb its growing global role in the longer term. Some likened the recent Chinese moves to a Cold War. This is in addition to making new important economic gains within the framework of its   “peaceful rise policy”  and the influence it has gained from investing in economic projects.

On the other side, the agreement opens new markets for Beijing in Iran and its neighboring countries and gives it an impetus to carry  out joint ventures. Its products  will reach Central Asian markets and get quicker  access to Europe.

The agreement will also help China to  mitigate the geopolitical risks on its economy by allowing it to diversify the source of its oil in the Middle East, which meets about 60 percent of its oil needs. This is in addition to ensuring a steady supply of oil and  petrochemicals at  lowered prices and even a reduction in China’s  shipping costs if Iran builds oil depots on  Chinese soil.

2-Iran’s Gains

Perhaps the most important gain for Iran from the agreement in the short run is having an influential ally in the international arena that will allow it to achieve a degree of equilibrium amid US efforts to isolate it. This is in addition to gaining  China’s support as one of the parties to the  nuclear deal and prompting the United States  to accelerate the pace of negotiations related to the  nuclear deal, leading to the removal of sanctions which are  crippling the country’s economy.  Regarding  the economic aspects, Iran critically needs Chinese support, with Beijing  over the past 10 years being Tehran’s number one trade partner. This partnership has deepened  when international sanctions are imposed on Iran. Hence,  Iran’s Foreign Minister Mohammad Javad Zarif described  China as “a  friend for hard times” as mentioned earlier. China alone  in 2020 imported a quarter of total  Iranian  exports.  In the event of establishing special mechanisms to aid  financial exchange,  Iran’s dependence on China will increase further.  If China is serious about its commitments with Iran, Iran will reap important economic, political, and military benefits in the short and long term, such as:

  1.  Bilateral trade increasing between the two countries, which went down from $52 billion in 2014 to about $20 billion during the Iranian fiscal year 2020/2021. Amid this decline – mainly due to sanctions and a drop in oil prices – China remains the most important and largest partner of Iran. It  imported 26 percent of Iran’s total exports to the world during the 2020/2021 fiscal year.   Oil and petrochemicals top the list of Iranian exports to China, with the latter being a sustainable market for selling these products.
  2.  A long-term development of  Iran’s infrastructure will ensure that it  plays a significant role in regional trade for a long time.  Iran developing  Chabahar port and constructing railroads will allow it to reach out to neighboring countries such as Afghanistan and other Central Asian countries. In addition, because of investment in infrastructure, international investments will flow into the country, once US sanctions are lifted.
  3.  Expanding Iran’s role in international “transit” trade, after joining the Silk Road project, and implementing plans to establish international corridors for the passage of goods from India, China, and Asian countries to Europe through its ports on the Arabian Gulf, passing via Iran, Azerbaijan, and Russia, and ending in Eastern Europe via high-speed trains. Therefore, Iran’s ambassador to Moscow quickly rushed to exploit the crisis of the stranded ship in the Suez Canal to promote investment in the so-called “North-South” corridor as a shorter and less expensive alternative. Nevertheless, the feasibility of this corridor has not yet been confirmed compared to Egypt’s Suez Canal.
  4.  Advancing Tehran’s qualitative military capabilities through its security, intelligence, and defense cooperation with a major superpower like China, thus acquiring Chinese weapons that can be used to support its  proxies in the region, whether in Yemen, Syria, Lebanon, or Iraq. This means boosting Iran’s strength at the expense of the rest of the region’s countries.  

3. The Agreement’s  Impact on  US Positions

Obviously, the signing of the agreement  between Iran and China is directly related to their current conflict with the Biden administration. It is a reaction to  Biden’s hostile approach towards both Beijing and Tehran. Therefore, the recent alliance between Beijing and Tehran is a challenge to the Biden administration, while the United States seeks  to mobilize its allies against China. Commenting on the agreement and the growing partnership between China and Iran, Biden said it “worried me for years.” The  agreement  offers  the two parties an opportunity to confront  US pressure and overwhelm Biden’s calculations and moves on the international scene. Thus US Secretary of State Anthony Blinken described it as “the biggest geopolitical test in the world.” It also undermines Washington’s global influence and standing in the region before the prospective nuclear negotiations with Iran.

Therefore, the signing of the  agreement may speed up the process of settling differences  with Iran over the nuclear agreement, although the Biden administration is extremely  preoccupied with internal files and addressing the  ramifications of the coronavirus pandemic. There is a prospect  that such  an agreement will encourage  the Biden administration to seek another means to strengthen its waning political influence in the world, and to assert its control over the global economy, before  Washington loses  its economic superiority  to China.

4. Ramifications on  Regional Countries

The Chinese-Iranian agreement will  have economic, political and security ramifications on the Middle East, especially for  the Gulf states and some Arab countries.

On the one hand, some provisions of the agreement   may impact the  commercial roles of regional countries, such as its provision that talks about making Iran a central hub for the  Silk Road project instead of the Arabian Peninsula. The latter was and still is   the main point on  the Silk Road and now competes   with  other commercial corridors that are promoted by Iran.  

On the other hand,  Chinese-Iranian military cooperation poses a direct threat to the security and stability of the Gulf states and Arab countries, such  as Iraq, Syria, Lebanon, and Yemen, and it might even cause an imbalance in  regional military power.This  may threaten  the region’s security and stability entirely, especially if Chinese weapons are sent to Iranian militias in the region,  and international peace and security, if Chinese-Iranian cooperation reaches the level of exchanging  nuclear knowledge, as some of the leaked provisions of the agreement indicate.

IV- Challenges

In spite of all the important  aforementioned impacts whether for Iran, China or the global system as a whole, and  the dangerous ramifications  on the region, there are no guarantees that  the two countries will proceed according to a fixed timetable nor meet the agreement’s specific provisions, goals and projects. It is also unclear whether or not this   agreement will have an impact on the US sanctions imposed on Iran.  There is  a high probability that the actual implementation of the agreement will be far less than expected. This is due to the fact that many of the leaked provisions of the agreement fall within China’s general policy  towards the entire region, and not towards Iran in particular, and that China is trying to include Iran within its overall policy.

 We found that China’s investments in Iran between 2010 to 2020 amounted to $18.2 billion. During the same period, China invested $30.6 billion in Saudi Arabia, and $29.5 billion in the UAE, meaning that   China has invested highly in other regional countries, while Iran lags behind.  China is trying to include Iran within  the framework of its  overall strategy for  the Middle East.

In light of this, there are number of issues that need considering:  

1.Ambiguity: there is ambiguity surrounding the agreement, perhaps intentionally done to  raise its  importance, or  to provoke anxiety and apprehension. It is a move by Iran and China to pressure the United States to gain pressure cards in many other controversial files.

2 .The lack  of the “binding” nature of  the agreement: it is a framework agreement that is not binding on the two parties, and will not be presented  to the Iranian Parliament to approve,  meaning that each party is able to cancel its commitment to this agreement   when it is no  longer needed, as was the case when it was proposed in 2016, and it also has no clear and measurable goals.

3. The nature of the Iranian political system: Iran has concerns about long-term binding agreements, especially economic ones, due to historical considerations and precedents with Britain and Russia before the 1979 revolution, and persistent fears related to foreign hegemony over its territories and resources.  There are also growing internal protests against the agreement at the moment.

4.The impact of US sanctions: the  impact of US sanctions on trade and economic relations between China and Iran is still tangible.  Iran is still in need of trade and investment relations with the rest of the world. In other words, there is an urgent and dire need to lift the US sanctions on the Iranian economy as soon as possible.

5. The common political and economic interests between China and the Gulf states: the size of these interests cannot be overlooked, especially with the Kingdom of Saudi Arabia, which has more Chinese investments than Iran. It is also the largest   supplier of oil and petrochemical products to China.  Therefore, Beijing cannot part with Saudi Arabia,  at least in the short term.

V.  The Future of the Agreement

In light of the opportunities and challenges facing the implementation of the agreement, it can be said that there are several possible scenarios; first,  the possible activation of the agreement and its entry into force; second,   freezing the agreement;  finally,  maintaining the current level of cooperation, with both  countries taking into consideration  their positions and  the regional and international pressures.

1.Scenario of Activating the  Agreement 

This scenario will happen    if   an understanding between the United States and Iran is not  reached regarding a return to  the nuclear agreement, and Iran continues to be   frustrated with the Biden administration’s conditions, and the US sanctions imposed on it are not lifted. As a result, Iran’s economic crisis will be exacerbated.  This will prompt Iran to activate the agreement with China, helping it to alleviate its internal crises.

Iran also needs China to balance US pressure, and to achieve a balance within the 4 + 1 group, to support its negotiating position, and to  impede any Western demands   in regard to modifying its regional behaviour and  starting negotiations over its  ballistic missile program.

From   China’s perspective, the US withdrawal from the region is tempting it to strengthen its presence within the framework of   its strategy to draw in other parties  and move the confrontation with the United States away from its direct borders.

It is  also important to mention here the geo-economic significance  of Iran to China within the framework of its  Belt and Road Initiative , which is competing with the  US project in partnership with India  to access to  Central Asia and Europe. China also needs to secure additional, stable and cheap energy  supplies from Iran.

The agreement gives the two parties important geopolitical advantages and economic benefits. This strengthens the trend towards activating it in the future, especially as Iran is  aware of  its mistake when it betted on opening   up to the West, and wants to reassure China that it will not revoke  their partnership in case the nuclear agreement is revived.

The two countries have ambitions to  advance their influence regionally and internationally, and the agreement gives them mutual advantages to achieve this end. Therefore,  they may be eager to activate the agreement and enter it into force.

2. The Agreement as a Maneuver

This scenario is strengthened  by the  internal opposition in Iran to the agreement, because it is inconsistent with one of the most important principles of Iranian foreign policy, which is the principle of  independence, and the rejection of any foreign hegemony. China has worried some countries as its economic investments may lead to political leverage over them.

There are also domestic economic forces, such as the Revolutionary Guards (IRGC), that have concerns about the economic influence of major powers such as China because  this will be at the expense of  their share in the Iranian market. Therefore,   they may undermine this agreement. The IRGC  enjoys  an influential political and economic status, and has   access to decision-making institutions. This political influence may increase if one of its candidates wins the upcoming presidential elections.

In spite  of  the economic significance of the agreement,  if US sanctions remain,  it would  be meaningless and deactivated, and they will impede the implementation of its provisions.

As both Iran and China perceive  the agreement as a move  to pressure the United States, they  are not going to  activate the agreement if the move achieves its goal. After the nuclear agreement in 2015, Iran  prioritized European and even  US investments, especially in advanced industries such as aviation. At the same time, it suspended the discussion of this agreement in 2016, which can recur during the next stage. China definitely expects it.

3. Partial Activation Scenario

This scenario is  strengthened by the steady growth of economic relations between the two countries, and  the close cooperation in a number of economic and commercial spheres.   In some areas, the agreement provides mutual incentives and common goals, especially regarding   the economic and commercial spheres,  but it will be difficult to implement  its provisions  regarding security, military, and strategic cooperation.

The two countries have an interest in oil exchange. Iran wants to diversify its exports if the sanctions are lifted, and China wants to secure greater sources of energy. They also have an interest in completing plans for trade routes, such as the Silk Road project and the Belt and Road Initiative, because of their economic and geopolitical benefits  for the two countries. In addition, China realizes that if it  fully activates the agreement, it will ignite  confrontation with the United States, especially if it decides to have a military role  on Iranian soil.  This is in line with  China’s current foreign orientations — which  are based on spreading its influence through the economy, avoiding any political and military confrontation,  and competing  for the leadership of the world order — the agreement  will focus on  developing current relations between the two countries, and will avoid provoking regional states, with which China  has important economic and political relations. In light of this, the two countries will likely make sure not to expand the level of their partnership beyond a certain limit, due to internal and geopolitical considerations.  They also will not allow any regression in their relations because each party has common interests that need to be advanced. Therefore, both countries will be guaranteed mutual benefits without incurring additional costs.

Conclusion

It can be said that although it has reduced its presence in the region, the United States is still the most influential power, and it takes into account the moves of China and Iran. Probably, before the agreement enters into force, there will be a move to test US reactions.  In this case, the two countries would be satisfied with  merely reaching their mutual goal; achieving a balance against  US pressure, given the fact that the agreement does not include a binding clause on any party. Or they would only activate some aspects of the agreement, within the framework of growing relations especially regarding economic and trade aspects, including energy projects and trade routes.

In all cases, however, this agreement is an important step within China’s quiet steps to play greater political and economic roles in the Middle East and the world. Therefore, it is of great importance for Arab countries to take measures in advance against the economic, political and security challenges that such a qualitative Chinese-Iranian rapprochement may pose due to  the dangers  of Iran’s external ambitions —which are  stated  in the Iranian  Constitution.

Rasanah
Rasanah
Editorial Team