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Beijing Balances Iranian Opportunities with Tehran Troubles

Feb 17 , 2016

President Xi Jinping’s inaugural trip to Tehran earlier this month was the first visit by a foreign head of state from one of the P-5 (permanent members of the UN Security Council) to Iran since the July 2015 nuclear agreement took effect on January 16.

Ensuring successful implementation of the Joint Comprehensive Plan of Action (JCPOA) adopted by Iran and its P5+1 (the five permanent members of the UN Security Council and Germany) negotiating partners on July 14, is critical for sustaining support for nuclear nonproliferation, an area that has seen generally good cooperation between China and the United States despite the differences between these countries on other issues.

However, the formal implementation of the deal has also resulted in the lifting of the nuclear-related economic sanctions on Iran as well as the release of Iran’s frozen financial assets. As a result, critical barriers constraining Chinese-Iranian economic ties have been removed, giving China more opportunities to develop ties with Iran that could create tensions with the United States.

China and Iran have become close economic partners during the past decade since Western sanctions and Iranian actions broke the previously deep commercial ties between Iran and Europe. Since the adoption in 2010 of UN and especially EU measures against economic exchanges that could facilitate Iran’s nuclear weapons program, China has become Iran’s largest trading partner. As EU countries cut back their imports of Iranian oil and European countries left Iran, Chinese companies “back filled” for the departing Western firms and China boosted its imports of Iranian oil.

Although the nuclear deal has opened the possibility if Iran’s rebuilding its economic ties with Europe and its security relations with the United States, Xi’s visit is but the latest manifestation of how China has taken preemptive steps to fortify its position in Iran.

In the diplomatic domain, Xi met with Supreme Leader Ali Khamenei, President Hasan Rouhani, and other leaders and signed a 25-year strategic plan to develop relations. Xi reaffirmed Beijing’s support for Iran’s application to become a full member of the Shanghai Cooperation Organization and expressed full confidence that Iran will implement its nuclear commitments.

In terms of economic, Xi’s visit coincided with new Chinese-Iranian commercial deals that should help China sustain its leading economic position. Chinese companies have agreed to build more infrastructure projects in Iran and help develop the country’s nuclear and hydrocarbon energy sectors. The two governments see a natural partnership. As Xi argued in a letter to Iranians released at the time of his visit, “China has considerable strength in capital, technologies, equipment and other areas,” while Iran has rich resources, ample labor force and huge market potential, and it is in the crucial stage of industrialization and modernization.”

But China has to balance a complex relationship with Iran with Beijing’s relations with the United States and other key partners. Essentially, Beijing seeks to change Tehran’s foreign behavior, but not its regime. Chinese leaders do not want Tehran to obtain nuclear weapons, but also oppose U.S. sanctions on Chinese companies doing business in Iran. The Chinese want Iranian business deals, but seek to sustain important commercial relationships with other Persian Gulf countries and the United States.

In the security realm, China may increase its sale of weapons to Iran despite the danger that these arms will be re-exported to nearby conflict regions or embolden the Iranian military to challenge the U.S. military position in the Persian Gulf, a major transit route for Chinese oil imports from the Middle East. Some U.S. strategists fear that China would deliberately try to strengthen the Iranian conventional forces in order to distract and weaken the U.S. military, which has become a barrier to Beijing’s ambitions in East Asia; for example, China could provide Iran with weapons and training to increase its “anti-access/area-denial” (A2/AD) capabilities.

Even if the Chinese government did not want to confront the United States in that manner or risk the diversion of its weapons to terrorists (as has occurred in the past in Lebanon and Afghanistan), there are probably Chinese businesses and other Chinese entities that would accept these risks in return for greater arms sales to Iran. In addition, clever Iranian negotiators will argue that Tehran can probably obtain any weapons that China denies Iran from Russian suppliers.

Given these consideration U.S. officials may have to tolerate some Chinese defense sales to Iran in order to enforce credible red lines against the most serious military technology transfers, such as those between North Korea and Iran through Chinese territory or any dual-use equipment that could assist Iran’s development of more accurate, farther-flying missiles. U.S. officials should also emphasize that China’s support for Iran’s military buildup could antagonize China’s security partnerships with Israel, Turkey and the Sunni Arab states as well as embolden Iranian assertiveness that could threaten conflict and other instability in the region where China obtains most of its imported oil and gas. Rather than fight their exposure, the Chinese authorities could in turn collaborate with the U.S. government to expose and suppress illicit military-related shipments to Iran by PRC entities perhaps acting without the approval of the Chinese central government. For example, neither Beijing nor Washington wants Iran to outsource its nuclear weapons and ballistic missile research and development programs to North Korea.

During his recent trip, Xi also had to balance tensions between Iran and Saudi Arabia, which he also visited. Although China, unlike Russia or the United States, is one of the few major countries in the world to enjoy good relations with both Tehran and Riyadh, and China imports vast quantities of oil from both countries, the tensions between Iran and Saudi Arabia threaten to alienate one or both states from China.

However, Beijing can leverage the desire of both Gulf states to remain China’s leading oil suppliers, obtain financing through the China-led Asian Infrastructure Investment Bank, and participate in China’s Silk Road Economic Belt. In addition, China can continue working with the United States and other countries to help end the fighting in Afghanistan, Syria, Iraq, and other regions where Iran and Saudi Arabia wage proxy war, at the expense of local and global interests, and at the risk of a further escalation of regional tensions. Although Sino-U.S. cooperation regarding Afghanistan has grown, the collaboration between Beijing and Washington regarding Iraq, Syria, and other Middle East conflicts is lagging.

The most important foundation for China-U.S. partnership regarding Iran will be their joint efforts to secure effective implementation of the Iranian nuclear deal and diplomatic collaboration to keep regional rivalries within prudent bounds.

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