US sanctions bringing China and Iran together
A report by Reuters last week showed that, while sales of Iranian crude oil have significantly diminished, Tehran’s exports of oil products have hardly been affected by US sanctions. Sales of such products are now worth about $500 million a month. The Trump administration estimates that, of the Iranian oil that is still being exported, 50 to 70 percent is flowing to China, while Beijing is also believed to account for more than 95 percent of Iran’s liquefied petroleum gas exports.
While US President Donald Trump is insisting on keeping the sanctions, Iran insists it will not talk to the US until they are lifted. As Iranian President Hassan Rouhani’s frustration with the Europeans increases over their inability to circumvent the effects of the American sanctions, Iran finds comfort in China. Both countries have a common rival: The US.
For China, Iran is also an important node in its Belt and Road Initiative (BRI). Iran is at the heart of the China-Central Asia-West Asia Economic Corridor — one of the six corridors or routes that make up the BRI. BRI projects in Iran include highways and electrified railways connecting major cities in the country.
Trump’s policies have energized Iranian interest in China. While, following the striking of the nuclear deal, Iran was focusing on Europe to build commercial ties and boost its industrial infrastructure, today all eyes are on China. CITIC Group, a state-owned investment firm, has given a $10 billion credit line to Chinese companies to finance water, energy and transport projects in Iran. The China Development Bank has also committed to deals worth $15 billion. And China has signed several deals with Iran to invest in its oil and gas infrastructure, including a project in the giant South Pars gas field.
China can also use its relations with Iran as a way to weaken the prestige of the US around the world and as retaliation against Trump’s trade war. Beijing is reluctant to abide by the US sanctions as it is committed to many projects in Iran, which the latter is supposed to pay for with oil. There is a synergy between the two countries: Both are confronted by the US, and China is a consumer of oil while Iran is a supplier of the precious commodity. Iran can resort to the infrastructure projects presented in the BRI to boost its economy and compensate for the losses incurred as a result of the US sanctions. Development projects tend to have a multiplier effect, i.e., the money spent on them cascades through several layers of the economy and has a larger effect than the original sum spent.
However, the US and China are preparing for a new round of talks in October, following the collapse of the previous round in May. The deal that might result from next month’s talks could have a great effect on Chinese-Iranian relations. Beijing might be enticed to downgrade its ties with Iran in order to secure a better deal with the US. On the other hand, given the escalatory measures and tone both countries are adopting, few analysts expect the two giants to reach a deal so soon. Trump has asked American multinationals to leave China and has promised the Chinese a “much tougher deal” should he win the 2020 election. Meanwhile, the Chinese are not showing any flexibility and have refused to increase their imports of American agricultural products, as demanded by Trump. In the meantime, both parties have increased tariffs on goods worth billions of dollars.
China can use its relations with Iran as a way to weaken the prestige of the US around the world
Dr. Dania Koleilat Khatib
In this context, created by the US, a Chinese-Iranian rapprochement seems evident. Foreign Minister Mohammed Javad Zarif wrote an op-ed for China’s Global Times newspaper, in which he described the partnership as “indispensable.” However, both parties should be careful when considering just how deep to make their ties, as this alliance might alienate other important partners.
China has many considerations when forging an alliance with Iran. To start with, it is not really eager to start a relationship with Iran that will alienate the US and Saudi Arabia, another important trading partner. However, if Trump pushes his economic war with the Asian giant, Beijing might choose this trade-off.
On the other hand, if Iran becomes captive to China, this will greatly affect its relations with Europe. Tehran wants to have good ties with Europe and its first option was to give European leaders a chance to find a solution to the US sanctions. However, the mechanism put in place has proved incapable of circumventing the sanctions, as the US and European economies are deeply connected. Prior to the sanctions, the EU was the top trading partner of Iran. Since then, economic activity between Europe and Iran has faltered.
Trump should be careful about whom he confronts and when — he can’t make enemies with everyone at the same time. The confrontations he has launched with both countries and the maximum pressure applied across the board might be counter-effective. Nevertheless, the Chinese-Iranian rapprochement will greatly depend on the China-US trade talks and on the ability of the Europeans to salvage the nuclear deal.
- Dr. Dania Koleilat Khatib is a specialist in US-Arab relations with a focus on lobbying. She holds a Ph.D. in politics from the University of Exeter and is an affiliated scholar with the Issam Fares Institute for Public Policy and International Affairs at the American University of Beirut.