China-Iran economic ties: Beyond the hype and rhetoric

In recent years, the Tehran-Beijing relationship has witnessed significant growth. The US withdrawal from the Iran nuclear deal 2015, also referred to as Joint Comprehensive Plan of Action JCPOA, and imposition of stringent sanctions on Iran in 2018 has been cited as the primary factor for Iran’s growing proximity with China and Russia.

In 2021, Beijing and Tehran signed a 25 year agreement for enhancing economic and strategic ties between both countries – referred to as Comprehensive Strategic Partnership”. China had made investment commitments to Iran to the tune of $400 billion over a period of 25 years. 

Iran’s Look East Policy 

Under the current Iranian President, Ebrahim Raisi — who took over in August 2021 — Iran has sought to counter western sanctions by focusing on closer economic ties with countries in Asia – this policy has been referred to as Iran’s “Look East” strategy. The policy was first conceived Mahmoud Ahmadinejad (2005-2013). It has been argued, that while the key driver for Ahmadijenad’s emphasis on “Look East” was his anti-west leanings, in the case of the current Iranian President the thrust on the “East” is driven by pragmatism and the need for Tehran to re-orient its foreign policy to the changing world order – where Tehran perceives that the West is in decline. 

A March 2023 agreement between Iran and Saudi Arabia, brokered by China was also touted as a strong indicator of Beijing’s clout in the region. Through this agreement, Riyadh and Tehran resumed diplomatic ties after a period of 7 years.

Iran’s entry into BRICS and de-dollarization

It would also be pertinent to point out, that Iran has entered the China dominated Brazil, Russia, China and South Africa (BRICS+) grouping and pushed for de-dollarization. In August 2023, while speaking at the BRICS Summit in Johannesburg, Ebrahim Raisi said: “Iran decisively backs up BRICS’ efforts toward de-dollarization … using national currencies and strengthening the bloc’s mechanisms for payment and financial interactions.”

In December 2023, Iran signed an agreement with Russia for trade in local currencies. 

Has China’s clout Ever since the beginning of the turmoil in the Middle East in October 2023?

The US asked China to use its leverage vis-à-vis Tehran for preventing the escalation of the Israel-Palestine conflict. After the attacks by Houthis – a rebel group supported by Iran —  on the Red Sea, which began in November 2023 and have significantly impacted global trade,  China is supposed to have warned Iran that further attacks by the Houthis would impact China’s economic links with Tehran (China is supposed to have sought safety only of its own economic interests).

While there is no doubt, that China’s influence in the Middle East has increased and so have ties with Iran grown. A few points need to be borne in mind in the context of China-Iran economic ties. 

First, while there is no doubt, that China has been buying large amounts of oil from Iran  . Ever since the Iran-China 25 year Comprehensive strategic partnership signed in 2021, China’s investment in Iran are estimated at $185 million. Recent figures revealed that Iran was China’s 38th trade partner with bilateral trade estimated at $32 billion. During his visit to Iran in 2016, months after the signing of the JCPOA, Chinese President Xi Jinping had visited Iran. During Xi’s visit both sides agreed to give a strong thrust to bilateral economic relations and to push bilateral trade to $600 billion by 2026.

China’s trade with other Middle Eastern countries – especially Saudi Arabia ($107 billion) and UAE ($95 billion) is far higher than that with Iran. 

The main reason for China’s cautious approach vis-à-vis investments in Iran has been US sanctions. 

Second, there has been scepticism in Iran vis-à-vis the 25 year agreement and the overall trajectory of ties with China. Former Iranian President Mahmoud Ahmadejinad known for his strident anti-west  views was sceptical about this  agreement. Many commentators have in fact pointed out to China’s limited economic engagement with Iran as a strong highlight of the fact that Beijing wants to use Iran as a tool for enhancing its clout in the Middle East. 

While several developments have given a push to bilateral ties between China and Iran, there are clear limitations to the economic relationship between Beijing and Tehran. While seeking to tap Tehran’s anti-west sentiment, Beijing’s economic links with Iran in recent years have been limited. China has not fulfilled its commitments pertaining to investments in Iran. While Beijing has bought large quantities of oil from Iran, bilateral trade as discussed earlier has been relatively low. In recent months, China’s influence over Iran and its overall clout in the Middle East — it has been argued — is far lesser than what is perceived by several commentators.

[Photo by Khamenei.ir, via Wikimedia Commons]

The views and opinions expressed in this article are those of the author.

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