By Javad Heydarian, March 20, 2012 Originally published in The Diplomat
They say that it’s only in hard times that you really see who your true friends are. What separates opportunistic partnership from genuine alliance isn’t necessarily treaties, but a willingness among both parties to hang onto their relationship when the going gets tough.
With Iran’s growing isolation over its nuclear program, China’s ties with Tehran are being put to the test as never before. As the European Union and the United States tighten the noose around Iran’s oil exports – constituting 80 percent of government revenues – and key financial institutions, including the Iranian Central Bank, Tehran is in desperate need of Chinese assistance. On top of this, Israel appears to be laying the groundwork for military strikes in case sanctions fail to achieve the desired effect: namely, Iran abandoning its nuclear program. This is precisely when China is most needed by Iran. However, with Washington stepping up its pressure on China to cut Iran loose, there are growing signs that Beijing’s leaders attach greater importance to Sino-American ties and the country’s own energy security.
In recent decades, Iran and China have cultivated a partnership that cuts across all critical areas. By any measure, Iran and China seem natural historical allies. After all, the two countries are among the oldest continuous civilizations, and for centuries, the Persian Empire and Imperial China served as the two pillars of power at the far ends of the Asian continent. They also formed the foundations of the ancient Silk Road, which spurred the first waves of globalization.
And they share to some degree a similar national psyche and historical consciousness. In the 19th century, at the height of the colonial period, the two powers experienced similar eras of “humiliation” at the hands of European powers. While China was forced to open its markets, Iran served as the epicenter of the so-called “Great Game” between the Czarist Russia and the British Empire. The 20th century was payback time. The 1949 Communist Revolution in China and the 1979 Islamic-Nationalist Revolution in Iran transformed the two countries into major ideological and strategic adversaries of the West. Although both countries dallied with rapprochement with the United States, they have ultimately remained key strategic U.S. competitors. This is clearly reflected in the 2012 U.S. Defense Strategic Review, where both Iran and China are identified as principal challenges to the United States.
Of course, the two Asian powers have a qualitatively divergent relationship with Washington. After all, Iran is not only under a barrage of crippling sanctions and military threats from America, but it lacks any direct diplomatic relationship with Washington. This is in contrast to Beijing’s deep economic interdependence and increasingly institutionalized civil-military relations with the United States. However, China’s remarkable rise and growing assertiveness in the South China Sea has played a significant role in Washington’s decision to pivot toward the Asia-Pacific.
The U.S. has not only reiterated its commitment to “freedom of navigation” in the South China Sea, but has also bolstered its strategic presence and strengthened military cooperation with partners across the region, from Japan and Singapore to Vietnam, Australia and the Philippines.
Interestingly, China and Iran both face blowback in their respective regions: While the Arab monarchies in the Persian Gulf are consolidating an anti-Iranian front under the auspices of the Gulf Cooperation Council, a number of East Asian nations support the U.S. pivot to Asia.
And the ongoing crisis in Syria offers another example of where Beijing and Tehran see their interests converging, although for different reasons. While Iran is intent on helping its sole regional ally, China is bent on preventing another Libya-style “regime change” military operation. Cognizant of their own domestic political challenges, both countries have reflexively opposed any additional precedent for a West-led breach of traditional sovereignty.
But there’s more to the relationship than converging strategic interests. China was actually a key player in reviving and developing Iran’s nuclear program in the 1990s. For instance, the nuclear facility in Isfahan is the brainchild of Chinese-Iran nuclear cooperation, while China has also played a crucial role in improving Iran’s ballistic missile and naval capabilities – the core of Iran’s non-nuclear deterrence.
But the crux of the Iran-China affair boils down to economics: Iran has the second largest natural gas reserves and the fourth largest proven oil reserves in the world. China, meanwhile, is the world’s second largest economy and the largest hydrocarbon importer. The trade flows clearly demonstrate this inherent strategic compatibility. Iran is China’s third largest supplier of oil, while Beijing is Tehran’s most important economic partner.
Thanks to the sanctions, Iran’s relatively sophisticated economy is increasingly starved of high-tech machinery, advanced capital goods, and large-scale investments from the West. Iran also has relatively untapped hydrocarbon reserves, especially in the South Pars Complex, home to the world’s biggest natural gas field.
Rebuffed by the West, Tehran has turned to China to fulfill its growing needs. No wonder then that in recent years the Chinese have emerged as the biggest investor in Iran’s energy and transport sectors. According to some estimates, China is said to have pledged somewhere between $40 billion to $100 billion in total investments – easily dwarfing all other countries that continue to deal with Iran.
Beneath the surface, however, bilateral relations have faced some challenges.
For Tehran, there’s a growing feeling that Beijing is having some commitment issues. There’s a perception that China’s approach is not only increasingly mercantilist – trying to exploit Iran’s economic isolation – but also opportunistic.
Strategically, growing tensions over Iran’s nuclear program provide a significant logistical and strategic distraction for the United States, allowing China to focus on its Asia-Pacific strategy. In terms of economics, Beijing has used financial sanctions, which have restricted Iran’s ability to conduct dollar-denominated oil transactions, as a pretext to force Iran into barter deals. This has opened a floodgate of cheap, subsidized, and often sub-standard Chinese products, which have increasingly displaced Iranian industries and displeased the large consumerist middle class. There are also reports of delayed payments, causing intermittent trade frictions with Tehran.
Increasingly, Iran’s oil exports to China are being paid for with Chinese goods. With Iran’s biggest trade partner, the E.U., poised to impose a total oil embargo in the coming months, and U.S. allies such as South Korea and Japan vowing to reduce their imports of Iranian crude, Tehran is looking to countries such as China and India to fill in the gap.
However, it appears that as China becomes even more central to Iran’s economic viability, it is bent on securing additional concessions from Iran on the price of oil and the type of payments made. Earlier this year, when the U.S. and the E.U. tightened sanctions, China cut its imports by almost 50 percent, with no indication of future significant increases in its purchases of Iranian crude.
When the Saudis and Emiratis expressed their interest in stepping in to fill any Iranian oil vacuum, Chinadispatched Premier Wen Jiabao to the Persian Gulf to negotiate further deals. This also means that Iran might need to make more concessions to meet its exports targets.
Crucially, Wen warned Iran against closing the Strait of Hormuz, indicating the importance of the free flow of oil supply to his country’s energy security and national interest. Thus, China effectively tried to veto Iran’s main military option for discouraging further Western sanctions.
In terms of Iran’s nuclear program, China has shown some level of acquiescence towards Washington. China stopped its direct nuclear assistance to Tehran when it came under intense pressure from Washington in the late-1990s. In 2010, just two months after the Brazil and Turkey-brokered “nuclear swap deal,” whereby Iran agreed to ship out the lion’s share of its enriched uranium and enhance confidence-building measures with the West, China agreed to a U.N. Security Council resolution against Tehran. This was a particularly painful blow to Iran, because Tehran – as well as Brazil and Turkey – felt that the nuclear swap deal was a gesture of goodwill. For them, the sanctions were cynical and unjustified.
As the pressure on Iran grows, China’s rhetoric is also shifting, and it is increasingly calling for Iran to be more transparent and forthcoming. It remains to be seen in the coming months whether China will try to ease sanctions against Iran and help Tehran overcome its growing isolation, or become increasingly estranged from its partner.