In international relations, the saying, “the enemy of my enemy is a friend,” has proven true with the emergence of a new world order. Earlier this year, Iran’s increasing friendship with China was hinted at when a draft of a potential 25-year trade and military agreement was leaked. However, an Iranian official quickly denied the finality of the agreement, claiming it was a general partnership with details still being discussed. Whether or not the deal is what the document says, the two countries have been warming up to each other. This is a challenge to the Trump administration’s maximum-pressure strategy with Iran after the U.S also pulled out of the nuclear deal with Iran (JCPOA). So how could China and Iran’s new strategic partnership pan out in the big picture?
Their position and aspirations in the world make Iran and China interesting bedfellows for several reasons. Foremost, they both challenge the Western world and seek regional dominance through trade and influence. As one of the strongest economies in the world, and an Asian leader in development and technology, China has economic interests in the Indo-Pacific region, as well as the Persian Gulf. The Belt and Road Initiative, which has been deemed the ‘new Silk Road’ is testament to these aspirations, and Iran is one of the 71 countries through which parts of the BRI will span. Amongst other West-Central Asian countries, Iran is a site for Chinese investment in major energy investment projects under the BRI. For more information, here is an interactive look into how China is investing beyond borders.
Amidst sanctions from the U.S., China and Iran trade continues to be strong at roughly US $11 billion, despite a decline this financial quarter. This provides Iran a little more room to push back against pressure from the US, while China will enjoy another growing market for its products in Iran especially as Iran’s options narrow during COVID-19. The Persian Gulf also supplies more than half of China’s oil, securing the relationship with Iran even further. The Islamic Republic of Iran is also a lucrative location for China’s digital information tools as it can provide the Iranian government with the means to restrict and control their citizen’s activities in cyberspace.
Those familiar with the Middle East would think growing trade with Iran is contradictory to China’s relationship and interests with its top trading partner in the region, Saudi Arabia, which is an arch-rival of Iran. However, it is clear that China has kept a largely apolitical stance, with a focus on looking at Iran as an emerging market and trading route in the region. The aim is not to pick sides in the region’s conflicts (contrary to what the U.S. aims for) but to find a mutually beneficial trade partnership.
This entry of Iran into an already contentious and volatile nexus of Asia’s politics could also be particularly challenging for the new president-elect Joe Biden as he revives some of President Obama’s foreign policy strategies with Iran during his forthcoming presidency. If the new long-term partnership between Iran and China materializes as planned, it will also include China strengthening its military foothold in the region through Iran. The leaked document included details on proposed joint exercises, training, and weapons research. However, given how Iran-US relations have unfolded in recent years, this would be the kind of message Iran would want to send to the White House to counter the maximum-pressure strategy.
The U.S. is not the only third party closely watching the Iran-China relationship. South Asia is another region close to Iran which will be affected by this relationship. The Chabahar Port in Iran is a major gateway for India into Afghanistan and the rest of Central Asia as well. India’s involvement in managing the Chabahar Port is also considered its way of countering its neighbour Pakistan’s Gwadar Port developed by China under the BRI. However, in July, India’s involvement in the Chabahar Railway project took a hit as Iran moved ahead with the project on its own. Iran justified this move by claiming that India has been influenced by the United States’ hostile policy towards Iran. Analysts in India cite the news of China’s 25-year agreement with Iran as a contributing factor to Iran’s decision to drop India from the project. In Pakistan, China is already heavily invested economically under the China-Pakistan Economic Corridor (CPEC), so an Iran-China deal will mean strengthened regional cooperation as both Iran and China share a border with Pakistan. Pakistan has historically relied upon American aid so the new deal opens up many windows of opportunity for regional cooperation to balance its relations with the U.S.. Given that the U.S. is still striving for peace in Afghanistan, its interests are tied with the other South Asian states and it will have to negotiate differently now with China’s engagement with them.
Does a well-connected, thriving region under the support of China, without any risks sound too good to be true? Potentially. One of the major concerns surrounding the BRI is that China is setting ‘debt traps’ for smaller, weaker states in the region that it can use later for strategic purposes. The term ‘debt trap’ was coined by Brahma Chellaney in 2017 and ever since has been used exclusively in relation to the BRI. This was the case in Sri Lanka who, struggling with debt, had to hand over a port to China. However, some have refuted such claims because the nature of China’s investment is such that receiving states also shape the future of China’s power in the world, thus making the deals largely mutually beneficial. In the case of Iran, China is also keen on being friendly simply because the deterioration of Iranian-American relations offers it a chance to hold greater political influence with Iran. Thus, China rebuilds ties with Iran as the U.S retreats.
During the coronavirus pandemic, there have already been numerous applications for renegotiation of terms for these loans as low-income countries struggle and China has been largely willing to suspend interest payments and change terms. So far, deferrals, extending maturity dates, and flexibility are on the horizon as opposed to complete write-offs because many of these loans given during COVID-19 were already interest-free. This flexibility was in the wake of the virus as it hit parts of the world in waves and China was able to proactively reduce infections over summer. However, with a second wave hitting South Asia and other developing economies, the renegotiations could have to be negotiated again given that the terms may require extension far longer than viable for China. The IMF fears Chinese loans could rock the world debt economy primarily because they are ‘hidden’ and the Chinese terms are ‘opaque’. How 2021 plays out for countries receiving loans from China when their need is at its peak in a global pandemic is something only time will tell.