The event attracted no notice in Israel and little elsewhere in the world, but when Iran was accepted for membership in the Shanghai Cooperation Organization in September, it was big news in Tehran. The world has entered a new age, declared Iranian President Ebrahim Raisi. The conservative Javan daily said it “open[ed] the door to a post-American era.”
Tehran actually won’t become a member for another two years and, when it does, experts doubt it will give Tehran many tangible benefits. But it does take the country’s strategy of disentangling itself from the West a symbolic step forward. Joining the SCO, which groups a host of Central Asian countries, China, Russia, Pakistan and India, is part of Iran’s “Look East” policy, which has gained new impetus amid the stalled nuclear talks with the United States and the rise of a hard-line leadership under Raisi.
“East” is a bit of a misnomer, says Alex Vatanka, director of the Iran program at the Middle East Institute in Washington. For Tehran, it means strengthening ties with Russia, Central Asia and India – indeed, anyone in the world bar Europe and the United States – as a bulwark against Western pressure. But more than any other country, Tehran is counting on China as a counterbalance to the United States and Europe.
“China is a big part of why Iran, even though it’s such an economically injured country, can be so confident and so cocky,” Vatanka says. “We have to assume that China is a major factor in why Iran feels it can overcome the sanctions campaign.”
In the event that the negotiations crumble and U.S. sanctions remain in place, Tehran sees China as a critical sanctions buster and a lifeline for the economy.
“Iran is bracing itself for a no-deal scenario and it thinks it can ‘neutralize’ the impact of sanctions by ramping up domestic production and increasing self-sufficiency, focusing on Eurasia and the East, mainly China and Russia,” says Kevjn Lim, principal research analyst for the Middle East and North Africa with the business-intelligence firm IHS Markit.
The Look East policy is gaining traction under Raisi and the hard-liners, who have always distrusted the West and prefer to do business with less obstreperous countries, Lim says. But, he notes, that policy was being pursued to some degree during the administration of former President Hassan Rohani, even though he favored a nuclear deal and Western ties.
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In March, Iran and China signed a 25-year Comprehensive Strategic Agreement, whose exact terms have not been made public, but are believed to include a wide range of ambitious economic and military objectives. The two countries also signed defense agreements and conducted joint naval exercises during the Rohani years.
Even though China slashed its oil imports from Iran after then-U.S. President Donald Trump imposed sanctions, and even more so when the COVID-19 pandemic reduced energy demand, it remains a major customer. A report by Lim on Iran-China relations, published by Tel Aviv University’s Institute for National Security Studies, estimates that in 2019 China took half of Iranian oil exports directly, and probably even more via third countries. That has been a critical factor in helping Tehran withstand sanctions pressure.
More broadly, both Iran and China see themselves as challenging Western and U.S. dominance of the world order. That not only includes the West’s insistence on adherence to democratic and human rights norms, but the near-monopoly of the U.S. dollar in world business transactions. Indeed, the SCO is one vehicle for challenging the West.
Tehran is keen on deepening the Iran-China relationship. “Promoting cooperation with China is one of the top priorities of the Iranian government in the field of foreign policy,” Raisi said soon after he assumed office, after speaking to Chinese leader Xi Jinping.
Where analysts are divided is whether Beijing shares Tehran’s enthusiasm. Although China is perceived as tilting toward Tehran in its long-running conflict with the United States, Beijing hasn’t signaled the same eagerness as Tehran for bilateral ties.
“Fundamentally, the nature of relations between China and Iran are asymmetrical in terms of expectations. When you talk about agreements, you hear a lot more coming from Iran than from China,” Lim notes.
China voted in favor of UN sanctions against Iran in 2010, and under Trump’s “maximum pressure” campaign, China cut back its commercial ties with the country. Lim says Beijing, as of a year ago at least, still held $20 billion on Iranian foreign currency reserves.
China likely regards the relationship as transactional, says Lim, rather than viewing Iran as a partner in resisting the U.S.-led world order. While China is buying Iranian oil, it’s reportedly doing so at huge discounts, since the Iranians are so desperate to sell it.
In lieu of serious competition, China has conquered the Iranian market of more than 80 million consumers. One of its exports to Iran even includes carpets, Iran’s traditional flagship product.
But there is a limit to how far economic ties can go. Even after sanctions were lifted following the 2015 nuclear agreement, Chinese companies were having trouble doing business in Iran.
Among other reasons, that is because Tehran has yet to sign the intergovernmental Financial Action Task Force conventions on money laundering and terror finance. Along with North Korea, that puts Iran on the FATF’s so-called black list, which effectively blocks doing business in dollars or using U.S. clearinghouses. Unless Iran does sign on, Chinese banks can’t provide the finance and transaction services needed for long-term business agreements.
On the diplomatic front, Beijing has put the onus for a solution to the nuclear-talks standoff on Washington. Nevertheless, China doesn’t support Tehran’s foot-dragging and wants it to honor the terms of the agreement.
“China is not giving Iran a blank check on its nuclear program. At the same time, this has been an opportunity for China to show itself as the adult among global powers, in comparison to the United States: It was the Americans who walked away from a deal, and it was the Iranians who had kept to the agreement,” Vatanka explains.
Iran and China’s interests diverge over the issue of Middle East stability. Iran has sought to stake a claim as a regional power by sponsoring non-state militias across the region, undermining regimes in Iraq and Lebanon, and helping to perpetuate wars in Syria and Yemen. In the Gulf, it’s menaced shipping and is believed to be behind drone attacks on Saudi refineries. Iran is keen to end America’s military presence in the region.
Little of this is to the liking of China, which sees stability as good for business. Indeed, China values the U.S. regional security umbrella, which protects the flow of Gulf oil to China with Washington picking up the cost, Lim contends.
Vatanka, on the other hand, believes China may be ready to take over the U.S. role as regional guarantor. He points to the military bases China has established on the margins of the Middle East, in Pakistan and Djibouti in the Horn of Africa, as well as the military exercises it has held in the region.
In any case, what may be dictating Beijing’s attitude is less solidarity with Tehran than the ups and downs of its relations with the United States. When it wanted to maintain warm relations with Washington, China supported U.S. sanctions against Iran. Since the trade wars broke out under Trump, however, Beijing has been more inclined to resist.
In that regard, Iran has been a useful tool. “The more the Americans are distracted in the region, the better it is for China, and the same applies to Russia,” Lim says.
Israel, of course, would like China to go at full throttle in pressuring Iran, but Lim says its ability to influence Beijing is very limited – though its new Abraham Accords partners in the Gulf may give it some added leverage. But too much pressure can backfire, by causing Beijing to interpret it as inappropriate interference in its foreign policy.
Lim proposes in his INSS report: “Rather than dissuade China from advancing ties with Iran, Jerusalem should instead constantly persuade Beijing, as a nonpartisan actor seeking predictability especially in regional trade and business, to pressure Iran into moderating its destabilizing conduct.”