The Lopsided Iran-China Partnership Presents More Questions than Answers

On February 14, 2023, Iranian President Ebrahim Raisi paid his first official visit to China since taking office in 2021 to meet his counterpart, Xi Jinping. While Raisi’s visit to Beijing came amid heightened tensions with the West and Israel, it sought to continue the high-profile dialogue with China established by the former Iranian president, Hassan Rouhani. The two countries signed approximately 20 new agreements during the meeting, including accords aimed at boosting trade and tourism. In addition to cooperative agreements, Raisi’s trip to Beijing was essential in terms of getting rhetorical support from China at a time when the Islamic Republic faces increasing international economic and political pressure.

An Unequal Partnership

Although Iran sees the partnership with China as a way to balance against the United States, Beijing does not see its partnership with Tehran as a serious deterrent against Washington. Undoubtedly, a strong partnership with China would strengthen Iran’s position in the ongoing nuclear talks with Western countries. However, the recent developments in the Gulf region and China’s shifting foreign policy priorities suggest that Beijing values a partnership with the Gulf monarchies, Iran’s regional rivals, more than with economically drained and politically unstable Iran. For example, Xi Jinping’s most recent trip to Saudi Arabia in December 2022 to take part in the China-Gulf Cooperation Council (GCC) Summit featured language that indicated Beijing’s support for the United Arab Emirates’ position in its long-standing territorial dispute with Iran over the Greater and Lesser Tunbs and Abu Mousa islands, resulting in a backlash from many Iranian observers who questioned China’s commitment to Tehran. Many critics also questioned the government’s ability to manage its most important international relationship.

According to all available data, Iran’s economy is in dire straits. Inflation is rampant, at 40 percent. At the same time, GDP growth has been slowing, from 4.7 percent in 2021 to 3 percent in 2022 and a projected 2 percent this year. Moreover, Iran does not appear to be as attractive a trade partner as its regional rivals. Trade turnover volume between China and Iran pales in comparison to commercial ties between Beijing and Riyadh, suggesting that Iran’s economy has little to offer to Beijing except for cheap oil. The wealthy Arab monarchies are positioned to offer partnership across a wide swath of sectors, including energy, technology, commerce, and security.

Hence President Raisi brought dozens of officials to Beijing, to underline the importance of his recent trip. His delegation included six ministers, the country’s top nuclear negotiator, and its central bank chief. Tehran is keen to expand its partnership with China and curtail the clout of the GCC states, particularly its richer rivals.

Given the ongoing unrest at home and his country’s shrinking resource pool, Raisi may have hoped to attract Chinese investments as a way to stimulate Iran’s energy sector, but these hopes did not come to fruition. Throughout 2022, Chinese firms accounted for only $185 million, or 3 per cent of total investment in Iran. This should not necessarily come as a surprise, as China deliberately halted the flow of funds to Iran due to its fears of secondary sanctions. Unrestricted FDI flows from China to Iran would have grave consequences for Beijing, given its deteriorating relations with the United States. As such, Beijing demonstrates less enthusiasm for deepening its economic partnership with Iran, a decision that will likely remain on the top agenda for the next few years.

The Islamic Republic’s current economic turmoil certainly benefits China, as it remains the largest purchaser of Iranian crude oil at prices significantly lower than the global market average. During Raisi’s visit, Xi Jinping several times emphasized the willingness to cooperate with Iran within the Belt and Road Initiative (BRI), but did not provide specific details or mention a concrete project. The imbalance of power between the two states inevitably increases Tehran’s dependence on China as a partner and stirs skepticism within Iran about China’s intentions. The fact that the Chinese refuse to commit (through a joint statement or an agreement) to initiating major development projects in Iran only deepens Iranian distrust of Beijing.

Simply put, China will continue to place limits on its cooperation with Iran, prioritizing the interests of its wealthy Gulf partners in the process. Even so, since 2022, China explicitly exacerbated its engagement with the Gulf states, which resulted in the first-ever Beijing-mediated meeting between Iran and Saudi Arabia on March 10, 2023. As an influential extra-regional actor, Beijing used its leverage with both sides of the negotiating table to bring about fruitful talks.

Soon after, Tehran and Riyadh agreed to re-open their embassies after a diplomatic row seven years ago. This major breakthrough lowers the chance of armed conflict between the nations—both directly and in proxy conflicts around the region. The significance of the mediation is reflected by the fact that a key U.S. partner, Saudi Arabia, turned to China to facilitate the talks with its sworn-enemy Iran. China’s influence in the Gulf is gaining steam, and its dialogue with Tehran and Riyadh exemplifies this momentum. Though Beijing may keep Iran at arm’s length, the agreement between the Gulf’s preeminent rivals bolsters Beijing’s image as a reliable and effective mediator.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of Gulf International Forum.