How America Is Pushing China
and Iran Together
The $400 billion Iran-China deal is not the
culmination of a process or the start of a new era. It is, however, a critical
inflection point in a relationship that will play an outsized role in a new era
of great power competition.
Traveling
to the Middle East, the Chinese Foreign Minister stopped in Tehran to sign what
is promoted as a $400 billion twenty-five-year agreement that would boost
Iran’s economy, expand China’s footprint in the Middle East and deepen the strategic ties between the two countries. The
agreement itself is almost breathtaking in its scope, covering agreements to
cooperate on everything from infrastructure and banking to green energy and
technology. But ultimately, it is a roadmap with no specific figures or
tangible commitments. Even the $400 billion price tag associated with this
roadmap seems to be from a poorly sourced report about the agreement from long
ago. The operationalization of this agreement will take new rounds of talks and
much more time. The President of the Iran-China Chamber of Commerce Majidreza
Hariri said that the process will take two years.
In terms
of trade, Iran’s relationship with China has been stifled by many factors. Iran
isn’t even China’s largest trade partner in the region. Iran’s relationship
with China at this point largely centers on hydrocarbon exports and the import of
high-value industrial inputs and some finished goods while business-to-business
ties remain minimal. The misperceptions surrounding the supposed girth of
Iran-China business activity seem to be mainly due to hyperbolic media
coverage. The relationship is politically sensitive in Western media because,
as underwhelming as the reality of the Iran-China economic ties are, they still
play a role in undermining Western sanctions.
To
understand the depth of the challenge, consider that President Xi Jinping
traveled to Iran in 2016 and signed a set of seventeen major pacts on a range of priorities with
President Hassan Rouhani. These agreements are largely considered to have never
actually materialized. The reasons are complex and represent evergreen problems
in the relationship. For example, regarding the Belt and Road Initiative (BRI),
Iran’s geographic location makes an important part of the Silk Road Project but
the appetite of Chinese institutions in providing investment and loans for BRI
projects in Iran seems to be stymied by sanctions concerns. The Rouhani administration
faced internal division and competing priorities putting real commitment to the
project out of reach.
While
secondary (extraterritorial) U.S. sanctions were lifted due to the nuclear deal
in 2015, the centrality of
the U.S. dollar and the U.S. financial services industry in global banking
still means that establishing deep financial entanglements with Iran carries
serious risks for banks around the financial institutions. As investment and
technical assistance sit at the heart of China’s push to incentivize
cooperation in favor of its grand infrastructural ambitions, the absence of it
was important. Broadly speaking, as Iran’s international trade volumes were
still underwhelming in the aftermath of the nuclear agreement, domestic
investments seemed more pressing than projects aimed at transregional trade.
Iran’s involvement with the BRI initiative remains tangential.
There
are many barriers to a more productive Iran-China economic relationship but
they are largely underpinned by a few major factors. The great power-middle power dynamic that defines the
Iran-China relationship is characterized by a significant built-in asymmetry
and a preoccupation with the West. Both China and Iran have historically
prioritized their relationship with the West over their ties to one another.
China supported multiple United Nations Security Council resolutions to seem
cooperative with the United States or in exchange for unrelated concessions.
Chinese firms, especially banks, have been resistant to doing business with
Iran due to fear of sanctions, stifling a broad range of economic interactions.
Even
special vehicles designed to facilitate such commerce seem strongly influenced by sanctions. In one major
episode, China’s state oil conglomerate slowed work on a major Iranian upstream
oil project, reportedly due to Beijing’s desire to strengthen energy cooperation with
the United States—further underlining Iran’s abandonment anxiety. This was
particularly damaging to the perception of China among Iranian leaders and the
public as the oilfield in question, South Azadegan, is shared with Iraq. This
meant that production delays on the Iranian side resulted in more of the oil being
sold by Baghdad.
On the
Iranian side, conservatives have criticized President Rouhani for what they
consider to be his lack of commitment to the serious economic opportunities
presented in China so as to chase diplomatic and economic arrangements with the
West that never materialized. Some have defended President Rouhani, raising
such important points as China being Iran’s top trading partner. However, in
business circles, there seems to be broad agreement that some opportunities
have been missed.
Lack of
proper coordination regarding trade regulation is a key problem and diplomatic
interactions between the two countries have been criticized as palace
diplomacy that lacks depth beyond grand summits. This is likely in
part why the recent talks involving the roadmap did include a number of
ministries led by senior officials at the Ministry of Foreign Affairs. One
persistent problem with Iran’s ties with Eastern nations is the fact that
Iran’s administration has historically been focused on the West. Senior
officials tend to be chosen among bureaucrats who have experience dealing with
Western nations. Foreign Minister Javad Zarif spent much of his professional
life handling such portfolios and is well known in Western capitals.
Another
key concern for Iranians is apprehension towards Beijing and its fairly strict
attitudes about sovereignty. Certain historic factors make Iranians more
sovereignty-focused than most. In the West, this attitude is most associated
with the hostility of conservatives towards the West, but it exists in much of
Iranian society in different forms. Many Iranians worry that in the absence of
other investors and economic partners, China’s economic power in Iran can
compromise the country’s sovereignty. Some of this, especially when mixed with
xenophobia, can present in hysterical and conspiratorial ways but the underlying
concern is a valid one.
Some
also worry that being locked in a long-term strategic foxhole with countries
like Russia and China would have negative implications for civil society and
popular governance in Iran. It’s worth mentioning here that few Iranians speak
Mandarin, and few Chinese speak Persian. So, despite the famous depth of
civilizational ties between the two nations, most people in Iran and China see
each other through the prism of Western media that can be contemptuous towards
both.
This
dynamic within Iran is often presented as pitting principlists (conservatives)
who support stronger ties with China against moderates and reformists who do
not. The reality is much more complicated. As high-profile economist Saeed
Laylaz, who is generally associated with the reformist camp, said, this roadmap “both relieves pressure on the country and improves
our negotiating position regarding the West. If we don’t take advantage of this
opportunity, the West will never provide us with one either.”
His
statements point to two realities that have been internalized over the last few
years. First, that Iran must either partner with China or have no partners.
Second, the only path towards lifting sanctions seems to be by discrediting
them as a policy tool by frustrating their objectives with Chinese-driven
economic growth. Even if the Biden administration rejoins the JCPOA, it is
increasingly difficult to discern what actual benefits Iran will receive beyond
higher oil sales. Banks will continue to show residence towards Iran and
foreign firms will be unlikely to engage in investment and hiring in Iran
knowing that the next U.S. Republican administration and maximum pressure
campaign will always be around the corner.
Iran is
certainly being pushed into an Eastern sphere in the great decoupling. If that
does occur, it won’t be because of this simple roadmap but rather because of
the larger repellent power of Washington making economic warfare campaigns a
central and permanent feature of its approach towards adversaries across Asia.
The United States is forcing these countries into a depth of entanglement
beyond what many statesmen and scholars in each individual country thought was
necessary or even preferable.
While
the challenges are great, there are a number of reasons for Iran and China to
be optimistic about the future of their economic ties. First, while the
prospects of a return to the nuclear deal look bleak, the possibility should
not be discarded. Recent statements by the U.S. administration to reporters
indicate a softening of its approach. This is likely the best-case scenario as
it will both allow for greater economic engagement between Iran and China while
also paving the way for at least some investment from other nations for a
balance that will soothe some of the mentioned sovereignty-related anxieties.
Second,
a new Iranian presidential administration that will take power in the fall will
likely prioritize economic ties with China more than the current administration
has. But by far the most important reason Iran-China economic ties are likely
to improve dramatically in the near or intermediate future is the budding Cold
War between the United States and China. China’s hesitation towards Iran has
long been guided by fear of unwitting entrapment into a harsher security
competition with the United States. Greater business with Iran could invite a
U.S. sanctions campaign. With this enhanced level of hostility now a
fait accompli, it is unlikely to haunt the relationship to the same
degree. What better way to probe American sanctions regimes that are likely to
encircle China soon than by helping Iran undermine the maximum pressure policy
that the world, including even candidate Joe Biden, has censured as both
immoral and ineffectual. Since the Biden administration came to office, China
has been enhancing its oil purchases from Iran and Beijing’s
former ambassador to Tehran, specifically citing Washington’s more hostile
posture towards Beijing, stated that China is now free from the caution it once
held in dealings with Iran.
The $400 billion Iran-China deal is not the culmination of a process
or the start of a new era. It is, however, a critical inflection point in a
relationship that will play an outsized role in a new era of great power
competition.
No comments:
Post a Comment