China’s Iran Game

China is the only major player still active in the Iranian oil patch. In contrast to virtually all major Western governments, Beijing allows its companies to do business there. China considers sanctions against Iran as an opportunity to secure huge fields and markets which might have gone to Western companies in the absence of sanctions

China’s Iran Game

China and Iran have drafted a Trade and Military Partnership Agreement. The partnership is detailed in an 18-page proposed agreement as reported by The New York Times. It is an economic and security partnership that would vastly expand Chinese presence in Iran. Chinese investments in Iran would total $400 billion over 25 years. In exchange, China would receive a regular, heavily discounted supply of Iranian oil over the next 25 years. The agreement also proposes deepening military cooperation. It calls for joint training and exercises, joint research and weapons development and intelligence sharing.

The projects ~ nearly 100 are cited in the draft final agreement ~ are very much to extend the economic and strategic influence across Eurasia through the Belt and Road Initiative. They include among others new ports along the coast of the Sea of Oman, a 5G telecommunications network, Chinese Global Positioning System and cyberspace control by China’s Great Firewall.

Iran needs to increase its oil production to at least 8.5 million barrels a day to remain a player in the energy market, and for that, it needs China. The “investment against oil” deal is the best option for Iran. One of the proposed new ports is at Jask, just outside the Strait of Hormuz, the entrance to the Persian Gulf, and would give the Chinese a strategic vantage point on the waters through which much of the world’s oil transits. The passage is of critical strategic importance to the United States, whose Fifth Fleet is headquartered in Bahrain. Al-Dhafra is a US air base in Abu Dhabi, and Al-Udeid is a US air base in Qatar.


The agreement has not yet been submitted to Iran’s Parliament for approval. There are suspicions in Iran that the government is preparing to give things away to China. In Beijing, officials have not yet disclosed the terms of the agreement. If put into effect, the partnership would create new and potentially dangerous flash points in the deteriorating relationship between
China and the United States.

The pending agreement is a major blow to the Trump Administration. It is direct Chinese defiance of US sanctions. China feels it is in a position to defy the United States and is powerful enough to withstand American penalties at a time when the latter is reeling from recession and the coronavirus.

The US sanctions led to unprecedented curbs on investment in Iran. These measures have squeezed Iran’s economy. China is the only major player still active in the Iranian oil patch. In contrast to virtually all major Western governments, Beijing allows its companies to do business there. China considers sanctions against Iran as an opportunity to secure huge fields and markets which might have gone to Western companies in the absence of sanctions. The incentives for Chinese firms are both financial and political.

China’s actions abroad are propelled by its need to secure energy, metals, and strategic minerals to support the rising living standards of its immense population. China is the world’s second-largest oil importer. Iran’s oil and natural gas reserves rank among the world’s largest, making the country an attractive destination for China’s state energy companies, which are increasingly looking for opportunities abroad. Already, Iran is China’s third-largest supplier of crude oil. China’s interest in Iran’s reserves is matched by Tehran’s own exigencies for foreign technology and foreign capital for its energy industry as sanctions have precluded Iran from accessing those. The Chinese-Iranian relationship transcends energy. China is one of Iran’s leading trading partners. The cooperation has political appeal for leaders in Tehran, validating their claims that sanctions do not affect Iran and that Iran does not need the West. China values Tehran’s overall lack of interest in inciting the restive Muslim population of Xinjiang.

China sees Iran as a major source of energy and an important market. Iran’s position at the crossroads of the Middle East, South and Central Asia, and Europe, along with its access to the Persian Gulf and the Strait of Hormuz, made it significant to China’s vision of integrating these key regions through infrastructure and transportation projects designed to expand Chinese political and economic influence.

China capitalized on Iran’s isolation. In the absence of international suppliers and companies after the US sanctions, Chinese goods and services flooded Iran’s market. Iranians welcomed China’s continued cooperation at a time when no other nation, except Russia, was willing to engage. The bilateral relationship further picked up with the One Belt, One Road initiative.

The proposed port facilities in Iran include two along the coast of the Sea of Oman. One at Jask, just outside of Strait of Hormuz is a part of Chinese power disposition policy. China has already constructed a series of ports along the Indian Ocean, creating a necklace of refueling and resupply stations from the South China Sea to the Suez Canal. Ostensibly commercial in nature, the ports potentially have military value, allowing China’s rapidly growing navy to expand its reach. Those include ports at Hambantota in Sri Lanka and Gwadar in Pakistan, which are widely considered as footholds for a potential military presence.

Naval power is usually more benign than land power. Navies do far more than fight; they protect trade routes. China is now working at building a great navy. In the twenty-first century, China will project hard power abroad primarily through its navy. It faces a far more hostile environment at sea than it does on land. The Chinese navy sees trouble in the Korean Peninsula, East China Sea, South China Sea etc. China seems intent on denying US vessels access to its coastal seas as its economic mass is concentrated in the east of China. The disputes at sea allow Beijing to stoke nationalism at home, but for Chinese naval strategists, this seascape is mostly grim.

A well-organised line of US allies serve as a sort of guard tower to monitor and possibly block China’s access to the Pacific Ocean and Indian Ocean Region. The US Navy could simply cut off Chinese energy supplies with the help of allies. The US is bolstering the Quadrilateral Security Dialogue. All Quad members are currently experiencing disputes with China, suggesting receptiveness for a coordinated regional approach. Increased ties with Japan through the Five Eyes intelligence alliance of the US, the UK, Canada, Australia and New Zealand are possible.

Chinese anti-access/area denial capabilities might reinforce China’s naval position in the South China Sea. However, the country would struggle to offset the repercussions beyond South China sea if US-backed trade embargoes, sanctions or other economic restrictions are imposed.

The combined strength of navies of the countries in the Indian Ocean Region having strong economic support from China can only be marginally effective, if they support China in a crisis.

As American hegemony ebbs and the size of the US Navy declines or plateaus, while China’s economy and military grow, multipolarity will increasingly define
power relationships in Asia. India is building a great navy. Tensions on land may reinforce tensions at sea. Major US allies in Asia want the US Navy and the US Air Force to act in “concert” with their own forces ~ so that the US will be an integral part of Asia’s landscape and seascape, not merely a force lurking over the distant horizon.

There is a big difference between haggling with the United States over basing rights and wanting a wholesale withdrawal of US forces. India has already been made a US strategic defense partner by making an amendment in the National Defense Authorization Act. The Quadrilateral Security Dialogue is a strategic forum between the United States, Japan, Australia and India that is maintained by regular summits, information exchanges and military drills between member countries.

The Garrett plan also envisions a dramatic expansion of US naval activity in the Indian Ocean. It does not envision enlarging existing US bases; however, it anticipates relying on barebones facilities in the Andaman Islands, the Comoros, the Maldives, Mauritius, Réunion, and the Seychelles (some of which are run directly or indirectly by France and India), as well as on defense agreements with Brunei, Malaysia, and Singapore. This would ensure free navigation and unimpeded energy flows throughout Asia.

The heat of the China-Iran forthcoming partnership has already been felt by India through Chinese policy of noninterventionist intervention. Very recently, Iran announced it would construct the Chabahar-Zahedan rail project with its own funding and engineering capacities, though originally the financing and building of the line was part of the Chabahar port project.

In the Chabahar pact, there was scope of development of Chabahar port and in the second phase for construction of a 628km rail line from Chabahar port to Zahedan on the Afghanistan border. Thereafter, the link was to be extended to Sarakhs, at the border with Turkmenistan. It was to be a trade route between India and Europe and CIS countries at minimum cost. Iran has dumped India and started laying tracks.

The Chinese side on several occasions has expressed intention to link Gwadar and Chabahar ports because Gwadar is no longer found economically feasible owing to economic slowdown. The linking of ports of Gwadar and Jask will simply choke the India-funded Chabahar port, which is located between Gwadar and Jask.

A denial of accessibility to the railway line to Chabahar port users will defeat the very purpose of India developing Chabahar port at its own cost.

The writer is an international economic consultant