Part 3 of our series, Iran’s Look East Policy and China’s March West Policy, takes a closer look at the Belt and Road Initiative and the two countries’ oil trade.
China, often referred to as the ‘Factory of the World,’ maintains a relentless pursuit of expanding its market presence. Benefiting from economies of scale, China offers products at highly competitive rates, thereby outperforming competitors in the global market. This rapid economic expansion has propelled China to become the world’s largest consumer of non-renewable energy, surpassing the United States. To sustain this growth trajectory, China continuously diversifies its portfolio of oil and gas resources.
In contrast, Iran grapples with severe economic sanctions, resulting in domestic inflation and shortages of essential goods. In response to these internal challenges, Iran seeks a reliable partner capable of alleviating its financial constraints and fulfilling its material requirements. The diplomatic relations between China and Iran predominantly revolve around a spectrum of economic exchanges, encompassing arms trade, oil and gas transactions, and infrastructure development. Bilateral trade between the two nations surged tenfold from 2000 to 2014. The nuclear issue and stringent US sanctions have constrained Iran’s options for engaging with Western countries, leaving it with limited avenues for international collaboration. Foreign entities conducting business with Iran also face the risk of encountering sanctions. China’s Belt and Road Initiative (BRI) incorporates Iran as a significant participant, further solidifying China’s pivotal role as a strategic partner for the nation.
The period spanning from the 2000s to the present era is of particular significance. China has undertaken substantial investments totaling billions of dollars in the MENA region, positioning it as one of the primary investors in the region alongside Europe. Notably, in 2018 alone, China directed investments amounting to $28.11 billion towards MENA, with a significant portion, approximately $13.68 billion, allocated to Iran for infrastructure development as part of the Belt and Road Initiative (BRI) project. Despite facing stringent sanctions from the United States, China has notably expanded its oil imports from Iran. Iran, in response, has resorted to evasion tactics and financial manipulations to circumvent sanctions and facilitate the export of its oil. Reports indicate that Iran has strategically stored oil at various Chinese ports, including Jinzhou, Huizhou, and Tianjin, utilizing bonded storage arrangements. According to data from the Observatory of Economic Complexity, China accounted for 28% of Iran’s crude oil industry imports in 2017. However, following the imposition of additional sanctions on Iran under the Trump administration’s “maximum pressure” policy, these imports experienced a decline. Nevertheless, China continued to emerge as Iran’s principal consumer of crude oil, thereby playing a pivotal role in sustaining the country’s economy. The intensification of US sanctions and the heightened pressure on Iranian officials regarding nuclear concerns further prompted Iran to seek assistance from China. Ayatollah Ali Khamenei’s statement regarding a strategic shift toward the East and a focus away from Western engagements was made on October 9, 2023. This remark underscored Iran’s intention to strengthen ties with Eastern countries, particularly in response to Western policies and pressures.
China has incorporated Iran into its expansive Belt and Road Initiative (BRI), a multifaceted endeavor aimed at fostering connectivity and cooperation across various regions. Leveraging Iran’s strategic geographical location, China stands to gain significant advantages in the facilitation of trade and transportation, thereby enhancing its competitiveness in the global marketplace. Iran’s positioning serves as a vital link between East Asia, West Asia, Europe, and Africa, offering strategic avenues for the movement of goods and services. Notably, the region encompassing Iran has historically grappled with conflicts and socioeconomic challenges. The BRI presents an opportunity to contribute to the stabilization of Iran’s periphery, alleviate poverty, and mitigate conflict risks by fostering economic development and enhancing regional connectivity. The Belt and Road Initiative delineates cooperation areas: infrastructure and facility connections, facilitation of unimpeded trade, streamlined financial flows, harmonized national policies, and expanded people-to-people and cultural exchanges. From the Chinese perspective, investment in Iran’s infrastructural development holds the potential to catalyze unprecedented economic growth, positioning Iran as an indispensable partner within the BRI framework. Thus, from both commercial and connectivity standpoints, Iran assumes a pivotal role in advancing the objectives of the Belt and Road Initiative.
The aforementioned developments in the commercial and connectivity realms between Iran and China underscore the multifaceted nature of their relationship, extending beyond mere oil transactions. It is imperative to contextualize these dynamics within the global commitment to reducing reliance on carbon-based energy sources and transitioning towards sustainable alternatives, as outlined in the Paris Climate Agreement. World leaders have demonstrated varying degrees of commitment to phasing out carbon-based energy in favor of environmentally sustainable development pathways. Iran’s strategic pivot towards the East reflects a pragmatic response to economic challenges and sanctions-induced pressures rather than a calculated, long-term strategic alignment with China. The nation’s engagement with China primarily serves as a means of circumventing sanctions and reviving its ailing economy. Conversely, from Iran’s perspective, China serves as a bargaining chip in negotiations with the United States. Under the leadership of Xi Jinping, Chinese foreign policy has witnessed a notable shift, characterized by strategic investment choices aimed at advancing China’s geopolitical interests. Stability in the region is crucial for the successful implementation of the Belt and Road Initiative (BRI), which seeks to foster economic integration and create new markets in the Middle East to address the region’s economic challenges.
Following the passing of Ebrahim Raisi, who assumed office with a pledge to ameliorate Iran’s economic conditions, the nation’s economy continues to grapple with challenges. Inflation rates surged to nearly 50% in 2021, gradually receding to 30% by early 2024. However, the task of curbing inflation remains formidable, particularly in the face of pervasive sanctions. In an interconnected global landscape, nations are inherently interdependent, precluding the possibility of isolated economic endeavors. For instance, despite the potential for significant scientific advancements within a country, the production of essential commodities such as computer chips necessitates collaboration with a limited number of key partners, including China, Taiwan, and the Philippines. The evolving geopolitical landscape and internal imperatives have compelled Iranian and Chinese leaders to recalibrate their policies against each other in alignment with geostrategic considerations. Hence, it is imperative to scrutinize the manner in which cultural and religious factors are being marginalized within the Iran-China relationship, owing to the prioritization of other pressing diplomatic considerations discussed earlier.
