Modern Diplomacy - 5 April 2021
“Comprehensive Strategic Partnership” Agreement and the future of Sino-Iranian relations
By Yunis Sharifli and Gandab Valiyeva
Sino-Iranian diplomatic relations have developed in various fields since 1971. During this period, mutual visits played an important role in the development of bilateral cooperation. An example of this is the start of discussions on the Comprehensive Strategic Partnership Agreement during the visit of the leader of the Communist Party of China Xi Jinping to Iran on January 19, 2016. The agreement provides for an investment of about $ 400 billion by China to modernize Iran’s oil, gas and petrochemical industries and improve the country’s land and water transport. In recent years, various discussions have been held on the progress of Sino-Iranian relations towards strategic cooperation. When relations are based on strategic partnership, economic relations between states come to the fore and a certain level of trust is established between the parties. On the contrary, in a partnership that we can call a limited partnership, the security interests of the states take precedence over the economic interests, which leads to a limited level of relations (Røseth, 2018). This article will analyze whether Sino-Iranian relations are in line with strategic cooperation in the context of economic, energy, and security factors, and analyze how the “Comprehensive Strategic Partnership” Agreement will affect the future of relations.
Economic relations
China is important in terms of economic power, and Iran in terms of resources, both globally and regionally. In this regard, the development of Sino-Iranian economic relations has always been important for the two countries. This was due to Iran has rich energy resources and the key role of energy resources in China’s economic development. In addition, China has been a major industrial supplier to Iran which has been under Western sanctions since 2008.
Thus, Western companies began to withdraw from the Iranian market, especially after the financial sanctions imposed on Iran in 2012. In the same year, Mahmoud Ahmadinejad’s administration announced Iran’s “Look East” policy (Shariatinia və Azizi, 2019). The main goals of this policy were to ease the pressure of Western sanctions, to establish relations with the rising economic powers of East Asia to ensure Iran’s economic development and to attract investment from these countries. During this period, the expansion of relations with Asian countries has always been the most important priority, and China has been at the center of this strategy.
Especially since 2008, when Western countries imposed sanctions on Iran, trade between the two countries has grown rapidly. Thus, between 2010 and 2014, despite sanctions, China’s exports to Iran increased by 29% annually. In terms of trade, the peak of bilateral relations was reached in 2014, when the trade turnover between the two countries amounted to $ 51 billion. After 2014, trade relations declined, despite the gradual lifting of Western sanctions. The reason for this was the gradual normalization of Iran’s relations with the West and the revival of trade relations with European countries in 2015 as a result of the “Joint Comprehensive Plan of Action”. In this context, the trade volume between the two countries decreased in 2016 to $ 30 billion (Teer və Wang, 2018).
Looking at the trade relations between the two countries from a broader perspective, we can see that trade relations are developing to a limited extent, in fact, the development of China-Iran trade relations is developing in parallel with China’s trade relations with other Middle Eastern countries. For example, China’s exports to Iran increased by 16.9% annually between 2004 and 2018. During the same period, China’s exports to Saudi Arabia increased by 16.1% year on year and to Turkey by 16.8%. Another example is China’s $ 18 billion worth of exports to both Iran and Saudi Arabia between 2010 and 2018 (Garlick and Havlova, 2020). In this sense, it can be said that China is trying to maintain a balanced relationship with the countries of the Middle East in terms of economic relations in the region.
China’s investment in Iran increased rapidly in 2016-2017 after the gradual lifting of sanctions on Iran, but after the re-imposition of sanctions on Iran in 2018, China’s investment in Iran decreased (Garlick və Havlova, 2020). In terms of foreign direct investment, Sino-Iranian relations are balanced compared to other regional countries. For example, in 2018, China’s foreign direct investment in Iran was $ 3.23 billion, in the UAE – $ 6.23 billion, and in Pakistan – $ 4.24 billion.
The Trump administration’s withdrawal of the United States from the Joint Comprehensive Plan of Action in 2018 and the application of a strategy of maximum pressure have further weakened the development of Iran-China trade relations. In this context, China’s oil exports from Iran fell sharply, which led to a further decline in trade between the two countries. In 2019, trade between the two countries fell to $ 23 billion.
The weakening of economic relations between China and Iran in recent years and the development of economic relations within a limited framework, rather than a strategic one, can be explained by several reasons. The first reason for this limited cooperation is the tough sanctions imposed on Iran by the United States since 2018. In this context, China does not want to further strain the already problematic Sino-US relations by developing relations with Iran. The second reason is the uncertainty of Iran’s long-term economic future and the weak business environment in the country. Chinese companies usually prefer to invest in stable countries. In addition, economic sanctions deter Chinese companies from entering the Iranian market. The third reason is that China’s investment is gradually shifting from developing countries to developed countries that have advanced technologies and extensive industry experience. Finally, another reason for the weakening of trade is China’s diversification of energy imports with different countries.
Energy relations
One of the developed aspects of economic cooperation between Iran and China is energy relations. The main reason for the development of this sector is that Iran has rich energy resources, and China needs energy resources such as oil and gas for economic development (K. Damianova, 2015). Sanctions on Iran limit the development of energy relations between the two countries, but nevertheless, Sino-Iranian energy relations have developed during this period, and China has increased its influence in terms of Iran’s energy resources.
Following the financial sanctions imposed on Iran, Western and US companies have suspended most of their oil and gas projects. This created a new opportunity for China. Although Chinese oil companies have been active in Iran since 2002, a number of upstream and downstream energy projects have been contracted since the sanctions. In total, China’s Sinopec and CNPC companies (China National Petroleum Corporation) have signed a number of projects with Iran to explore and develop oil and gas fields worth $ 14 billion (Davis, Lecky and et al, 2013). One of the fields invested by Chinese companies is the Azadegan field, one of the largest oil fields in Iran. This field is divided into two parts: North and South Azadegan oil fields. China’s CNPC and Iran’s NIOC reached an agreement in 2009 to develop the North and South Azadegan fields. Under the agreement, the project would be implemented in two phases and would produce 260,000 barrels of oil. However, 150,000 barrels of oil were produced in the first stage and 11,000 barrels in the second stage. Iran was forced to cut ties with CNPC in 2014 due to delays in oil production (Khan və Guo, 2017:22). Another important project is the agreement on the development of the Yadavaran oil field, signed in 2007. The first phase of the project produced 25,000 barrels of oil, and the second phase produced 100,000 barrels. It is planned to increase this production to 300,000 barrels in the third stage (Khan və Guo, 2017:21).
In addition to mega-projects, Chinese companies are implementing smaller projects in Iran. CNPC and Iran signed an agreement in 2005 to operate the Kudasht bloc. CNPC has also signed an agreement with the Iranian Oil Company to develop the Masjid-e Suleiman field. China prefers small projects such as the Masjid-e-Suleiman oil field because Chinese companies do not have the technology required for larger and more complex projects, such as North Azadegan and Yadeveran (Dubowitz və Grossman, 2010).
In addition to oil fields, the two countries also cooperate on gas fields. One of Iran’s most important natural gas fields is the South Persian gas field. Following the signing of the Joint Comprehensive Plan of Action in 2015, French company Total and China’s company CNPC signed a joint agreement to develop the 11th section of the field. For the development of the field, 50.1% fell to Total, 30% to CNPC and 19.9% to Pars Oil and Gas. However, in 2018, Total officially announced its withdrawal from the contract due to the heavy sanctions imposed on Iran by the Trump administration. CNPC saw this as an opportunity and agreed to buy a 50.1% stake in Total. However, due to increasing international pressure, problems with coordination between the National Iranian Oil Company and CNPC, and the fact that CNPC did not have enough technology to develop the field, the company was forced to withdraw from the natural gas project for the second time. The continuation of the project fell on the Pars Oil and Gas Company.
Along with multilateral cooperation, new relations are being established between the two countries in the field of alternative energy. Cooperation in the field of alternative energy began in 2016 and covers the production of hydropower, wind energy and biomass.
In recent years, although China has become Iran’s largest energy trading partner, Iran ranks seventh in energy supplies to China. In 2020, China imported 542.386 million tons of oil and 101.661 million tons of natural gas from Iran. In 2021, the level of imports increased sharply. However, despite all this, the energy relations between the two countries are limited and there are various problems, which leads to limited cooperation. The main reasons for this situation can be listed as follows.
The first factor here is Washington’s position. Although Iran-China relations are developing, US-China and US-Iran relations have a significant impact on Sino-Iranian relations. The second reason is China’s energy diplomacy. The main aim here is to diversify energy importers and energy routes. Therefore, China is a place of balanced policy in the Middle East region and imports oil and gas from other energy-rich countries in the region. The imposition of sanctions on Iran restricts oil imports from Iran and leads to an increase in imports from other countries in the region. The third reason is that Chinese energy companies are technologically inadequate and inexperienced compared to Western companies. The last reason is that Chinese companies are reluctant to invest in Iran, which is politically and economically unstable and lags behind other countries in the region in terms of a business environment.
Security Relations
China-Iran security cooperation has been developing since the 1980s. The first line in this relationship is arms sales. Thus, since the 1990s, China has always played a strategic role in Iran’s arms imports, and in most cases, the main share in imports was Chinese weapons (Conduit və Akbarzadeh, 2018). China accounted for 75% of Iran’s arms imports in 2005 and 68% in 2012, and this trend continued in 2014 and 2015. Following the gradual lifting of sanctions on Iran in 2016, Iran’s arms imports from China fell sharply, while imports from Russia increased by 100% (Teer and Wang, 2018). This trend continued between 2016-2019.
A comparison of the arms trade between the two countries with that of other countries in the region shows that the Sino-Iranian arms trade is largely limited and that China lags behind in the arms trade with other countries in the region. For example, China exports drones to Iraq, Pakistan, the UAE and Saudi Arabia, but does not export drones to Iran. In addition, although Iran accounts for the bulk of Iran’s arms imports from China in the region in certain years, there is no agreement on joint arms production between the two countries. In return, China has a joint drone production agreement with Saudi Arabia, and Pakistan. Given that China does not export drones to Iran and has no joint arms production agreements with Iran, it can be argued that Iran lags behind other countries in the arms trade with China. In recent years, sanctions and Iran’s imports of weapons from Russia have further weakened the arms trade.
In terms of joint military exercises, security relations between the two countries are limited. In the last ten years, China and Iran have held only three joint military exercises. The first of these exercises was held in 2014 against piracy, the second in 2017 in the eastern Strait of Hormuz, and the third in 2019 between China, Russia, and Iran in the Gulf of Oman and the Indian Ocean. China has held joint military exercises with other Middle Eastern countries since 2010, including Turkey, the UAE, and Saudi Arabia, especially in 2017 and 2019, China conducted separate joint military exercises to maintain balance in relations with both Saudi Arabia and Iran. As can be seen, China is conducting joint military exercises not only with Iran but also with other countries in the region. The goal is to develop China’s relations with the countries of the region, as well as to increase arms exports through military exercises.
In general, as in economic cooperation between the two countries, security cooperation remains limited. It is expected that this trend will continue in the short and medium-term. This situation can be explained by various reasons. The first reason is China’s reluctance to deepen security relations with Iran. Thus, any military conflict between Iran and the United States could bring China face to face with the United States. This is also true of the arms trade, for example, China prefers to be cautious about developing an arms trade with Iran because of the possibility of arms being transferred to Iranian-affiliated groups in the region or using them against the United States or its allies in the region. Second, China is developing relations in the region not only with Iran, but also with other powers in the region, such as Egypt, Israel, the UAE, Saudi Arabia, and Turkey, so it is trying to secure its interests by acting in a balanced way in the region. The deepening and deepening of security relations with Iran towards strategic cooperation could upset China’s balanced relations with other countries in the region, increase China’s perception of threats, and undermine China’s interests in the region. Finally, a highly armed Iran is not in China’s interests, as it could increase Iran’s aggression in the region and threaten the energy security of China and other countries in the region.
Taking all this into account, we can assume that security relations between the two countries are based on limited cooperation and will not develop towards strategic cooperation in the short and medium-term.
The future of bilateral relations in the framework of the “Comprehensive StrategicPartnership“
Negotiations on “Comprehensive Strategic Cooperation” began in 2016. The deal is expected to cost $ 400 billion and allow China to invest in Iran’s oil, gas, petrochemical, and transport sectors. The agreement provides for investment in the development of the ports of Chabahar and Cask, which could play a strategic role in diversifying Iran’s oil exports. Although the agreement provides for investment in various areas, it is doubtful that relations between the two countries will develop towards real strategic cooperation after the signing of this agreement. First of all, the persistence of sanctions on Iran and the strained relations with the United States, which prevents Chinese and Chinese companies from investing in Iran. Second, China’s balanced policy in the Middle East and its pro-Iranian stance on regional cooperation are likely to hurt its regional and global interests. Third, the fact that various projects that have been closed since 2013 are still on paper, and some have been suspended after they begin, raises doubts about the viability of all projects under this new agreement.
As a result, although Sino-Iranian relations have developed over the past 10 years in terms of economic, energy, and security relations, and the two countries have similar views on the international system, the security interests of the two countries, especially China, outweigh its economic interests with Iran. For China, maintaining limited relations with Iran is important in terms of its regional interests in the Middle East, its avoidance of confrontation with the United States, and its ability to prevent the growing perception of the “Chinese threat” in the Middle East. In addition, even if the conservatives, who are more pro-reform than pro-reform, win the June 18, 2021, presidential election in Iran, Sino-Iranian relations are likely to remain limited in the short to medium term for a variety of reasons.