Beijing sees an opportunity in Tehran’s international isolation – but may not realise the tangle it is entering.
Rumors circling about an impending major partnership between China and Iran seem to be accurate. A leaked draft of the agreement published by the New York Times in July indicates that it would involve a deep economic partnership which would open the door for strategic action. Ample speculation about the deal followed the leak. It is fair to say that this agreement would have substantial geopolitical consequences for the Middle East and the Indian Ocean region. All regional actors would suffer political costs, directly or indirectly.
The leaked document details a US$400 billion agreement that will serve as an economic lifeline for Iran, with investments in energy, infrastructure, telecommunications and the tech sector, as well as arms sales. Iran gets a massive injection of capital and a sophisticated development supply chain to invigorate the economy. China gets a guaranteed supply of Iranian natural resources for a premium price for 25 years, and fewer impediments to its own strategic interests.
The financial scale of the reported deal certainly is disproportionate to other regional Chinese investments, but not unusual given China’s pledges for other premier overseas investments. For its part, Iran has denied the truth of the leak and argues that the agreement’s scale is misinterpreted, but conversations within Iran itself suggest the document is valid.
China will promote this partnership as a new part of its Belt and Road Initiative (BRI), but like most of the BRI, the agreement emerged in an ad hoc manner. Beijing saw opportunity in Iran’s international isolation, creating circumstances where Tehran may acquiesce to conditions it would traditionally reject, such as allowing a long-term preferred price for oil and natural gas and Chinese military units and state owned enterprise personnel to be active within strategic areas of the country.