How Beijing Benefits From a New Iran Deal

Supporters of a new Iran deal claim it will put Tehran’s atomic program “in a box” so that Washington and its allies can finally focus on countering Beijing’s increasing belligerence in the Indo-Pacific. But a shorter, weaker deal that significantly strengthens Iran’s hand will have the opposite effect: It will lead to greater instability in both the Middle East and Indo-Pacific while enabling China to deepen its influence throughout the Gulf.

Years of punishing international sanctions have left Iran diplomatically and economically isolated, with Tehran seeking greater support from other autocratic regimes. That extends to its partnership with China, which in recent years has become Iran’s top trading partner, a leading destination for energy exports, and a major investor in Iranian industry. While Sino-Iranian military cooperation has ebbed from its heyday in the 1980s and 1990s, the two countries engage in periodic military exchanges, joint exercises, and port calls. In January, for example, 11 Iranian vessels joined three Russian ships and two Chinese vessels in a series of joint tactical and artillery drills in the northern Indian Ocean. Likewise, China actively supports Iran’s cruise and ballistic missile programs, providing it with technology that has been integrated into systems used against U.S. forces in neighboring Iraq as recently as 2020.

Nevertheless, the Sino-Iranian partnership has its limits. Clearly, both countries remain committed to undermining the U.S.-led rules-based order, often taking each other’s side during disputes with Washington. But China’s strong relationships with Saudi Arabia and the United Arab Emirates—Iran’s chief regional adversaries—have forced to pursue a balanced engagement strategy in the Gulf.

For instance, while Iran heralded a 25-year $400 billion military and trade cooperation agreement in 2021 with China as a “complete roadmap” for the relationship, Beijing purposefully downplayed the still-undisclosed deal, simply calling it a “general framework for China-Iran cooperation.” Similarly, China’s diplomatic partnership with Iran, handled mainly at the ambassadorial level, pales in comparison to its much higher-level coordination with Riyadh and Abu Dhabi. Those relations are managed by a senior Chinese Communist Party Politburo Standing Committee official, Han Zheng, and the director of the party’s Central Foreign Affairs Commission Office, Yang Jiechi, respectively.

Beijing’s sanctions aversion mirrors its refusal to help Moscow evade sanctions over Ukraine, even as Xi and Putin talk of their “limitless” partnership.

Of course, economics and access are the driving forces behind today’s Sino-Iranian partnership, in which China exercises considerable leverage over Iran. Beijing’s largesse, enabled in part through the purchase of Iranian oil by Chinese companies in violation of sanctions, has provided Tehran with a vital economic lifeline as well as funding for its destabilizing activities. Over the years, China has also made strategically timed investments in critical Iranian industries, such as mining and transportation. These moves are aimed at helping Beijing secure unfettered access to Iran’s natural gas and oil reserves—the world’s second and fourth largest, respectively—to satisfy China’s skyrocketing energy demands. China also recognizes the value of Iran’s geographic proximity to major commercial shipping routes, which Beijing hopes can one day be harnessed to resuscitate its floundering Belt and Road Initiative.

These geopolitical chess moves aside, the two countries remain woefully short of Chinese leader Xi Jinping’s stated goal of increasing bilateral trade to $600 billion by 2026. In 2021, their trade amounted to less than a paltry $15 billion, almost unchanged from 2020. Similarly, Chinese foreign direct investment in Iran has held steady at around $3 billion. For context, China’s trade last year with Saudi Arabia and the United Arab Emirates was valued at $87 billion and $75 billion, respectively. The reason: China sees Iran as a risky bet and will continue to do so long as sanctions remain in place. This helps explain why notable Chinese companies, such as Huawei and Lenovo, have withdrawn or wound down their Iran-based operations and why Chinese purchases of Iranian oil dropped sharply during the Trump administration’s maximum pressure campaign. Beijing’s sanctions aversion mirrors its refusal to help Moscow evade sanctions over its war on Ukraine, even as Xi and Russian President Vladimir Putin talk of their “limitless” partnership.

But China’s Iran calculus will almost certainly change if a new nuclear deal goes into effect. Free from the threat of sanctions, China will almost certainly ramp up its investments in and trade with Iran, deepening not only its influence there but in the region as well. China’s increased access will be most acutely felt in a handful of strategically significant industries, many of which carry serious national security ramifications. For instance, whereas U.S. sanctions led state-owned China National Petroleum Company to back out of a multibillion-dollar deal to develop natural gas in the South Pars field—the world’s largest gas deposit by far—in 2019, Chinese firms will probably reexamine the viability of this and other lucrative energy initiatives, some of which are overseen by Iran’s military. China will also expand its reach throughout Iran’s steel, gold, and aluminum sectors, having previously invested in other materials processing projects that enabled Iran to produce inputs for its missile program.

The same applies to infrastructure and transportation-related projects aimed at connecting Iran to China’s regional networks in South and Central Asia. That includes a planned train route between Iran and China’s Xinjiang province, where the United Nations recently determined Beijing is committing “serious human rights violations,” such as forced labor and sterilizations. Tehran will also lean on Beijing to modernize its telecommunications architecture, including requesting assistance in installing the same artificial intelligence surveillance technology that China has exported to other autocratic regimes. The result will be even more censorship and political repression for millions of Iranians.

Just as troubling is that Iran will reap a massive financial windfall if and when a new deal is signed. Financial modeling suggests Tehran could gain access to $275 billion in frozen reserves during the deal’s first year and at least $1 trillion in new oil revenues by 2030. U.S. officials have acknowledged the deal contains no enforceable safeguards preventing Iran from using its windfall to support its subversive activities or funding of terrorist proxies. To be fair, Beijing has an interest in promoting stability in the Gulf, if for no other reason that instability often leads to shocks and disruptions to energy markets. Chinese officials may very well communicate as much to their Iranian interlocutors in a post-deal environment.

But the reality is that China’s leverage over Iran will likely erode as sanctions sunset and Tehran diversifies its external relationships. At the same time, China’s reliance on Iran may very well increase as Beijing becomes gradually more dependent on Iranian energy suppliers to meet its insatiable domestic needs. All told, this inverse power dynamic will leave Beijing less able to meaningfully constrain or shape Iran’s malign behavior.

And there is little doubt regarding Iran’s eventual plans. Earlier this year, the U.S. military was forced to respond to attacks on U.S. and UAE troops in Abu Dhabi, orchestrated by Iranian-affiliated rebels in Yemen. In June, fast-attack boats operated by Tehran’s Islamic Revolutionary Guard Corps (IRGC) stalked U.S. vessels in the Persian Gulf, leading to a near-collision at sea. Just last month, Iranian-backed militant groups attacked a U.S. military base in southeast Syria, and reports surfaced that the IRGC sought to assassinate former U.S. government officials. And last week, an IRGC ship attempted to capture a U.S. maritime drone operating in international waters.

A weak Iran deal could lead to greater instability in two contested theaters—the Middle East and the Indo-Pacific—with the Ukraine war raging in a third.

Responding to these and future Iranian provocations will undermine efforts to shift some regional resources to the Indo-Pacific, an area that is far more important to China’s hegemonic interests. Indeed, Chinese scholars have argued as much, noting that instability in the Middle East reduces “Washington’s ability to place focused attention and pressure on China.” Without sustained U.S. capabilities in the Indo-Pacific, China could be confident enough to conduct even riskier military maneuvers than those it recently concluded in and around Taiwan’s territorial waters. In other words, a weak Iran deal could simultaneously lead to greater instability in two contested theaters—the Middle East and the Indo-Pacific—with the Ukraine war still raging in a third.

All told, agreeing to a new, weaker Iran deal must be weighed against other pressing U.S. security objectives, of which China ranks first. And as negotiations currently stand, it’s clear that the regime in Tehran is not the only one that benefits. Beijing is a big winner of the new nuclear deal, too.