China’s Iran-Saudi Deal May Not Stick

On Friday, Iran and Saudi Arabia announced a joint agreement, brokered by China, to pursue the restoration of diplomatic relations. The agreement outlines a two-month process to reopen embassies in Tehran and Riyadh, as well as discussions on progress toward a range of cooperation mechanisms. The breakthrough agreement highlights China’s willingness to play the role of mediator in the Middle East and shore up its investments and interests in the Persian Gulf, but the real test is whether China can continue to balance the pursuit of its interests with both sides without derailing its own progress.

Since December 2022, China has been doing damage control after deepening ties with the Gulf Cooperation Council (GCC) put strain on its relationship with Iran. The Chinese government has repeatedly expressed to Iran in direct engagement, public statements, and bilateral cooperation that it considers Tehran and Riyadh equivalent partners, but Beijing’s actions have signaled a subtle shift toward Riyadh, at least in the near term.

Iran’s frustration with China will likely not be satiated by Iranian President Ebrahim Raisi’s visit to Beijing in February but will require China to take real steps—particularly in fiscal and economic terms—to get the relationship realigned. While Iran may feel it is out of China’s favor now, the pendulum is likely to swing back to Iran as China reconciles its near- and long-term priorities. But balancing ties with both sides will be a tricky prospect, given the critical role of security in the region.

Uncertainty around Iran’s destabilization continues to weigh heavily on the Saudi foreign-policy agenda. China is unlikely to be able to provide the security guarantees necessary to assuage those concerns and those from the broader Arab world. Despite raised expectations among the Arab states for more intensive Chinese mediation to reduce escalations, Beijing has shied away from any meaningful role until now.

Since 2020, the GCC has emerged as one of China’s geoeconomic priorities. While initially predicated on strictly economic terms, China-GCC relations are shifting toward the strategic realm as both sides look to strengthen political, economic, military, and international security cooperation and coordination. Energy remains a critical feature of the relationship, but the range of converging interests between China and the GCC has drastically expanded. The global impact of Russia’s invasion of Ukraine and subsequent international sanctions set the global conditions for a protracted economic lull and opened the door to deeper Sino-Arab cooperation. China capitalized on the GCC’s neutrality in the Ukraine conflict and its distaste for U.S.-led Russia sanctions, merged with the surge in global energy demands, to channel new Gulf wealth into economic and investment opportunities. Underpinning these new linkages is a converging preference for stronger political governance and state-driven economic growth to bolster domestic stability.

For China, expanded cooperation, financing vehicles, and inbound investments are aimed at boosting domestic energy production by attracting GCC investments, technology, and expertise. For the GCC, Chinese expertise and financing have opened new market opportunities for GCC economies inside and outside of the energy sector.

Over the last few years China has integrated the Belt and Road Initiative (BRI) with the GCC’s national development strategies, such as Saudi Arabia’s Vision 2030. This trend accelerated in 2022, with Saudi Arabia emerging as the second-largest recipient of Chinese BRI investment globally.

For China, the relationship with the GCC is particularly timely but comes with risks. Beijing’s domestic energy challenges, coupled with domestic instability in late 2022, the lifting of the zero-COVID policy, and Western capital flight have reinforced Beijing’s need to rely more heavily on its GCC partnerships and reduce dependencies on the West.

However, increased reliance on its GCC partnerships may raise red flags among Chinese policymakers that overreliance on the Gulf would give the United States leverage over China from Washington’s security influence over the Gulf. In a worst-case scenario, there is the perception that the United States could put pressure on the GCC to turn off the tap, potentially restricting outflows of oil and gas to China. But so far, the GCC countries, particularly Saudi Arabia, have welcomed China’s increased engagement and even signaled a willingness to keep Sino-Arab ties insulated from Western pressure on Arab states to break with China.

Iran, meanwhile, maintains long-standing ties and deep economic cooperation with China, which have weathered multiple wars and crises in the region. These ties have been proved by both sides to be durable, even amid periodic spoilers. The closer China gets to the GCC, however, the more its ties with Iran will be increasingly politicized.

China’s short-term GCC investments are unlikely to mean the Gulf states replace Iran as a long-term strategic partner. While GCC markets offer ample opportunities for China, these markets remain exposed to U.S. influence and interests. Security issues will continue to be a priority for both the GCC states and the United States so long as Iran is perceived as a strong regional threat. While Beijing has proposed alternative security mechanisms—such as the China-led Middle East Security Forum—for managing Persian Gulf competition, these initiatives are too premature for regional actors to take seriously until Beijing assumes a larger responsibility in resolving the ongoing regional challenges.

The issue, however, is that China has little interest in substantive mediation, despite lofty rhetoric, because the risks of losing a strategic balance in the relationship would be too high. Over various instances of escalation in the Persian Gulf, Beijing has played no major mediation role. Beijing is content to provide the space if competing parties have the will to talk, but it will not force talks or exert significant pressure to keep parties at the table. Thus, the U.S.-led security architecture will provide the West leverage over the GCC to, in some ways, set parameters over its cooperation with China. If that leverage is lost or degraded, the GCC would be in a stronger position to sell itself as a longer-term neutral partner, but the persistence of concern over a strengthening Iran, empowered by a burgeoning relationship with Russia, will keep the GCC more closely aligned with the United States on security for the time being.

The GCC wants a neutered Iran, but China sees Iran as a long-term strategic source for energy, security, economic, and investment cooperation, separate from the GCC and insulated from Western influence. Beijing looks forward to a day when Iran can shake free from secondary sanctions and China’s monopoly of the Iranian economy can begin to yield tangible benefits.

But so far, sanctions continue to impede any major progress in Sino-Iranian ties. While Chinese companies continue to do business in Iran, the Chinese government does not want to overtly violate them. The relationship also remains deeply one-sided, with China as Iran’s primary lifeline. Playing the role of international trustee, China sought to improve Iran’s position on international platforms and has tried to shape its image as a willing, cooperative actor in desperate need of sanctions alleviation. However, residual escalation in tensions between Iran, Saudi Arabia, Israel, and the United States have continuously undermined Chinese efforts to normalize Iran’s place in the international community.

China’s breakthrough mediation with Saudi Arabia and Iran may not stick. The Saudi-Iran rivalry is far from resolved, and both sides of the Persian Gulf are unstable. Iran’s regional proxies in Yemen, Syria, Iraq, and Lebanon continue to destabilize the region and fuel insecurity. Iran’s reported uranium enrichment of 84 percent in late February has fueled further international concerns that Iran is rapidly pursuing nuclear weapons.

Iran’s recent expanded ties with Russia have heightened concerns in Saudi Arabia over the potential transfer of advanced forms of military technology from Russia to Iran, which could be deployed against the kingdom and broader region. While progress has been made in reducing military tensions in Yemen, the residual threat of drone attacks from Iranian-linked Houthis on critical infrastructure remains a primary concern for the Saudi government.

This recent initiative is certainly a step forward, but the real evidence will be in whether this agreement provides an off-ramp to de-escalate crises, fueled by the Saudi-Iran rivalry, including in Yemen and Syria. Based on China’s lackluster track record of mediation in the region, it is unlikely China will rise to the challenge.