Iran’s Deal with China and its Implications for the United States

Washington is urging its Gulf Cooperation Council (GCC) allies to put an end to the standstill with Qatar. The Saudi-led blockade has now lasted for over three years, and on July 26th 2020, US Special Representative Brian Hook stated that the crisis is a threat to security in the region. While Oman and Kuwait have initiated dialogue, it has not led to a promising resolution. The US has continued its attempts to mediate the conflict to no avail, and Hook believes this failure has hindered Washington’s efforts in pressuring Iran. In recent years, the US has supported a geopolitical coalition between Israel and several GCC members against Iran and the proxy-forces it assists in Syria and Yemen. When Saudi Arabia and several other states accused Qatar of excessively close relations with Iran in 2017, they severed ties with the country. The Trump administration appears to be more concerned about Qatar’s reunification with its former allies than before, and the change in perspective comes as China concludes a $400 billion economic and security deal with Iran. It is plausible that the US aims to restore Qatar’s relationship with its neighbours to revitalize the geopolitical pressure against Iran before its deal with China comes to fruition.

China’s Strategic Partnership agreement with Iran will lead to an increased Chinese presence in the Persian Gulf. The 25-year deal will give Beijing direct access to Iran’s coastal resources neighbouring the Al Udeid airbase and the US Fifth Fleet in Mina Salman.

The deal came into the spotlight when a leaked draft led to protests by Iranian critics who believed that the country was “selling itself” to China. Simultaneously, the respective closure of the Chinese and US consulates earlier in July, further exacerbated geopolitical tensions between the two countries.

With the continued pressure of US sanctions, Iran hopes that a closer relationship with China can drag it out of its current economic crisis. Under the new deal, Beijing may invest $400 billion in a set of significant projects in Iran including logistics, banking, telecommunications, and gas. In return, Iran would provide China with oil at discounted rates over the term of the agreement. This relationship represents the extension of China’s Belt and Road Initiative, which has expanded westward in recent years with investments in Pakistan and financial agreements with Turkey.

Iran aims to use these significant investments to alleviate its current economic situation. The Trump administration’s pressure on Iran’s oil sector partly led to a near 8% fall in GDP between April and December of last year. Moreover, the COVID-19 outbreak has further worsened the recession that arose with the tightening of US sanctions in 2018. With oil production reaching record lows, there is little hope for trade at the moment. Coinciding with the Spring Equinox, the pandemic also denied the Iranian retail sector’s most crucial seasonal boom: the Persian New Year. The tanker situation last year also led to a drastic fall in the number of shipping forwarders willing to work with Iranian businesses. If the US follows through with its threat of returning all prior UN sanctions, economic pressures may reach unprecedented levels. The World Bank’s MENA Economic Update predicts that the Iranian economy could remain subdued until 2023, with Tehran’s fiscal deficit expected to widen as revenues consistently fall short of targets. It is too soon to determine if the Chinese deal will help solve Iran’s economic problems as the terms of the agreement have not been fully disclosed yet.

The Sino-Iranian deal will undoubtedly hinder the Trump administration’s goals for the Iranian economy. Indeed, the severity with which Washington is interpreting this new deal can be seen in Secretary of State Mike Pompeo’s threat that sanctions could be applied to China if it follows through with the deal. Given that the European Union’s promise to find alternative trade solutions for Iran have fallen short of expectations, Tehran is looking to the east for business. However, according to Iran’s original intention to increase trade with the West, it is plausible to state that Iran’s current arrangement with Beijing is a matter of circumstance. Nevertheless, the Sino-Iranian Strategic Partnership agreement will have profound implications for the future geopolitical balance of the Middle East.

Arash Toupchinejad

Arash is an MSF Candidate at Georgetown University. He has a passion for geopolitics and foreign affairs. Arash is also an editor and writer for Captivate Youth, a non-profit global affairs research organisation.

The featured image (top) from 2013 depicts China’s Wang Yi standing next to Iran’s Javad Zarif and is by European External Action Service, licensed under Attribution-NonCommercial-NoDerivs 2.0 Generic (CC BY-NC-ND 2.0).

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