Shared interests: Why both China and the West support the Iran nuclear deal

Iran’s foreign minister, Amir Abdollahian, was in Beijing over the weekend, for the latest in a set of high-level engagements between Iranian and Chinese officials over the last few years. On Abdollahian’s agenda were discussions related to a Comprehensive Strategic Partnership (CSP) agreement signed between China and Iran in March 2021. The agreement provides a framework for political, economic, and security cooperation over the next 25 years; but it is not unique. China has similar agreements in place with many countries, including Iraq, the United Arab Emirates, and Saudi Arabia. But something that is unique about the CSP is how its implementation depends on the restoration of another agreement – the Joint Comprehensive Plan of Action (JCPOA).  

Despite breathless headlines warning that China and Iran are deepening ties with an aim of challenging Western hegemony, the relations between the two countries have in fact been strained, particularly since the Trump administration withdrew from the JCPOA in May 2018. Over the subsequent two years, Iran was disappointed by China’s moves to scale back both oil and non-oil trade in the face of US secondary sanctions. China, for its part, was concerned about dangerous provocations, including attacks on oil infrastructure and tankers in Saudi Arabia and the UAE – critical parts of China’s energy supply chain – which were widely attributed to Iran. When a draft of the CSP leaked in July 2020, there was a public outcry in Iran, as inaccurate Western reports led the Iranian public to believe that the Rouhani administration was about to begin a fire sale of national assets to Chinese interests. The outcry was so fierce that the signing of the agreement had to be delayed more than six months until the government could ensure that the Chinese foreign minister, Wang Yi, would receive a decorous welcome in Tehran.    

Since then, the China-Iran relationship has warmed. But this is not because the CSP deal has led to any concrete results. Rather, Iran’s renewed efforts at diplomacy have helped calm fears among Chinese policymakers about the Middle East sliding towards a deeper crisis. On the one hand, talks over the future of the JCPOA offer the prospect that Iran’s nuclear escalations will cease to be a flashpoint. On the other hand, Iran’s efforts to engage in talks with its Arab neighbours have made regional conflict less likely. In both cases, Iranian diplomacy is helping to preserve Chinese energy security by minimising the likelihood that regional conflict could stem the flow of the crude oil on which China’s economy depends. After his meeting with Abdollahian, which followed exchanges with the foreign ministers of Saudi Arabia, Bahrain, Kuwait, Oman, and Turkey, Wang endorsed the idea that regional diplomacy could secure a regional peace. “We believe the people of the Middle East are the masters of the Middle East. There is never a ‘power vacuum,’ and there is no need of patriarchy from outside,’” he stated.  

In turn, China has increased its purchases of Iranian oil, directly defying US secondary sanctions. The rebound in Iran’s oil sector has underpinned the country’s nascent economic recovery after three years of recession. The Biden administration has publicly and privately warned China over these purchases but has not sought to enforce its sanctions in a significant way. Some commentators have suggested that Chinese oil purchases mean Iran will be less inclined to conclude the JCPOA negotiations, as it is already enjoying a key economic benefit of sanctions relief. But this analysis misses the fact that the US and China have shared interests when it comes to the JCPOA – one explanation for the Biden administration’s non-enforcement of oil sanctions is that, in fact, China’s modicum of economic support for Iran has been instrumental in getting Iran back to the negotiating table.  

It appears likely that China has made its economic support for Iran conditional on assurances from Tehran that it would, at least in the long term, seek the restoration of the JCPOA. This was a smart bargain. Were it not for an uptick in Chinese oil purchases, which began in earnest in 2020, Iran would have long ago concluded that there were no longer any economic benefits stemming from continued participation in the JCPOA. It is worth remembering that in 2018 European leaders had promised to find ways to preserve the economic benefits of the deal for Iran in the face of US secondary sanctions. But European officials’ efforts failed to stop a dramatic fall in bilateral trade with Iran – a failure exemplified by the launch and languishing of INSTEX, a state-owned company set up to facilitate trade with Iran.  

China has been the only JCPOA party able to give Iran an economic lifeline in the face of US secondary sanctions. This has granted Chinese officials unique leverage. During his visit to Beijing, Abdollahian was likely encouraged to wrap up the nuclear negotiations and will have been warned that failure to do so will have significant consequences for the China-Iran relationship. The official readout of the meeting places blame on the US withdrawal for the “difficult situation,” but still implores “all parties [to] overcome difficulties and meet each other halfway, and persist in advancing the political and diplomatic settlement process.” 

Importantly, China’s economic support for Iran is currently limited – while oil purchases have rebounded, Iran’s crucial purchases of Chinese industrial goods have not risen in turn. Chinese investment in Iran is basically non-existent. As for most developing economies, Iran’s pathway to durable economic growth depends on a more functional economic relationship with China – right now, Chinese trade and investment in Iran lags far behind levels seen among its Arab neighbours. Catching up will require that Iran benefits from the lifting of US secondary sanctions. 

If the nuclear talks fail, China will resist endorsing the Western-led effort to reintroduce multilateral sanctions on Iran, and will prevent the snapback of UN sanctions, possibly favouring an interim deal. To demonstrate its economic sovereignty and to bolster its energy security, China will continue to purchase some Iranian oil. But it is unlikely that these purchases will continue at the same volumes seen today. Not only would reducing purchases be one way for China to impose costs on Iran for any nuclear escalations that would follow the dissolution of the JCPOA, but there will be operational limits as well. The current volume of Chinese oil purchases depends in part on re-export from countries such as the UAE – these countries can be expected to cease their pragmatic economic engagement with Iran. The purchases also depend on non-enforcement of US secondary sanctions – any more forceful enforcement posture will lead many Chinese traders and refiners to shun Iranian suppliers once again.  

Seen in this context, the warming of China-Iran relations portends well for the JCPOA. China, as a JCPOA party, has smartly maintained its economic support for Iran, calibrating the level of support to incentivise Iran to remain in the agreement, while also making clear that a true deepening of bilateral ties depends on the nuclear deal’s restoration. Western officials are rightly concerned about China’s geopolitical designs, but the West and China share interests in relation to Iran. If the nuclear deal is saved, China’s economic diplomacy will deserve considerable credit.