25 Years of Back-Scratching: Is China Just a Rebound?

Jay Ramesh

The enemy of my enemy is my friend. Iran took this to heart when, on March 27, they signed a 25-year cooperation agreement with China.

Iran’s international diplomacy is like Bill Belichik in free agency: they don’t like signing long-term deals. Iran’s lengthiest deal before this partnership was a 10-year deal with Russia back in 2001. Often isolated from the world, especially Western powers, the country is forced to keep its options open and align itself with other states that find itself on the wrong side of America’s bad temper. 

However, this isn’t just about Iran. Although it seems like China is simply a rebound for an Iran fresh out of a toxic relationship (and harsh break-up) with the US, there’s much more to the story. So let’s explore both sides of the coin. 

It’s no coincidence that this deal marks the 50th anniversary of the establishment of diplomatic relations between China and Iran. They have historically had relatively warm relations, but recently Iran has grown economically closer to China. After withdrawing from the Iran Nuclear Deal in 2018, former US President Donald Trump imposed heavy sanctions on Iran in order to put pressure on the government to come to the negotiating table. However, Iranian prime minister Hassan Rouhani has stubbornly held his ground, at the expense of his country’s economic well-being. 

Sanctions hit Iran hard. After experiencing 12% annual growth in 2016, Iran’s economy tanked and fell by more than 3% in 2018 and more than 9% in 2019. The coronavirus pandemic only worsened an already bad situation, and Iran’s oil output has also fallen by almost 50% after the US sanctions.

Like a toxic ex, these sanctions cut Iran off from much of the world- especially the world’s banking systems. The 25-year deal included a provision detailing a joint Iranian-Chinese bank, which could prove a godsend for cash-strapped Iran. The state may even be able to evade US sanctions by rerouting trade, loans, and other funds through Chinese banks, similar to what Iraq did during the Iran-Iraq war. Sanctions have caused Iran to be heavily dependent on China economically, and this deal eases financial burdens on Iran and also gives China a strong economic and potentially diplomatic ally.

The plan will eventually integrate Iran into China’s ambitious Belt-and-Road initiative. China will receive discounts on oil imports from Iran, which it desperately needs as China receives around 75% of its oil from abroad. In return, China will invest heavily in Iranian industry and telecommunications: building free-trade zones, improving transportation infrastructure, and even bringing a 5G network to Iran. Both countries will also continue their close military cooperation, including technology sharing and joint-military exercises. 

This new Pact of Oil presents a challenge to the Biden administration. Biden has tried to entice Iran to engage in negotiations to revive the Nuclear Deal, but Iran said it would refuse any negotiations until sanctions were lifted. When it was reported that Iran would export 918,000 barrels of oil to China in March despite a US embargo, tensions flared up. 

Iran had tried to put pressure on other western governments such as Germany and the UK to concede more economic incentives to Iran in exchange for the revival of the Nuclear Deal, but this new deal provides Iran with more economic options. Exporting oil to a large market such as China should increase Iranian oil production and help its ailing economy, and it reduces the economic leverage Biden has over Iran. 

Supporters in Iran claim the deal provides the best economic prospects for an isolated Iran, but many aren’t as enthusiastic about the deal. Critics, especially nationalists, claim the deal makes Iran too financially reliant on China. They’ve seen many African nations fall into a debt-trap of financial reliance on Chinese loans and investment, and they think their government is getting a little too cozy with Chinese investors. As Iran has been arguably the worst-hit country in the Middle East by the coronavirus pandemic, domestic relations between Iranian citizens and China haven’t exactly been the best either.

 
Regardless, this Pact of Oil provides both countries with much-needed economic relief, and in theory, the deal should bring the two economies closer. They say relationships are built on trust more than out of necessity, but maybe the couple’s lust for each others’ resources can turn a potentially toxic relationship into a good one.