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China-Iran Relations: Strategic, Economic and Diplomatic Aspects in Comparative Perspective

Memorandum No. 213, June 7, 2021

Kevjn Lim

The Islamic Republic of Iran and the People’s Republic of China embody the main strategic threats facing, respectively, Israel and its major power ally, the US. The relationship between both governments and their converging interests, especially in the contexts of energy and security cooperation, China’s Belt and Road Initiative, and a shared vision of an alternative international order in which America exerts considerably diminished inﬂuence, pose challenges to Israel in particular.

China is not only one of Israel’s top trade partners and investors, but is also an actual source of support and potential force multiplier for the Islamic Republic, Israel’s archenemy. Yet divergences also abound between China and Iran, including in both countries’ tolerance thresholds for instability in the Middle East, the desirability of the US’ military presence in that region, and their views of what ought to constitute bilateral comprehensive strategic relations. Moreover, a survey of China’s relations with Iran’s regional neighbors shows a far more nuanced, and hence murkier picture – one in which constraints not only weigh heavily on Beijing’s interactions with Tehran, but also one where strategic opportunities for Israel emerge, especially in the context of the Abraham Accords.

This web of strategic, economic, and diplomatic entanglements across the wider Middle East and its principal great power stakeholders ensures fertile ground for competition, and, no less so, for cooperation.

Table of Contents:

The People’s Republic of China and the Islamic Republic of Iran – and specifically the relationship between the two – pose a number of policy challenges for the State of Israel. China ranks among Israel’s leading trade partners and investors, but that relationship has created trilateral tensions involving Israel’s major power ally, the US, for whom China has become the principal strategic challenge. At the same time, Iran remains Israel’s leading nemesis and most critical national security threat, which means, at first blush at least, that what it gains from its interactions with China risks becoming Israel’s loss in the final ledger. These considerations and the questions they raise drive the research aims of the present memorandum.

China and Iran’s conduct bears a number of similarities, evolving as both states have from separate revolutionary beginnings, the one in 1949, the other in 1979. There is, as a result, a certain convergence of interests. Yet, the divergences are hardly negligible, and it is these which impose constraints on the future trajectory of bilateral relations, with US policy constituting what is arguably the single most important external factor and source of interference. This chapter examines the broad strategic factors underlying bilateral relations. It begins with a survey of each partner’s core interests and areas of policy focus as they flow from, and in turn interact with, domestic conditions. The chapter then looks at the areas where bilateral interests converge and diverge. While the latter at times also necessarily assume the form of economic, diplomatic, and military interactions, these are ultimately a function of broader, strategic considerations.

Economic relations with Iran are among China’s most significant in the West Asia region. Iran is an energy supergiant in proven oil and gas reserves, a sizable consumer market, and a key east-west land bridge along China’s Belt and Road Initiative (BRI). At the same time, China has become Iran’s largest trade partner, energy client and source of investments and foreign construction contracts. And yet, not only is Iran far more reliant on China than vice versa, it is also more reliant on China than other regional states are. Moreover, Beijing has developed higher trade and investment ties with some of Iran’s regional rivals and neighbors. This chapter examines the data for Iran-China trade and investment ties and contrasts them against China’s other regional economic partnerships.

In January 2016, just after the JCPOA came into force, China’s President Xi Jinping visited Tehran, nominally upgrading bilateral relations to the level of a Comprehensive Strategic Partnership. As noted in an earlier chapter, both sides additionally pledged to raise trade tenfold to $600 billion by 2026. Iran had long sought, and only then formally attained such high-level strategic partnership relations with China.

From Israel’s perspective, China’s relations with Iran undermine its interests to the extent that Beijing palliates Tehran’s difficulties and strengthens its capabilities. On the trade and commerce front, this includes helping replenish Iran’s foreign exchange revenues and reserves. Even if they increase Iran’s dependence on Beijing, any Chinese hard currency transfers to Iran and influx of capital into its energy, industrial, and transport infrastructure would help Tehran mitigate the bite of US sanctions, and are moreover likely to benefit the vehemently anti-Israel Islamic Revolutionary Guard Corps (IRGC), which controls significant economic stakes in the country.

The opinions expressed in INSS publications are the authors’ alone.

Publication Series Memoranda

TopicsIran Israel-China Policy Center - The Diane and Guilford Glazer Foundation

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China-Iran Relations: Strategic, Economic and Diplomatic Aspects in Comparative Perspective

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