PEJOURNAL – Iran is in the process of finalizing an agreement with China, cementing an arrangement to sell crude oil to the world’s second largest economy for the next twenty-five years. The deal drew attention within Iran after the eighteen-page “Iran-China 25-year Comprehensive Partnership Document” was leaked, prompting comments that the Iranian government had sold its country out as a “client state” of China. The price? Up to $400 billion in installments spread over a quarter of a century.
The characterization is not unique to Iran’s case. Iraq, which exports one hundred thousand barrels of crude oil to China each day and has a twenty-year agreement with the People’s Republic for infrastructure build-out, has been accused of being the same. Further east, Pakistan, Nepal, Cambodia, Myanmar, North Korea, and more carry the label too.
China and Iran are still finalizing the deal and its details have not been made public officially in either country, but there is little doubt that the twenty-five-year agreement is a lifeline for Tehran at a time when it has few allies or options. For Beijing, the deal is part of Chinese Communist Party leader Xi Jinping’s Belt and Road Initiative (BRI), which seeks to link up dozens of countries in Asia, Europe, and Africa in a global development plan spearheaded by China.
The initiative is one of Xi’s cornerstone policies; proponents believe that the ambitious project will drastically improve the infrastructure and standard of life in many developing countries—often in exchange for important natural resources exported to China or Chinese usage of key infrastructure, like deep water ports—while critics call it a form of debt trap diplomacy or even neo-colonialism.
Iran agreement’s terms with China
The agreement’s terms have solidified enough to outline China’s investment in Iran reaching many billions of dollars in infrastructure, economic development, and military defense. In particular, oil wells, refineries, and other facilities that desperately require modernization will receive upgrades. This is in clear contrast with the Trump administration’s continued hopes to take a wrecking ball to Iran’s economy through its “maximum pressure” campaign to change its malign behavior, which even in an ineffective manner has taken a major toll on the country’s population.
The fact is China and Iran need each other, though Tehran needs Beijing more than the other way around. China needs oil and lots of it—it is the largest crude oil customer of Iran—as Beijing continues to cast itself as a new global leader—one that developing nations that have long been ignored by Washington can rally behind. Tehran, on the other hand, must reckon with a deep recession caused in part by sanctions re-imposed by the United States.
Despite the Chinese government’s aggressive moves to cow other nations into submission in Southeast and South Asia, Beijing has little interest in cultivating a vassal state in the Middle East. Zhongnanhai, the Chinese government’s seat of power, is much more concerned about energy security as China expands its economic, technological, and military capabilities.
Compared to lengthy accords formed between China and other nations, the deal with Tehran, if it remains relatively constant and moves forward, is indeed sizeable. In 2013, one year after Xi became president of China, he signed a $270 billion oil deal with Russia. Even though the two countries are in competition in geopolitical terms, that deal for oil is still in place, and Russia is China’s largest source for oil outside of the Organization of the Petroleum Exporting Countries (OPEC). In March this year, when European demand for Russian crude oil fell, China bought a record 1.6 million metric tons over four weeks.
Beijing is thirsty for oil. In 2019, it used fourteen million barrels per day, sustaining its diverse manufacturing sector and the growing number of private cars owned by its general population. It is stockpiling commercial crude in anticipation for further economic development, as well as potential military conflict in the Taiwan Strait, South China Sea, or even with India along the Himalayan border. In general, it is constantly expanding refinery operations.
Additionally, China has surpassed the United States as the largest importer of foreign oil. Last year, it shipped in more than ten million barrels per day from all over the world. In 2020, research firm Wood Mackenzie estimates that China’s daily crude imports will run at 9.1 million barrels per day—the dip partially explained by global slowdowns due to the coronavirus pandemic. Of that amount, 38 percent will come from the Middle East.
The twenty-five-year partnership between China and Iran was first proposed by Xi in 2016, when he visited Tehran and met President Hassan Rouhani. The current version covers more than the oil trade. It places Iran’s 5G development in the hands of Chinese tech and hardware companies and includes mentions of tighter military ties, including joint training, shared weapon development, and intelligence sharing, building upon an existing relationship that facilitated military drills involving China, Iran, and Russia in the Gulf of Oman as recently as December 2019.
However, these new links’ impact on the American military’s presence in the Gulf region depends on the scale to which China will commit to a continued armed presence, one rooted in its first overseas base in Djibouti.
Judging from China’s track record, these infrastructure developments may also be a Trojan horse. Take for example the African Union (AU) headquarters in Addis Ababa, which was built by a Chinese state-owned company—the largest construction company in the world—as a gift from the Chinese government to the AU. As it turned out, there may have been a backdoor inserted in the building’s computer network that sent data to the Chinese government. And Huawei hardware continues to be a sticking point for western governments—particularly the Donald Trump and Boris Johnson administrations—for that very reason.
The idea that Iran is relegating itself in subservience to China does not stick and Beijing has little experience with maintaining puppets in volatile regions where it has no deep cultural roots. Tehran had a deal with global powers, including the United States, in the Joint Comprehensive Plan of Action (JCPOA).
But that plan fell apart with the United States’ withdrawal, so Tehran sought other spheres of influence to negotiate for its survival. The proposed agreement between Tehran and Beijing signifies Iran’s desperation and China’s rise as a global superpower, as well as the decreasing relevance of the United States in oil-rich West Asia. Whenever Washington and its European allies retreat, as was the case with Iran under Trump, Beijing is ready to take its place.