Iran-China deal amid the Global Power Transition

15 Apr 2021

Iran-China deal amid the Global Power Transition

By Dr. Ezgi Uzun

Belt & Road News

April 15, 2021

https://www.beltandroad.news/iran-china-deal-amid-the-global-power-transition/

On March 27, 2021, Iran and China signed a 25-Year Comprehensive Strategic Partnership cooperation agreement, which had sparked significant controversy after being leaked to the press in July 2020 at the draft stage.

The publicized 18-page draft envisions intense cooperation between the two countries in oil production, transportation and security; railway, road and port infrastructure development activities in Iran, which are important for China’s Belt and Road Initiative; the use of national currencies in international banking activities; and finally in other strategic sectors such as defense, military and information technologies.

Although the figures regarding the cooperation in the sectors mentioned were not officially shared, it is reported that China will invest $280 billion in Iran’s energy sector and $120 billion in its infrastructure development activities, totaling $400 billion. In return for these investments Iran, on the other hand, will be selling relatively low-priced oil to China on a permanent basis.

International experts view the China-Iran agreement, based on its content and timing, as a political maneuver against the nuclear deal, which has been going back and forth between the Biden and Tehran administrations. While some claim that the indecisiveness of the Biden administration in returning to the nuclear deal with Iran is moving Iran increasingly closer to China, others see the deal as a “game changer” for Iran.

On the other hand, given Iran’s recent experience with both China and the US, we can argue that the agreement is not a “game changer” for Iran’s foreign policy in the international arena, but rather “a part of the current plan”. This is because this issue is essentially a global one that transcends Iran’s bilateral relations with the two countries, is intertwined with the global rivalry between the US and China, and moves in cycles at the regional level.

In this context, three points must be considered in order to thoroughly assess the agreement’s impact on bilateral relations: the dynamics of the global power transition between China and the US, China’s general Middle East policy, which has been gradually taking shape since 2016 as an extension of its power transition project, and the “multilateralism” policy followed by Iran at a global level.

The Fundamental Indicators of Global Power Transition

Considering itself the most significant actor shaping the economic and political structure of the global system in the post-Soviet era multi-polar climate of international politics, the US began to see China as a growing global competitor beginning in the mid-2000s, owing to its aggressive modernization policy that began to bear fruit economically.

In fact, more and more projections indicate that a global power transition will occur between the US and China by 2050, considering China’s rapidly rising production capacity, as well as its energy consumption, gross national product and military expenditures.

On the other hand, these indicators are not sufficient for the finalization of a global power transition, since real transition begins when the rising state exhibits the potential to establish an alternative order against the principles, rules and institutions of the current international system.

In this context, with its principles, rules and institutions, the current international system, modeled on the economic and political structures of Europe and the US, reflected liberal political/economic values, aimed at perpetuating the current distribution of power among states and provided various economic and political benefits to the actors who were already, or would become, integrated into the system.

China, however, held a completely different vision of modernization despite being an actor integrated into the institutions of the current international system: an alternative vision of modernization implemented through a strong and interventionist state capacity, and one that prioritizes economic development and growth while not incorporating into the process the liberal-democratic sociopolitical systemic structures envisioned by liberal modernization practices at a political level.

With the Belt and Road Initiative, which was launched in 2013, we can see that this alternative Chinese vision of modernization is gradually being introduced to foreign countries.

In fact, in more than 70 countries that were mostly underdeveloped or developing, and especially in Central Asian Turkic countries, the Indian subcontinent and Eastern European, China had already been sponsoring and executing mega projects aimed at improving development, trade and investment.

The most significant distinction between China’s intercontinental mega-development projects and those of its counterparts, such as the European Union (EU), was that China did not impose any political conditions on the cooperating countries.

In this regard, China very emphatically underlined the principles of “national sovereignty”, “cooperation based on the win-win mentality” and “a multilateral international system” in every single agreement that it signed with each country, making it very clear to them that it was not entering into a political or military alliance with them that could end up being a patron-client relationship, that it was establishing merely a strategic partnership with them with the sole focus on trade and investment, and did not envision any reforms in the internal political structures and regimes of the countries in question.

These pledges made these projects very appealing to the countries in the mentioned regions; countries with largely authoritarian characteristics that had so far failed to give serious traction to their economic development programs. This raised concerns that an alternative model of modernization and development could spread well beyond the Atlantic, and especially to Eurasia.

China’s Middle East Policy

Beginning in 2016, China began to pay particular attention to the Middle East. With its massive production capacity, China was basically the world’s factory, and the Middle East was the fuel tank that kept it going. Therefore, establishing closer relations with the oil-rich Middle Eastern countries, many of which are US allies, formed the basis of Chinese foreign policy in the Middle East.

China issued an Arab Policy Paper in 2016 and indicated that it would be strengthening its relations with the countries in the region with the “Declaration of Action on China-Arab States Cooperation”, which it issued during the 8th China–Arab States Cooperation Forum in 2018, successfully implementing the principles announced in the 2016 Policy Paper.

In the process, various Belt and Road Initiative agreements were signed with countries such as Saudi Arabia, Sudan, Iraq, United Arab Emirates, Qatar, Kuwait, Egypt, and Morocco, and some of these countries were accepted as founding members of the Asian Infrastructure Investment Bank.

Cooperation in the renewable energy, petroleum, electricity and civil nuclear energy sectors was also initiated. In response to these investments, China increased its purchases of oil from the oil-rich Gulf states, deepening its engagement with the region through a surge in oil purchases.

When signing cooperation agreements with these Arab states, China did not base its own Arab policy on these countries’ political structures or their ties with the US. It did not aim to replace the US, which remained a military power in the Middle East, either. This was due to the fact that the survival of China’s investment and infrastructure projects in the Middle East, as well as the security of the transportation of oil purchased from the Gulf, were dependent on the US military presence, which held this volatile and conflict-ridden area under control, albeit to a limited extent.

As a result, China’s entry into the Middle East meant an economic confrontation with the US, but while doing so, it took great care not to imply that it intended to turn its engagement into a military and political power struggle.

In addition, although it was not an Arab state, there was another Middle Eastern country that China would be intensely cooperating with during the same period and would eventually pit against the US in the international arena: Iran.

China-Iran deal from US Point of View

While patterns of utmost consistency can be observed in Iran’s relations with other countries in the region as long as their ideological and strategic interests are compatible, its relations with global powers can be defined as more indecisive and ambivalent.

In this regard, we can see that Iran follows a multilateral foreign policy rather than categorically siding with a superpower, and that it seeks to maximize its profits by maintaining balanced and equally distanced relations. In fact, at the time the pragmatic Rouhani government was signing the historic nuclear deal with EU-states and the US in 2015, it was also holding intensive talks with China.

The West was, in essence, offering Iran a package with implicit and indirect political preconditions for the lifting of the sanctions and the signing of the nuclear deal. Correspondingly, it was hoped that Iran would undergo a gradual socio-economic and political transformation as a result of its integration into the international economic system and nuclear power status quo.

From the Iranian perspective, the lifting of the sanctions would boost Iran’s investment and trade cooperation with China more than it would strengthen its relationship with the West. Indeed, with the softening of the sanctions in 2015, China dispatched a considerable workforce to Iran, paved the way for many medium-sized Chinese companies to visit Iran in search of collaboration opportunities, and took a tour of exploration into the Iranian economy to survey it in depth.

Although the breakdown of the nuclear deal during Trump’s presidency hampered China’s economic ties with Iran, we can see that between 2015 and 2021, China was Iran’s largest direct or indirect trading partner and oil importer. Despite the sanctions, China’s oil purchases from Iran reached all-time highs in March 2021.

Therefore, the 25-year agreement signed between China and Iran in March 2021 is not a political agreement signed by Iran as an alternative to the nuclear deal with the US, but rather an agreement that will support the economic development potential that comes with the nuclear deal and has been an integral part of the plan since 2015.

The content of the China-Iran agreement is close to that of strategic agreements concluded with other US allies in the region. On the other hand, when we consider the US-Iran nuclear talks, which are still deadlocked in Biden’s term so far, we see that the China-Iran deal is perceived as a threat by the US in terms of the China-US global power transition.

This is because China signing an agreement with Iran at a crucial juncture in US-Iran relations is perceived as a direct challenge to some of the basic principles, rules and institutions of the international system.

To begin with, by using alternate mechanisms such as the use of national currency in oil trade and joint banking, China is demonstrating its ability to bypass sanctions, which are regarded as one of the most important disciplinary mechanisms of the current international system. This is perceived as a major blow to the efficacy of economic sanctions, the most powerful trump card of the US on a global scale.

Second, by signing this agreement with Iran, China is coming together with Iran around an alternative viewpoint on the system and its own alternative modernization model, which aims for economic development with a strong and interventionist state capacity by eliminating the political preconditions covertly put forward by the West.

This situation, over the Iran case, brings out the threats that the US feels China is posing to the system while moving toward becoming a global power. In some of the latest statements Biden made, there is clearly a perception of threat about the possibility of a global rivalry between the Chinese development model and the liberal one that seeks to strengthen liberal-democratic principles, which the Biden administration has recently been trying to remind the world of. In short, the China-Iran deal is seen as a watershed moment regarding the expected global power transition between China and the US.

The Deal’s Potential Effects on Iran

According to current indicators, even if the nuclear deal with the US had remained in place, Iran would have concluded a strategic agreement with China and pursued a multilateral foreign policy with major powers in the international arena. On the other hand, given its current stalemate with the US, the agreement with China may have far-reaching consequences in the long run.

First of all, with this agreement, Iran, which has been struggling to maintain oil exports in the face of sanctions, has obtained a guarantee of oil sales and energy infrastructure development from China.

In particular, the new regulations that are expected to be introduced to the Iranian banking sector in compliance with the terms of the agreement, as well as the use of their national currency instead of USD in oil sales, would, to some extent, relieve the Iranian economy. This economic initiative appears to have the potential to alleviate Iran’s isolation as a result of international sanctions.

Second, the infrastructure development partnerships that will be established with China will help Iran’s plans to become a commercial transit hub, opening it up to neighboring countries via new seaport, railway and highway projects. Thus, as the patron of the Axis of Resistance actors, i.e., Lebanon, Syria and Iraq, which China has limited access to, Iran can reinforce its economic and post-conflict reconstruction power in this region, while China, on the other hand, can reinforce its economic presence in the Middle East.

Third, it can be argued that the US’s most powerful trump card (sanctions) for returning to the nuclear deal has been seriously undermined by this agreement. In this background, two scenarios for the future of the nuclear deal stand out.

The nuclear deal process between the two sides could accelerate in the first scenario, in which the Biden administration’s sole aim is to return Iran to the international nuclear status quo.

In a second scenario, in which a comprehensive follow-up agreement on Iran’s ballistic missiles, military activities in the region and relations with the regional countries are added to the nuclear deal, we should not expect a positive development on returning to the nuclear deal. This is because Iran will not make concessions to the US on these issues while holding a trump card in the form of a China deal, which has the potential to soften sanctions.

Finally, the China-Iran agreement will not replace Iran’s negotiations with the West, such as the nuclear deal and other important agreements like the FATF, but it will serve as a trump card that will tip the scales in favor of Iran in these agreements.

Iran’s global strategy is not to take sides, but to use all of the deals that it has made and will make in the future with each of these great powers, such as the US, the EU, and China, as an effective trump card and basis for its agreements with others. This is the strategic meaning of the principle of “multilateralism in international relations”, which Persian diplomacy continually emphasizes.

Author: Dr. Ezgi Uzun