Topics Covered

• China-Iran Investment Deal 

• Oil & Gas 

• Trade 

• Belt and Road Initiative 

• Strategic Implications 

• Feasibility and Internal Opposition 

• Conclusions

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Although Sino-Iranian relations have a very long history, modern relations started after World War II. Trade was initiated in the 1950s, while diplomatic relations were established in 1971 when Communist China was accepted by the UN. The watershed in the relations came in the late 1970s: the Iranian Shah was removed from power and replaced by the theocratic and authoritarian Islamic Republic of Iran in 1979, while Deng Xiaoping ascended to power in 1977, turning away from Mao’s Cultural Revolution and opening Chinese society and domestic market. These two events made Iran and China natural partners: Iran could not turn to the neighboring Soviet Union to replace its ties with the Western countries, while China was looking for trade partners to provide resources for its developing economic growth.

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Since then, China has steadily developed and strengthened ties with Iran – as Chinese economic growth accelerated, and China became an increasingly export economy, its economic exchange with Iran increased. Before the 2000s, China was careful not to antagonize the U.S. or Israel with its dealings with Iran, while it also maintained relatively close ties with Iran’s rival Iraq.

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However, after the U.S. entered Afghanistan and then Iraq in the early 2000s, China’s economic ties with Iran started to strengthen rapidly: Table 1 shows how Iranian international trade and its bilateral trade with China evolved from 2001 to 2018. China advanced from being the 6th importer and 3rd exporter and shares of less than 10% to the most important trade partner with a share of 30-40% (OEC, 2020). Most of the Iranian export to China is still crude oil, while most of China’s trade to Iran is comprised of cars and vehicle parts. Crucially, through trade with China, Iran was able to replace much of its trade with Western countries, especially Germany, Italy, and France. In 2018, Germany, Italy, and France combined for around 10% of Iranian imports, compared to around 23.5% in 2005.

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Sino-Iranian trade peaked in 2014, when it accounted for 39% of total Iranian international trade and was valued at around $50 billion, due to historically high oil prices, which were consistently over $100 per barrel. Since then, oil prices dropped to $45-70 per barrel and Iranian trade reduced in line with that. However, China remained the most critical trading partner, with $30-35 billion in annual trade.

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The U.S. maintained sanctions against Iran since 1995, while the European Union maintained sanctions since 2007. These include restrictions on the arms industry, nuclear technology, energy and petroleum industry, financial sector and banks, shipping, insurance, and trade. In addition, the

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U.S. maintains restrictions on foreign companies dealing with Iran. Table 1 shows that the introduction of sanctions by the EU in 2007 precipitated increased trade between Iran and China: China immediately became the most important trading partner of Iran, and the value of trade doubled in two years.

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continued at briefing