The Iran-China agreement: what are the prospectives?

China and Iran signed an overarching deal aimed at charting the course of their economic, political and trade relations over the next 25 years. What will be the consequences?

On March 27, China and Iran signed a cooperation agreement, during Chinese Foreign Minister Wang Yi’s visit to Iran as part of his seven-day tour in the Middle East, which he had begun three days earlier. The draft agreement had already been approved by the government of Tehran on June 21 2020, but required further talks between the two partners before being formalized. No details have yet been disclosed.

The signing of the agreement serves to elevate relations between Beijing and Tehran to the level of a Comprehensive Strategic Partnership (CSP), which came five years after Xi Jinping and Hassan Rouhani had presented it in Tehran, and it coincides with the celebrations for the fiftieth anniversary of diplomatic relations between the two countries, which began in 1971. The partnership is a follow-on to a 2016 deal in which China had promised Iran a tenfold increase in the volume of bilateral trade, reaching 600 million dollars within a decade. The 2021 deal concerns the energy sector specifically. Already since the beginning of 2021, China has imported record volumes of Iranian oil, despite discouraging sanctions imposed by the United States.

Another function of the accord, as reported by the Wall Street Journal, states that there is the will between China and Iran to establish a joint bank  which would allow the two partners independence from the US dollar. This move is part of China’s plan to “internationalize the Chinese currency”, the yuan, and generalize its use within trade agreements with those countries subject to US embargos or whose relations with Washington are strained. In this way, the Beijing currency could become a competitor of the dollar. Several analysts also say that this agreement demonstrates China’s fear of a possible trade and technological war with the United States.

The context behind the agreement

To better understand the nuances, it is important to analyse the geopolitical and strategic context of this agreement. The document, of which for now we have few details, provides Chinese investments of about 400 billion dollars in several key Iranian sectors, including energy and infrastructure. Tehran, in turn, guarantees Beijing a stable supply of oil and gas at competitive prices, especially because oil represents about 20% of the energy consumption of the Asian giant. This new agreement is a breakthrough in relations between China and Iran for two reasons: China in the last ten years has increased its strategic weight in the Persian Gulf, illustrated by Abu Dhabi’s decision in the last few days to produce China’s Sinopharm vaccine, despite the lack of guaranteed effectiveness. The second point regards the upset of the geopolitical balances from the countries sanctioned by the United States, which is tipping global consensus towards an increasingly emphasized polarization in key anti-USA. However, the agreement will also be strategic in the fight against the coronavirus pandemic, as stated by Iranian President Rouhani: “As for the vaccine against coronavirus, we need to increase cooperation between the two countries and we want more vaccines from China.”

In the logical analysis of this agreement, a consideration must also be given to the nuclear issue; Beijing stated that preserving the nuclear agreement would safeguard multilateralism and that China welcomed the position of the White House’s newest resident-in-chief, Joe Biden, who said he was willing to review US policy on the matter and possibly return to the agreement. However, the new strategic partnership between China and Iran is triggered by a much larger game in which Russia is also a player — three fundamental actors and bitter competitors of the United States. One thing is certain: in the short term, this agreement will be a great advantage, both for China and for Iran.