An investment and security agreement between Iran and China has been in the works since 2016, but the Iranian foreign minister recently announced that it had been approved by the cabinet. It still needs to be submitted to Iranian parliament for ratification, but approval is likely given that the Grand Ayatollah has endorsed the deal. However, it is still not clear that it is fully signed off on in Beijing. Much of this could be wrangling between the two parties about details. However, even if it takes a while further to become fully approved and implemented, the signal could not be clearer from both Tehran and Beijing: they believe that they have common interests and can move ahead in areas of significant interest to the United States without fear of significant opposition.
As discussed in the last Intelligence Brief: U.S. Iranian Conflict Remains Tense, Tehran may choose to hold out on any overt retaliation against the United States if it believes that Washington and/or Israel is responsible for the series of blasts and fires of the past several weeks – some at nuclear-related facilities. This may be especially the case if Tehran expects the defeat of President Trump in November. Even so, Iran is clearly signaling that it has options, and possibly economic and political-military protection, by growing closer to China. Beijing is clearly challenging the geopolitical status quo in a number of places, from Hong Kong to the Middle East, now that it believes that Washington is both weak and retreating from the world stage. China could also use this announcement as part of its pushback against Washington’s condemnation and sanctions related to the new security law in Hong Kong.
For Beijing, a deal with Tehran does more than poke a finger in Washington’s eye in terms of the latter’s policies towards Iran. The structure of the deal, that was leaked, also serves two key Chinese interests. The first is China’s ongoing need for oil imports from the Middle East. The second is ongoing infrastructure developments that are part of its One Belt and One Road initiative. In this case, infrastructure in Iran provides China with regional alternatives to other, risky locations such as the Pakistani port of Gwadar. China has enough resources and interest in expanding its connections to the region that it can afford to pursue several options.
The intelligence and military angles of the agreement also benefit both states to the detriment of Washington. Joint training and exercises provide yet more opportunities for China to deploy forces into the region – adding to its base in Djibouti and its long-standing relationship with Pakistan. Iran potentially gets more Chinese-made weapons, particularly if Washington is unable to persuade the United Nations Security Council to continue a conventional weapons embargo on Iran in the coming months. Iran may provide China with locations for intelligence gathering against U.S. naval and air forces in the region and, in return, receive some or all of the intelligence from Chinese sources.
Increased Chinese military presence in the Middle East could help put counterpressure on U.S. forces, which recently conducted a highly visible challenge to Chinese territorial claims in the South China Sea with an exercise involving two aircraft carrier battle groups. This U.S. maneuver was both a symbolic challenge to China’s legal claims – with some U.S. warships passing through what China claims as its territorial waters -- as well as a demonstration of U.S. ability to muster substantial combat forces quickly and unexpectedly in areas close to China. This is in keeping with the current U.S. national military strategy where Washington wants to use its forces in what it terms as a strategically predictable but operationally unpredictable manner to put pressure on other great powers in what Washington calls a return to great power competition. There is considerable debate about whether U.S. carriers could be effective that close to China in a war given Beijing’s investment in large numbers of anti-ship ballistic and cruise missiles.
Tehran and Beijing’s new agreement could also be a model for China and other states to set up arrangements that work around U.S. sanctions – using barter or setting up new monetary mechanisms outside of Washington’s reach. However, Chinese companies remain at risk if they want to do deals outside of Iran that rely on the international banking system. Risk also remains for Iran, a state whose revolution was all about independence from the foreign policy of a superpower.