On June 19th, Iran's presidential election was won by a man widely described in Western media as a "hardliner" and "ultra-conservative". Exactly what Ebrahim Raisi's victory means for the relationship between Iran and the United States is unclear. It could be that Raisi's hardline stance delays any lifting of US sanctions on the Iranian economy. Or, with Supreme Leader Ali Khamenei still at the helm, and with both Raisi and Khamenei in favour of a return to some sort of international nuclear deal, it could be that little changes in Iran's actual policy toward its great geopolitical rival.
For Iran, the stakes are high. Since the Trump administration withdrew from the Iran nuclear deal in May 2018 and re-imposed sanctions, the performance of the Iranian economy plummeted. GDP contracted, the exchange rate of the Iranian rial crashed, and oil exports plunged under the weight of American economic sanctions. All this before Covid-19 heaped even more difficulties on Iran's economy.
An Economy in Trouble (Charts from Bloomberg)
Is There a Way Out?
Given Iran's economic difficulties and its antagonistic attitude toward the United States (reflected of course by an antagonistic American attitude toward itself), much attention has centred on Iran's relationship with the one economic superpower that could hoist it from its woes: the People's Republic of China.
This was certainly the case after Iran and China signed a "sweeping pact" in March 2021, in which China allegedly agreed to invest $400 billion in Iran over twenty-five years (in the realms of banking, telecommunications, ports, railways, health care and information technology) in exchange for a steady supply of Iranian oil. The New York Times speculated that the deal could "deepen China's influence in the Middle East and undercut American efforts to keep Iran isolated", in the economic as well as the military dimension (the draft calls for "deepening military cooperation, including joint training and exercises, joint research and weapons development and intelligence-sharing", the New York Times reports).
There are several reasons why Iran might wish to seek cooperation with its eastern neighbour. According to Alex Vatanka of the Middle East Institute, this alliance would grant Iran "potentially considerable economic opportunities", as well as "political insurance against international isolation", an "advantage over some of its most prickly rivals, such as Saudi Arabia" and potential for growth in military-to-military ties.
As for China's interest, Iran is "the only viable bridge from world seas to the landlocked Central Asian states (a market of about 65 million people) and the three states of the South Caucasus" by virtue of its geography. These form China's "relatively underdeveloped and often security-deficient western regions ... its exposed underbelly that needs to be closely integrated into China's economic and political sphere of domination" - supposedly in contrast to regions such as the northern border (with Mongolia and Russia), its southern border (with India) and its east coast (with the East China and South China seas), where China has more experience with military campaigns.
Furthermore, Iran is viewed by China as "an enduring and powerful nation-state in a Middle East that is today home to many failed or failing states", a state that is "nonetheless largely outside any regional economic and security alliances" and therefore a promising candidate as an ally of the People's Republic.
A 2012 report from RAND, a think tank closely affiliated with the US military, further outlines the extensive history of cooperation between these two states. It mentions some salient points:
Iran's military modernisation has been facilitated by China: The arms relationship extends nearly as far back as the formation of the Islamic Republic itself. China was an "essential provider of military hardware" during Iran's eight-year war against Iraq (1980-1988), even contributing the Silkworm missiles that were employed against Kuwaiti shipping vessels in the so-called "tanker war". (Concurrently, the United States was furnishing extensive aid to the other side, Saddam Hussein's Iraq, notwithstanding its use of such horrific methods as nerve gas attacks).
China helped start Iran's nuclear program: from 1985-1996, assistance was given in the areas of "uranium exploration and mining", and "the uses of lasers for uranium enrichment". Chinese engineers also played an important role in "training Iranian nuclear engineers and in establishing the Esfahan Nuclear Research Center".
China has shielded Iran from the effects of international sanctions: The Chinese economy is too large and diverse, and most importantly, too closely integrated to the American economy, for US policymakers to damage it in the same way that it has been able to damage the economy of Iran. Therefore, the Chinese economy could act as a reserve force to keep the Iranian economy afloat.
This latter point deserves more attention. During a lecture from 2015, American historian Stephen Kotkin provides the perfect articulation of the principle of hard power, and it is worth quoting in full to appreciate its context: "Why do we [the United States] bomb countries in the Middle East? ... the answer is, "[because] we can". They're small. They don't have any anti-aircraft stuff that can outlast our initial bombing. And we can do what we want. And we do. We bomb them. Why do we have sanctions on Russia? Because we can. They are not integrated into the US economy ... the economic relationship is insignificant. And therefore the cost to the US of sanctions against Russia are insignificant. We sanction them because we can. We can't bomb them. There's no way to bomb them ... they have, first of all, a real army ... and they have nuclear weapons ... we cannot bomb Russia. [But] how about China? Well, you can't bomb China. You can't sanction China, either. 'Cause sanctioning China, you're sanctioning yourself. That's our economy. They're fully integrated with the US. The scale of trade is phenomenal". Can anything be clearer than that? "We" (from his perspective, the United States), bomb the Middle East and sanction Russia because we can, but we cannot touch China. For Iran, that makes China the perfect backstop. It is the only country in the world that could serve that purpose.
Too Big to Sanction?
US-Russia trade is not exceptionally high by any means. In 2019, Russia was the United States' 26th largest trading partner in goods, supporting an estimated 66,000 jobs in United States in 2015.
Source: Statista
By comparison, US-China trade is far more substantial. In 2019, China was the United States' largest supplier of goods imports with $452 billion worth of goods (and this was after the Trump Administration's imposition of tariffs starting in 2018). China was also the United States' 3rd largest export market in 2019 (behind only Canada and Mexico, which are located in the United States' immediate periphery, rather than across the Pacific Ocean). US exports to China supported an estimated 911,000 US jobs in 2015.
Source: Statista
However, despite its promise, several observers have expressed doubt as to whether the March 2021 deal would actually change much in material terms, beyond simply providing a political show of force.
Limits of Cooperation
TRENDS Advisory and Research, an Abu Dhabi-based think tank, has produced a report detailing the context, nature and limitations of the framework agreed this March. Among other things, the authors highlight that the text of the agreement is rich on vague promises, but somewhat sparser when it comes to the specifics.
Overall, "while the grand statements of intent in the agreement appear impressive, there is little to indicate how the proposed cooperation will take effect. The mooted Chinese investment of $400 billion reported in June 2020 [cited by numerous outlets including, as we've seen, the New York Times] appears nowhere in the joint statement of the announced agreement [and] there remains uncertainty over the amount and purpose of Chinese investment". Furthermore, "speculation that Chinese-Iranian military cooperation might lead to the establishment of a Chinese base on Iran's Kish island [read here] appears unfounded ... given historic Iranian suspicions of foreign military interference".
However, the most obstructive sticking point may be the requirement to balance against China's existing relationships with the Gulf Arab states, some of whom share an enmity toward Iran. The report's authors note that "enhanced cooperation with Iran will not be pursued by Beijing to the extent that it jeopardizes relationships with China's other regional partners, not least in terms of access to hydrocarbons ... in 2019, as much as 17 percent of China's oil imports were purchased from Saudi Arabia, 10 percent from Iraq, and a mere 3 percent from Iran". China would also be wary of jeopardising its relationship with the United Arab Emirates - in 2019, the UAE was China's largest trade partner in the Middle East/North Africa region, with 60 percent of Chinese exports to the region passing through Emirati ports. This is not to mention the enlistment of an Emirati firm this March to begin production of China's Sinopharm vaccine.
The message of all this is that while China may posture itself as a close ally of Iran for both material and political gain, it may be the latter that counts the most. China can project a strong image by providing a show of defiance toward the United States. At the same time, it would wish to maintain its existing economic relationships with the Gulf Arab oil producers, and with the United States itself (the "balance of economic terror" goes both ways). The result is that, as the TRENDS authors note, "the Iran-China deal is a public relations exercise that largely conceals its lack of substance". Perhaps... though it will still be interesting to see how the Iran-China relationship evolves going forward.