China Out-Pivots the US to the Middle East and Iran

Since the signing of the controversial Iranian nuclear deal that lifted most international sanctions, China has emerged as a principal beneficiary.

This is as much a result of aggressive Chinese push as it is difficulties faced by the West. China has pursued opportunities in the Iranian nuclear energy market, increased investment and expanded influence, with what could be rightly called a Middle Eastern pivot.

The country, predicted to become the world’s largest energy consumer by 2030, is wasting no time in availing itself of Iran’s energy resources. China’s demand for oil imports is expected to grow from 6 million barrels per day to 13 million by 2035, and Iran, ranked fourth in the world with proven oil reserves and second with reserves of natural gas, is considered a reliable supplier.

The West struggles to improve relations with Iran, a major market with 77 million people, as many hesitate to risk violating sanctions remaining in place. Despite the deal’s conclusion and sanctions being lifted, European countries find it hard to cooperate: European banks are reluctant to finance deals struck with Iran.

Moreover, Europeans face difficulty in traveling to the United States if they have traveled to Iran under US visa regulations. The United States also limits business activity in Iran and the nation’s ability to use dollars.

Such hindrances, of course, give China an opening. Throughout the Iranian nuclear impasse and years of sanctions since 1979, China continued trade with Iran, as acknowledged by President Hassan Rouhani, “China has always stood by the side of the Iranian nation during hard days.” Cooperation on peaceful nuclear energy is a centerpiece in plans announced in January by Chinese President Xi Jinping and Rouhani for building economic ties worth up to $600 billion.

China’s interest in Iran goes beyond its energy resources. It has keen interest in Iran’s geostrategic location, bordering both the Caspian Sea and the Persian Gulf. The location enables China carry out the One Belt One Road agenda.

Iran stands as China’s most important ally in the Persian Gulf, and China may find it difficult to deepen cooperation with Gulf Cooperation Council countries, given their positive ties with the United States. Iran on the other hand, due to historic ties with China and longstanding suspicion of the United States, remains a trustworthy ally for China. As noted by analyst Jeffry S Payne, “the overland Silk Road cannot effectively connect the east to the west without Iran as an integrated part.”

China conducted joint naval exercises with Iran in 2014, and this may be a way to keep a check on growing naval cooperation between India and Iran – two countries that conducted joint naval exercises in 2003, 2006 and 2015.

Iran is also following in China’s footsteps to create an anti-US anti-access area denial strategy, or A2/AD, to reduce US military supremacy in the Persian Gulf and the Mediterranean Sea. China undoubtedly expects Tehran to play an integral part in Beijing’s string of pearls – building a string of naval facilities in the Arabian Sea and Indian Ocean to counter American influence.

Iran’s Atomic Energy Commission head, Ali Akbar Salehi, announced in early 2016 that Tehran plans to accept help from China for the construction of two nuclear power plants. Salehi and the head of China's Atomic Energy Authority, Xu Dazhe, also decided on cooperation for reconfiguration of the Arak nuclear facility along with nuclear cooperation in economic, research and industrial areas.

During the negotiations for the Iran nuclear accord, criticism centered on the Arak heavy water reactors. Some analysts suggested that Iran’s plutonium could be diverted to develop nuclear weapons. The deal required Iran neutering the heavy water reactors, with assistance in redesign of the reactors from the United States and China. Tehran is already reported to have removed the core of the reactor while filling it with cement. Beijing has also started to establish cooperation in the fields of manufacturing, construction and transportation.

China may have a head start, but it nevertheless faces stiff competition in the area of nuclear cooperation. China is competing with Japan, which also eyes crude oil from Iran and other Middle Eastern countries, and Russia has already agreed to build nuclear reactors in Bushehr as well as aid Iran to develop the Fordo enrichment plant to produce isotopes that are not capable of producing nuclear weapons

Iran has joined the China-led Asian Infrastructure Investment Bank while both China and Russia are pushing for Iran’s full membership in the Shanghai Cooperation Organization.

Middle East markets are essential for China’s One Belt One Road program of building a network of manufacturing and transportation centers in Central Asia and Europe. Beijing also looks beyond Iran – establishing nuclear cooperation with Saudi Arabia and in the process of building a relationship with other GCC countries. This could lead to reducing tensions between rivals Saudi Arabia and Iran by providing economic opportunities through the One Belt One Road initiative.

This requires balance on the part of Beijing. In January, Xi traveled to the Middle East, visiting Riyadh as well as Tehran probably to assure both and discourage misinterpretations that China supports one country over the other.

Reinventing itself as nuclear supplier rather than customer, China pursues opportunities on multiple fronts. China has sought to sign a memorandum of understanding with Egypt to cooperate on construction of nuclear power reactors and, in 2015, formed an agreement wth Jordan to strengthen nuclear cooperation. China also cooperates with Turkey for construction of nuclear power plants.

China-Iran nuclear cooperation is likely to strengthen as evident from a 25-year document outlining strategic relations. The relationship has held strong since the 1979 Iranian Revolution. China views Iran as an investment opportunity while Iran is grateful for China’s support, anticipating investments to play a role in reviving its economy stalled by the nuclear impasse.

The Joint Comprehensive Plan of Action on nuclear activities signed a year ago by Iran, China as well as France, Germany, Russia, the United Kingdom and the United States and implemented in January provides that civil nuclear cooperation projects will be “mutually determined by the participating states and will be consistent with the JCPOA and the national laws and regulations of the participating parties” and “may be undertaken in a variety of formats, with a variety of potential participants.” The plan of action notes that all parties may not necessarily participate in any project.

While the Western powers engaged in tough and lengthy negotiations with Iran to stop the nuclear weapons program, they may not have anticipated that the ensuing cooperation would help other countries more than themselves.

A network of cooperation with countries like China and Russia, as well as Iran’s growing inclusiveness with the international community, could blunt the West’s ability to re-impose sanctions on Iran should those become necessary, despite the framework’s provisions. While Washington congratulates itself for having staunched Iran’s weapons program, China may have the last laugh.

Debalina Ghoshal is an independent consultant specializing in strategic affairs and nuclear, missile and missile-defense issues. This is reprinted with permission from YaleGlobal, the website of the Yale Center for the Study of Globalization.