China and Iran: Current Relations and Implications

Pilsoo Choi, Minkyung Lim, and Jaeeun Park

In response to United Nations Security Council resolution (UNSCR) 1929 in 2010, the United States (U.S.), member states of European Union (EU), Korea, and other countries have imposed strong restrictions on Iran’s nuclear, energy, financial, and other sectors. However, China, the largest trade partner of Iran, only agreed to UNSCR 1929 and it has been criticized for weakening international sanctions against Iran. China has expanded business in Iran by filling the void consequences of that Korea and other participants have been forced to reduce business with Iran. This paper examines current amicable relations between China and Iran in terms of economic, political and diplomatic relations amid international sanctions against Iran. Analyzing current relations, this study provides policy implications for Korea to prepare strategic plans toward Iran.

China-Iran trade had been generally increased even after the adoption on UNSCR 1929 in 2010. Despite the fact that the trade decreased in 2012, China became Iran’s largest export destination and second largest import destination. As many western companies pulled out of Iran, Chinese companies take advantages of sanctions in Iran’s cars, auto parts, steel and iron products markets. Also, the EU ban on purchases of Iranian oil allows China to become the largest buyer of Iranian oil. It implies that China’s role has become more important in Iran’s economy. Moreover, China has expanded its influence in Iran’s energy and infrastructure industries with financing ability. The number of Chinese companies invest in Iran drastically increases from one in 2002 to 14 in 2013.

It needs to explore internal and external environmental factors in order to explain close China-Iran relations amid international sanctions against Iran and critiques of China. China’s internal factor is a tremendous increase in energy demand resulting from rapid industrialization and urbanization. It indicates that China is required to maintain stable relations with oil exporters including Iran, China’s fourth largest oil supplier. Iran’s internal factors are anti-Western sentiment based on guardianship of the Islamic Jurists, and economic difficulties due to 30-year economic sanctions. It leads Iran to build friendly relations with China, a world’s economic power, which could replace Western firms. Furthermore, anti-Western and anti-imperialism sentiment of China and Iran helps improve diplomatic relation and cooperate third-country issues such as Syria conflict. Meanwhile, China-U.S. relations have a constraining effect on China-Iran relations because U.S. is the top priority for China’s diplomatic policy.

China might continue to cooperate with Iran, but not at the expense of relations with U.S. Iran is expected to maintain current amicable relations with China and request brokering Iran and other parties concerned. Considering the close ties between two countries, it is necessary to not only preemptively prepare possible economic cooperation with Iran, but also strengthen cooperation in culture, education, or other non-sanctioned sectors. Moreover, it is helpful for Korea to regard limitations under sanction as usual business environment in weak institutions and resource abundant countries. Based on this experience, Korea will overcome external environment and establish new cooperative partnership with those countries on resources.