Who Wins When US-Iran Tensions Rise? China

China’s leaders may be anxious about the emerging trade war with the United States, but at least something is going their way: U.S. policy toward Iran is furthering their strategic interests.

Of the several “comprehensive strategic partnerships” that Beijing has struck in the Middle East, the Sino-Iranian one is the most comprehensive and the most strategic. China has established similar close ties with Saudi Arabia and the United Arab Emirates, but Iran represents a contrarian’s bet and a vital hedge for China. 

One reason the Iranian relationship serves China so well is that it is not a relationship of equals. China is Iran’s largest trading partner, supplying and consuming more than 30 percent of the latter’s imports and exports. The converse is not true at all: Iran represents less than one percent of China’s international trade. Iran needs China, but to China, Iran is expendable. 

But part of Iran’s value to China arises because of U.S.-Iranian tensions, and heightened tensions increase that value. 

First, Iran is the only major oil Middle Eastern producer that Chinese officials are confident will continue to supply China in the event of a breach with the United States. The U.S. role as the preponderant defender of the GCC—both through the supply of troops and the sale of weapons—makes those states beholden to the United States. Iran owes no similar debt. 

Second, China intends to make a lot of money in Iran. The country represents a huge investment opportunity for Chinese businesses, including state-owned enterprises. Many countries shun Iran because of its estrangement from the United States, and the recent ratcheting-up of sanctions has only deepened the country’s isolation. Yet China sees Iran as a country of tremendous potential because of its mineral resources, its relatively large and educated population, and its strategic location in West Asia. It represents a vital node in the Belt and Road route to Europe, insulated from the United States. And the currency’s plunge and the paucity of international interest mean that investments can be had for fire-sale prices. 

China’s Iran dealings also help it make money across the Gulf in Saudi Arabia and the United Arab Emirates, who are eager to keep Beijing from falling firmly into the Iranian camp. Saudi Arabia exports more oil to China than Iran does. That is partly because the Saudis want to be present in the world’s largest oil import market, but partly also because the Saudis want to influence Chinese decisions.

Third, growing tensions with Iran now draw U.S. attention, troops, and materiel away from the Western Pacific. While the United States was enmeshed in wars in Iraq and Afghanistan for the first decade of this century, China aggressively expanded its military operations in the South China Sea, and Chinese commercial and diplomatic ties exploded across the Asian continent. U.S. Central Command’s desire to keep an aircraft carrier — or two — in and around the Persian Gulf has kept the U.S. footprint lighter in East Asia. A United States that is focused on the Middle East isn’t focused on China.

Fourth, and perhaps most importantly, U.S. tensions with Iran have driven a remarkable wedge between the United States and its allies. The Iranian nuclear deal represented a rare moment of international comity, bringing together the United States, Russia, China, and Europe to constrain Tehran’s nuclear program. By abandoning the deal, the Trump administration has fractured the Western alliance, raising tensions with its closest allies and bringing them closer to the Chinese position. Beijing has no allies, and it much prefers a world of bilateral relationships. In these equations, China is the stronger party in every relationship except with the United States. 

For 75 years, U.S. leaders have fostered a multilateral, rules-based world in which the United States forgoes maximizing its short-term gains in exchange for an embrace of Washington’s leadership. A world with diminished attention to rules and enhanced benefits to the powerful is precisely what Chinese leaders want.

The situation is not all rosy for the Chinese. The outbreak of full-scale hostilities between the United States and Iran would likely drive oil prices higher, and as a major oil importer, higher prices would hurt the already-fragile Chinese economy. Hostilities would also drive the United States to disrupt China’s ties with Iran, putting Chinese investments at risk. Of course, a U.S.-Iranian war that isolated the United States and portrayed it as an aggressor would serve Chinese interests in Asia, so war would be something of a trade off.

For now, U.S.-Iranian ties are just where China wants them. They not only enhance Iran’s value to China, but they advance Chinese interests in the country’s longer-term contest with the United States.