As U.S.-Iran Tensions Flare, China Emerges as Tehran’s Last-Ditch Lifeline

January 10, 2020, 12:30 PM UTC

As relations between the U.S. and Iran remain tense, perhaps no other country is watching as closely as China.

China, long Iran’s largest trading partner, is more financially and politically enmeshed with both Iran and the broader region than ever before. And in the last few years, as Iran’s economy has suffered under crippling sanctions imposed by the United States, China’s subtle assistance is a major reason Iran isn’t in a deeper hole.

“The only substantial economic lifeline that Iran’s had is China,” said Jonathan Fulton, political science professor at Abu Dhabi’s Zayed University and author of China’s Relations with the Gulf Monarchies.

Last week, U.S. President Donald Trump escalated recent U.S.-Iran tensions by ordering the killing of Qassem Soleimani, Iran’s top military general. Iran responded with a strike of its own on a base housing American soldiers in Iraq. (Reports indicate that Iran may have also inadvertently shot down a passenger jet bound for Ukraine). President Trump said Wednesday that Iran seemed to be “standing down” after the retaliatory strike, but the relationship between the two countries remains as delicate as ever.

For its part, China has denounced the recent U.S. actions as “military adventurism” and urged restraint. This is likely all Beijing will do for now, analysts say, but in the long term, increased U.S. hostility and unreliability might just give China an opportunity to expand its influence in Iran and across the region.

Bound by the Silk Road

In early 2016, a train pulled into Iran’s capital city of Tehran after a 6,500-mile, two-week journey that crossed much of China and Central Asia from its starting point in Yiwu, a trading hub in China’s Zhejiang province.

The trip marked the first cargo train passage between China and Iran. The direct link between China and the Middle East also recalled the historic Silk Road that lies at the heart of China’s Belt and Road Initiative (BRI), a trillion-dollar-plus global investment and infrastructure policy meant to build China’s influence around the world.

Iranian officials applaud the first train connecting China and Iran at Tehran railway station in February 2016. The train, following the old Silk Road trading route, carried 32 containers of commercial goods from eastern Zhejiang province to Kazakstan, Turkmenistan and entered Iran through the border town of Sarakhs.
STRINGER/AFP via Getty Images

At the time, Iran’s future seemed brighter than it had in decades. Iran and major world powers had signed a nuclear deal the year before, the U.S. had lifted sanctions, and Iran’s economy was opening up to the world.

China had become Iran’s largest trade partner in the late 2000s, and was especially eager to facilitate Iran’s economic rise. In 2016, the two countries sketched out a 25-year plan to increase bilateral trade to $600 billion in the following ten years from just over $50 billion in 2014.

Angling for oil

The main reason behind the closer relations? Oil.

The two countries often tout their historical ties and kindred opposition to western influence, but oil indeed forms the backbone of their modern relationship. In 2017, China received nearly a third of Iran’s total exports, about 64% of which was crude petroleum.

Hassan Shahbeig, chargé d’affaires at the Iranian embassy in China, explained the “complementary” relationship succinctly: “[Iran] is one of the biggest energy producers in the world and China is one of the biggest energy consumers in the world.”

But this relationship has been under strain since the U.S. pulled out of the Iran nuclear deal in 2018 and re-imposed sanctions. The U.S. granted China waivers to import Iranian oil for several months after the deal, but they expired in May 2019.

“The election of Donald Trump and the subsequent reintroduction of U.S. secondary sanctions—as well as the emergence of the trade war—have slowly downplayed the scope of cooperation between Beijing and Tehran,” said Jacopo Scita, a doctoral fellow at the University of Durham specializing in China-Iran relations. “Nevertheless, China remains Iran’s most important foreign partner.”

In limiting China and Iran’s ability to cooperate with one another, sanctions are the U.S.’s most powerful tool. Because it carries the world’s reserve currency, the U.S. has the unique ability to deny access for nearly any individual or company to work in global markets.

In the last few years, the U.S. government has imposed rounds of sanctions on Chinese shipmakers, energy companies, and technology companies like ZTE (though those were eventually lifted) for helping Iran violate U.S. sanctions.

Perhaps most notably, the CFO of Chinese technology giant Huawei, Meng Wanzhou, was detained in December 2018 in Vancouver, Canada, because of U.S. accusations that she and her company helped Iran breach sanctions. The incident set off an international controversy, and Meng still remains under house arrest in Canada awaiting a court decision over whether Canada will extradite her to the U.S.

Huawei Technologies CFO Meng Wanzhou was escorted by security as she leaves her home on May 8, 2019 in Vancouver, Canada. Wanzhou was in court prior to extradition hearings and could face criminal charges of conspiracy and fraud in the U.S.
Jeff Vinnick—Getty Images

Nevertheless, China and Iran seem to have found ways around the harsh U.S. measures. Analysts say the two sides are still employing a number of illicit strategies—including ship-to-ship transfers, turning off radar systems, and masking shipments—as means to skirt U.S. authorities. While it’s difficult to know just how much is off the books, there are disparities between the exports China and Iran officially declare and the exports that show up in third-party analyses of data like oil tanker routes. Scita, for one, suggests that China did not stop buying Iranian oil even after the U.S. waivers expired.

Waiting in the wings

China has indeed served as a lifeline for Iran amid U.S. sanctions, but the measures have still taken somewhat of a toll, dimming the optimism over trade and investment that emerged between Beijing and Tehran in 2016. That year, President Xi Jinping visited Tehran, and the two sides announced a slew of BRI-type investments into the country (though Iran has yet to officially sign on to China’s BRI). These included a high speed rail, electrifying another major railway, and helping build hospitals. But since then, China has not boosted Iran’s economy as much as Tehran may have hoped.

China pledged big projects related to BRI, but, Fulton says, “there was always this expectation that there was going to be a lot more.”

President of China Xi Jinping and President of Iran Hassan Rouhani sign a partnership agreement between Iran and China at in Tehran, Iran on January 23, 2016.
Pool / Presidency of Iran/Anadolu Agency/Getty Images

Such unfulfilled potential may have fueled reports last September that China had agreed to an additional $400 billion in funding for the country’s oil and gas sector. As Scita argued in Bourse and Bazaar, the funding proved to be wishful thinking on the part of Tehran and there would “be no $400 billion bonanza.”

At the end of the day, as much as China may want to improve ties and increase business with Iran, the overture will always come second to its relationship with the U.S.

“[China had] this terrible imbalance where the value of the U.S. relationship has always so substantially outweighed any benefits they got from working more closely with Iran,” Fulton said. “China’s ambitions don’t really overshadow that recognition that the U.S. is the most powerful actor here.”

In the long term, however, China’s slow and cautious approach with Iran and the broader region—in contrast to the U.S.’s increasingly aggressive and belligerent strategy—may prove effective.

While China keeps its relations with Iran and much of the Middle East “under the radar” as much as possible, Beijing is poised exert more influence—both militarily and economically—if the U.S. falters, Fulton said.

“These countries in the Gulf,” Fulton added, “will probably look at a country like China and say, ‘If the U.S. isn’t as reliable as it used to be, then to hell with it, let’s do this.'”

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