China and Iran are foreign policy challenges for Joe Biden. Iran, burdened by sanctions, corruption, and a terrible coronavirus outbreak, has turned east to China over the last year for economic and military support. Despite an acute debt crisis that led Beijing to scale back its major Belt and Road Initiative, falling Iranian oil prices have enticed China to look for astute, even covert, alternatives for cheaper energy resources, undermining the United States. In fact, the Treasury Department had sanctioned Chinese firms for conducting business with Iran at least twice last year.
For the last few years, China has been the largest importer of oil, and it depends more on the Middle East for it. It views Iran as both a critical supplier of energy resources and a participant in its global infrastructure project. China considers freedom of navigation in the Persian Gulf as critical to protection of its interests. But in 2020, Beijing purchased just three million tons of Iranian oil, down more than 70 percent from 2019.
The new administration offers hope that, with the return to a nuclear deal and the easing of sanctions, oil will begin to flow vigorously once more. But barring systemic reform that will bolster business confidence, Iran is still reliant on Chinese economic relations. The draft of an ambitious deal with China that envisions $400 billion worth of projects leaked over the summer, a signal that Beijing intends to play a greater role in the region. This has coincided with other prominent leaders in the Middle East and Africa turning to China for grand infrastructure investments.
China controls 75 percent of the oil industry in Sudan, will start running the Port of Haifa in Israel, and even invested in the shiny Cairo central business district in Egypt. But these building blocks of influence, while yielding economic leverage, have not yet translated into any substantial political clout. The ties will nonetheless infuse much needed investment for infrastructure, cybersecurity, intelligence, and the financial sector, along with military support in return for discounted oil and gas.
Iran needs cash and its labor market is in shambles. The International Monetary Fund estimates a 6 percent contraction of the economy while inflation is above 30 percent. The rial has lost 85 percent of its value in two years, hitting a record low against the dollar last fall. There are over one million coronavirus cases and over 55,000 deaths in this country of 80 million. The health system is short on workers and supplies.
China could profit from its infrastructure projects. It will also gain a hold on the Belt and Road Initiative corridor linking markets in Asia, Africa, and Europe. However, rather than alleviate the suffering of ordinary people by revitalizing the economy and alleviating poverty, the financial involvement of China has only strengthened the regime in Iran. Anger and dissent over the economy in the last year sparked increasingly brutal repression by the Iranian regime. The resulting consolidation of the state apparatus would further curtail the livelihood and freedom of Iranian citizens.
What is likewise significant about this partnership is that China and Iran have broader ambitions as foes of the United States. While China now challenges the United States in Asia, the Middle East and certainly Iran could become the new battlefield for a confrontation between the two powers. China providing scarce resources to Tehran can only bolster the theocratic and kleptocratic regime burdened by sanctions. Iranian leaders can still feel the aftershocks of national protests and are desperate for a smooth presidential election next summer. The influx of cash could have some remedial effects to improve the buying power of Iranian citizens by reducing inflation, but this solution will be short lived.
In the long run, it will serve to constrain the livelihood and freedom of the people. It will also further erode the civil liberties of Iranian citizens with investments that benefit sectors run by the regime, with wealth pilfered and sent to the elite. The local opposition to Chinese encroachment has manifested itself in public campaigns of the nefarious ramifications. While these may have little impact on regime policies, they signal the increasing discontent in a context where dissent is not tolerated. The people realize the economic lifeline will lead to more mismanagement and corruption as the regime emerges more confident and more authoritarian.
Patricia Karam is regional director for the Middle East and North Africa for the International Republican Institute which works to promote democracy.