Iran and China: On the Way to a Long-Term Strategic Agreement?


The report of the emerging cooperation between Tehran and Beijing has aroused much interest, but it should be taken with a grain of salt. The Iranians are indeed eager to advance the economic-military agreement, but if it is signed, the Chinese will not necessarily be quick to implement all its provisions – certainly not the military components

Sima ShineEyal PropperBat Chen Feldman  ISRAEL – INSS Insight No. 1352, July 23, 2020

On July 11, 2020, the New York Times published the draft of a 25-year strategic agreement between Iran and China leaked by sources in Tehran, to the dismay of Beijing. According to the draft, China will receive priority in billions of dollars of infrastructure investments in Iran, and a regular supply of oil and gas at a substantial discount, while military cooperation between the two countries will increase. It is believed that Iran has been working on this agreement since Xi Jinping’s 2016 visit to Iran.

The Chinese are interested mainly in the long-term commercial benefits, while taking care to maintain a balance between their relations with Iran and their relations with the Gulf states. They therefore have no intention of promoting a military alliance with Iran against the United States, and certainly not against Saudi Arabia and Israel. It is believed that Beijing will weigh the risk to stability in Iran before deciding to approve such an agreement, and even if one is signed, there is no guarantee that it will be implemented.

On July 11, 2020, the New York Times published a draft 25-year strategic agreement between Iran and China. The 18-page document was apparently leaked by sources in Iran, to the dismay of Beijing. According to the published draft, China will receive priority in investments amounting to billions of dollars in infrastructure projects in Iran, including transportation, ports, roads, railways, banks, and communications, in addition to cooperative ventures in cybersecurity, research and development, and intelligence. The draft also mentions the possibility of joint military training and exercises. Iran will commit to provide a regular long-term supply of oil and gas to China at a substantial discount. The military section of the published draft agreement stipulates the formation of a joint military committee for military industries to promote the design and manufacture of weaponry.


The discussions regarding the agreement are a continuation of the 2016 visit by Chinese President Xi Jinping to Iran, when relations between the countries were upgraded to a “comprehensive strategic partnership” (Beijing used the same exact term to describe its relations with Saudi Arabia during the same visit, and also with over 20 other countries). At the conclusion of that visit, it was reported that 17 agreements were signed, and that it was agreed to expand bilateral trade by a factor of 10 to $600 billion – an especially ambitious target that China might not have been able to meet even if the United States had not withdrawn from the nuclear agreement with Iran in 2018 and imposed extensive sanctions on Iran that sharply decreased trade between China and Iran. Iranian Supreme Leader Ali Khamenei was quoted as saying, “The agreement with China to promote strategic relations for 25 years is justified.”

Since Xi’s visit to Tehran, Iranian officials have been working to translate words into deeds, and to upgrade the rhetoric into substantial Chinese investments that will boost Iran’s faltering economy. More than four years since then, many of the agreements in question have remained on paper. Not only has China not helped the agreement move forward, but the financial arm working with Iran, the Bank of Kunlun, headquartered in Beijing, has regularly updated the list of Iranian companies under American sanctions, and has refused to grant them credit. At the same time, for internal needs, China has continued to import oil from Iran, with the official figures lower than the actual quantities imported, mostly through Malaysia.

The Iranian leadership is very eager to actualize an agreement with China. President Hassan Rouhani expressed hope that the agreement, which requires approval by parliament, would be signed by March 2021. The issue, however, aroused a storm in Iran. Former President Mahmoud Ahmadinejad argued that Rouhani’s regime had signed a dubious secret deal with a foreign country. Criticism and anxiety on the social media charged that Iran would become a protectorate of China, cede Kish Island to China, and allow the stationing of 5,000 Chinese soldiers in Iranian territory (this figure does not appear in the leaked agreement). Cooperation with China at a time when it persecutes the Uyghur Muslim community in its territory was also criticized. At the same time, support for the measure as an essential lifeline for the Iranian economy was also voiced. The Iranian media reported that Supreme Leader Ali Khamenei continued to favor the agreement, although he has issued no direct up-to-date statement on this issue.


Iran has a clear interest in large-scale cooperation with China. Iran is currently experiencing one of its most difficult periods, due to its deteriorating economic situation caused by the American sanctions, plunging oil prices, and the effects of the coronavirus These are compounded by a major wave of recurring protests over the past two years, the killing of al-Quds commander Qasem Soleimani, the downing of a Ukrainian passenger jet after taking off from Tehran, American pressure in the UN Security Council to extend the weapons embargo against Iran, the threat of the resumptions of all of the sanctions that were in force before the nuclear agreement (snapback), and the recent attack on the centrifuges assembly facility at Natanz. In these circumstances, Iran can portray a large-scale long-term agreement with China as an achievement that shifts the regional and global strategic balance in its favor. If they actually materialize, Chinese investments will be a crucial boost for the suffocating Iranian economy, and an improvement in Iran’s economic situation will detract from the effectiveness of the Trump administration’s “maximum pressure” strategy against Iran. Furthermore, if and when negotiations between Iran and the West resume, Western means of pressure against Iran will be weaker, and Iran’s opening position will improve. Iran also hopes that the agreement will ensure China’s continued opposition to US efforts in the Security Council to extend the arms embargo against Iran, and will later enable Iran to acquire Chinese weapons, and perhaps also improve its bargaining position with Moscow in the procurement of arms from Russia.


In China, however, official sources have made no response, other than the remark by a spokeswoman from the Ministry of Foreign Affairs, who in response to the New York Times article told a Chinese correspondent, “China attaches importance to developing friendly cooperative relations with other countries. Iran is a friendly nation enjoying normal exchange and cooperation with China. I don’t have any information on your specific question [about the draft agreement].” In an interview, China’s ambassador to Tehran commented on the issue of the nuclear agreement, but refrained from any mention of a bilateral agreement. This cold response, which was also aimed at Iranian ears, indicates the discomfort and perhaps even anger in Beijing about the Iranian leak before the details of the agreement were agreed and approved.


From China’s perspective, such an agreement, if signed, will have mainly commercial importance, because it is designed to give Chinese companies an advantage in the long term, including in the development of oil fields and low-priced energy imports. The Chinese often take advantage of political weakness to attain preferred terms. In this case, they are also exploiting the coronavirus crisis, continued sanctions against Iran, and Iran’s need for extensive investments to obtain optimal terms for Chinese companies in the long term. Inter alia, the Indian media gave extensive coverage to Iran’s decision to award China the project for building a railway from the port of Chabahar to Zahedan on the border with Afghanistan, which was originally awarded to India. Iran claims that the estimated $400 million project, which was signed four years ago, has been delayed by the Indians.

Yet in addition to China’s ties with Iran, its ties with Saudi Arabia and the United Arab Emirates have become closer in recent years; just like Iran, China refers to these countries as “strategic partners.” It can be assumed that as part of its decision on approving the agreement with Iran, Beijing will weigh the effect on its relations with its other partners in the Gulf, and will try to alleviate some of the speculative concerns voiced in the Western media about the growing cooperation between China and Iran, especially in the military sphere. One example of this is that despite various statements, military cooperation led by China in recent years has been limited and operationally insignificant – evidence of China’s caution to date in the context of these bilateral relations.


It currently appears that Iran’s eagerness to publish the emerging agreement serves its interests more than those of China, and that the difficulties facing its approval by both sides are still unresolved. A few months before the US presidential elections, Iran, and perhaps China to some extent as well, has an interest in using its announcement of the agreement to exert pressure on President Trump. In any case, past experience shows that even if the agreement is signed, there is no guarantee that all of the projects mentioned in it will actually come to fruition.

Significance for Israel

The agreement between China and Iran is of great importance to Iran, including in the context of a possible easing of the pressure generated by the sanctions. From a Chinese perspective, the basis for the agreement is the principle of commercial-economic benefit, while maintaining the balance in its relations with Saudi Arabia and the United Arab Emirates. China’s goal in relations with Iran is not to create a military alliance with Iran against the United States, and certainly not against Saudi Arabia and Israel. Israel is of little importance to China in this case, and does not necessarily figure in Chinese considerations, except as part of China’s concern about an Israeli military attack against nuclear facilities in Iran, which is liable to set off a regional war and destabilize the region. The Chinese will likely consider the level of risk in approving an agreement of this type, and will hesitate to advance it if they feel that their financial interests will be affected by instability in the region and in Iran. This aspect, in which Iranian activity destabilizes and threatens the region, should be emphasized by Israel to high-level Chinese parties.


Tehran’s relatively modest defense investments in recent decades have yielded some impressive niche capabilities, enabling long-range precision strike, naval guerrilla warfare, and proxy operations. The regime has used these to gain leverage and project influence while avoiding a major regional war. Thus, drones and missiles in the hands of proxies and partners threaten America’s foremost regional allies (Israel and Saudi Arabia), while Iran’s own long-range precision strike forces can hit U.S. military bases and other targets throughout the region. Iran can also disrupt traffic through two major maritime chokepoints: the Strait of Hormuz and the Bab al-Mandab Strait (the latter via its Houthi partners in Yemen).

In Tehran’s view, the successes that its proxies and partners have registered in the Middle East—expelling Israeli forces from Lebanon in 2000, ousting U.S. forces from Iraq in 2011, and defeating the “U.S.-Saudi-Zionist conspiracy” to unseat Bashar al-Assad in Syria since 2011—have vindicated its approach of using force to shape the regional security environment. Iran also regards its armed forces as an effective deterrent against a large conventional attack—a mindset no doubt reinforced by Washington’s reluctance to employ military levers as an integral part of its maximum pressure policy.

Iran is therefore likely to maintain this basic approach if the ban on arms transfers ends later this year, while filling capability gaps and selectively modernizing its conventional forces to reflect lessons learned in Syria. To this end, it would try to purchase at least some of the systems it has been unable to produce domestically, such as advanced surface-to-air missiles (SAMs), fighter aircraft, infantry fighting vehicles, and tanks. Indeed, media reports indicate it has already approached Russia about buying Su-30 fighters, S-400 SAMs, T-90 tanks, modern artillery systems, and Yakhont antiship cruise missiles. Likewise, it would probably continue strengthening its guerrilla navy by acquiring advanced mines, torpedoes, and antiship ballistic missiles. It is also likely to enhance the expeditionary capability of its Shia foreign legion by acquiring fixed- and rotary-wing close support aircraft, transport helicopters, and intelligence, surveillance, and reconnaissance technology, potentially enabling proxies to conduct sustained operations abroad independent of Russian air and fire support.

Given Iran’s dire economic circumstances, however, the regime would likely be unable to buy large numbers of major weapons systems. For instance, initial outlays for a single squadron of 18-24 fighter aircraft could approach $2 billion, and the process of recapitalizing the air force as a whole could approach $100 billion, since it requires buying modern aircraft, stockpiling large quantities of munitions and spare parts, modernizing and hardening air bases and maintenance facilities, and expanding command, control, communications, and intelligence networks. Recapitalizing the army and navy would require investments of a similar scale. Perhaps most important, Russia and China are unlikely to extend Tehran the line of credit needed to facilitate large-scale purchases.

Yet across-the-board military modernization is unnecessary to achieving Iran’s core national security goals, which depend on only a handful of robust, niche capabilities. And while the lack of hard cash and other factors may prevent Tehran from negotiating co-production and technology transfer deals, the regime would likely acquire at least modest amounts of more advanced arms, thereby enabling its industries to reverse-engineer and eventually produce some of these weapons on their own.


Indeed, lifting the ban could make a bigger difference for Iran’s domestic arms industry. The ethos of self-reliance is fundamental to the Islamic Republic, which has aspired to boost domestic arms production since the early 1980s in order to reduce dependence on outside suppliers, evade sanctions, and develop capabilities tailored to its specific operational needs. It has made major strides in the production of small arms, light and heavy weapons, munitions of all types, drones, rockets/missiles (including antiship, surface-to-surface, and SAM systems), light armored vehicles, and small warships (e.g., midget submarines and frigates).

Without the ban, Tehran may have more opportunities to acquire parts, components, machine tools, computer-aided production technologies, and special materials needed to produce more-advanced systems. Yet even under the current restrictions, Tehran has been able to procure commercial, off-the-shelf, dual-use items using convoluted and expensive clandestine procurement schemes. Many of these are small-ticket items that are available from numerous sources, difficult to track, and affordable even for fiscally constrained Iran. Over time, the regime has used these acquisitions to produce an impressive range of simple but highly capable weapons systems that are good enough for its needs and allow it to punch far above its weight.

For instance, the September 2019 strike on Saudi Arabia’s oil infrastructure was carried out with an estimated 18 delta-wing drones and 7 Qods-1 cruise missiles, but this relatively small arsenal was sufficient to cut the kingdom’s oil production in half for several weeks (equal to about 5 percent of global output). According to the UN Panel of Experts on Yemen, the motors of the drones used in the attack were unlicensed copies of a British engine that may have been produced in China and/or Iran, while their avionics, flight control, and fuel systems contained components from Britain, Ireland, Italy, Japan, Poland, South Korea, Sweden, and the United States. Likewise, the cruise missiles were powered by Iranian copies of a Czech turbojet engine and contained flight control and fuel components from Germany, Italy, and Switzerland.

Iran was able to obtain these commercial dual-use items despite international sanctions, and lifting the arms ban would make it easier. Even if unilateral U.S. sanctions remain in place or are strengthened, Iran could evade them by acquiring components from Chinese firms or other vendors that do not have business interests in the United States. Likewise, countries with weak export controls would likely be less vigilant about such transfers if the ban is lifted. And Washington would almost certainly have trouble convincing some countries to interdict arms and dual-use components en route to Iran if there are no Security Council resolutions proscribing them.

At the same time, several emerging high-tech trends will likely benefit Iran’s procurement and production efforts. Cutting-edge dual-use technologies are increasingly being developed by private firms around the world, not just by top-secret government labs in the United States and Russia. For this reason, it will be increasingly difficult to control the diffusion of “radical leveling technologies” (e.g., artificial intelligence, additive manufacturing, advanced robotics) that could enable Iran to gradually narrow certain military gaps with its adversaries. And because most modern weapons rely on embedded miniature computers, leaps in capability (e.g., harnessing AI to create complex drone swarms) may be just a software download away, as U.S. Navy commander Jeremy Vaughan pointed out in a 2017 IISS study. Even if some of these upgrades require the help of foreign software designers, such assistance would be difficult to detect and stop.

This Iranian strategy of marginal gains could pose substantial proliferation challenges to the United States and its allies. For instance, without an arms ban, Tehran may acquire technology to convert its long-range rockets to missiles, improve the accuracy of its short- and medium-range ballistic missiles, and manufacture countermeasures and penetration aids (chaff, jammers, decoys, maneuvering warheads) to defeat missile defenses. This could increase the striking power of its missile force by an order of magnitude, making it a potential game-changer in a future conflict. To illustrate: a point target that might once have required 100 inaccurate missiles to ensure destruction could be taken out by 2-3 highly accurate missiles in the future. Increased accuracy would also dramatically expand the number of targets Tehran can strike. Similar increases in capability would likely be realized for other types of Iranian weapons as well. And the regime would proliferate many of them to its various foreign proxies—as it has already been doing for years in violation of Security Council Resolutions 2231 (2015), 2216 (2015), and 1701 (2006). Once that happens, these proxies would inevitably become proliferators in their own right down the road, transferring Iranian arms to their own partners.


Most discussions about lifting the ban focus on how major arms transfers might affect Iran’s military capabilities. Yet while such transfers are a major source of concern, other factors may have a more significant long-term military impact. In particular, Iran would likely focus even greater resources on acquiring dual-use components, production technology, and special materials needed to upgrade its existing systems and advance its domestic arms industry. This approach makes more sense for the regime financially, politically, and militarily, as these kinds of acquisitions are relatively inexpensive, difficult to detect, and conducive to achieving technological surprise during a crisis or conflict. It is also more consistent with Tehran’s effort to realize a “revolution in military affairs” by seeking marginal gains that enable leaps in capability. As experience has shown, further Iranian progress of this type would disadvantage the United States and its allies, with potentially unsettling consequences for regional stability and global oil markets.

Michael Eisenstadt is the Kahn Fellow and director of the Military and Security Studies Program at The Washington Institute. This PolicyWatch updates the author’s 2017 article “Iran after Sanctions: Military Procurement and Force-Structure Decisions.” 
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