Iran-China ties could strengthen if sanctions are lifted, analyst says

Iran-China ties could strengthen if sanctions are lifted, analyst says

Iran will need to lift sanctions if it hopes to strengthen economic ties with China, which can only be achieved with a successful nuclear deal, one analyst told CNBC.

Iran, which has business dealings with China, is currently facing a US mob that has devastated its economy.

Iranian President Ebrahim Raisi is expected to meet with Chinese President Xi Jinping and Russian President Vladimir Putin in Uzbekistan on Thursday.

It comes as the Islamic Republic prepares to join the Shanghai Cooperation Organization, a security group made up of Russia, China, India, Pakistan and four Central Asian countries.

Iran currently has observer status in the SCO, but should become a full member at the upcoming summit in the city of Samarkand in Uzbekistan.

In order for these relations to develop, sanctions must be lifted, because many companies … do not have an appetite for sanctions risks.

Ali Ahmadi

Geneva Center for Security Policy

Iran’s bid for SCO membership does not necessarily mean Tehran will have an even economic relationship with China, Ali Ahmadi, an executive fellow at the Geneva Center for Security Policy, told CNBC Tuesday.

“This does not mean that Iran does not need sanctions relief,” Ahmadi said. “Iran sells some oil to China… but the relationship between them is very one-dimensional.”

Iranian President Ebrahim Raisi speaks at a press conference in Tehran on August 29, 2022. Iran needs sanctions relief as a result of a successful deal with Iran to further develop its relationship with China, said Ali Ahmadi of the Geneva Center for Security Policy. This comes as Iranian President Ebrahim Raisi is expected to meet with his Chinese and Russian counterparts in Uzbekistan on Thursday.

PAGE | AFP | Getty Images

In mid-2018, the United States unilaterally withdrew from the nuclear deal, officially Joint Comprehensive Plan of Action or JCPOA.

Since then, Washington has imposed sanctions against Iran, which undermined its economy. The US sanctions cover companies doing business with Iran and a ban on all imports from Iran, among other embargoes.

“In order for this relationship to develop, you need to lift the sanctions because many companies, even state-owned enterprises in China… do not want to risk sanctions,” Ahmadi said.

Earlier this month US imposes sanctions on Chinese companies which helped sell Iranian oil.

Sanctions can both deter and encourage

U.S. sanctions will make Chinese companies think twice about deals with Iran, especially if those firms are highly dependent on the West, Javad Salehi Isfahani, an economics professor at Virginia Tech, told CNBC.

“Chinese manufacturers are highly dependent on exports to the West, and therefore they must comply with unilateral US sanctions, no matter how much they assure their Iranian counterparts that they consider them unfair,” Isfahani said.

Iran Nuclear Deal Revival Won't Be a 'Silver Bullet', Senior Fellow Says

However, sanctions could benefit more risk-tolerant consumers, said Behnam Taleblu, senior fellow at the Foundation for the Defense of Democracy.

Oil sanctions that are not enforced or are sporadic can be opportunities for risk-tolerant traders, while smugglers can find creative ways to generate income, Taleblu said.

Iran’s relations with China

Recently, Iran has begun to actively turn to the East. Before the US pulled out of the nuclear deal in 2018, Iran’s Supreme Leader Ayatollah Ali Khamenei announced that one of his top foreign policy priorities was “preferring the East over the West.”

Last month, former Trump administration national security adviser John Bolton told CNBC that lifting sanctions on Iran could push the Islamic State to forge closer ties with both China and Russia.

Bolton: Iran bailout deal 'terrific mistake' by Biden administration

Bolton said that an Iran freed from international sanctions would be richer and stronger, making it “a better partner for Russia.”

“In the Middle East, where [Russia and China] have overlapping interests, their preferred partner is Iran. So it’s kind of a tripartite deal that I think has global implications,” Bolton said.

BRICS: how the abbreviation Goldman Sachs turned into a strategic economic bloc

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