Japan vs. China in Iran: political engagement or economic influence?

One of the most critical questions for Iran today is the nature of its relations with Japan and China. Both Asian countries have been recently expanding their presence in the Middle East by investing in national resources or tying military and economic trade agreements with specific countries, like Iran. Japan has been nurturing its relations with Iran since the 1960s as it played an important role in supplying resources (mostly energy) during Tokyo’s rapid economic growth post-WWII. Even after the Islamic Revolution, Iran’s relations with Japan remained steady. Meanwhile, China recently renewed its ties with Middle Eastern countries, such as Israel and many Gulf States, investing in local infrastructure while promoting alternative models for economic growth. In addition, China has also recently settled a 25-year Comprehensive Strategic Partnership with Iran, bringing particular international attention on the matter.

However, what has played an important role in Iran’s relations with both Japan and China is the US-imposed sanctions. As a matter of fact, these bans brought Iran closer to the Asian continent: since the US withdrew from the Joint Comprehensive Plan of Action and imposed new sanctions, China has continued to purchase oil from Iran making it clear it will not abide by the US embargo. Consequently, political engagement has been an important variable in Chinese and Japanese bilateral relations with Iran, impacting economic investments, trade, and furthering new relations and agreements.

Economic calculations

Latest data on Iran’s external trade relations shows that its main export destinations are China, India, the United Arab Emirates, South Korea, Italy, and Japan, showing how Iran primarily relies on Asian partners. For example, $18.9bn of the $43bn in total exports of crude petroleum was destined to China, while $2.97bn was shipped to Japan.

Specifically, China is the main destination for Iran’s crude petroleum, but it also imports plastic, iron, acyclic alcohol and copper, accounting for 38% of Iran’s total exports. Contrary to China, Japan’s imports from Iran are extremely concentrated on crude petroleum, accounting for 97% of Japan’s total imports from Iran, while Japan being the destination of a mere 6% of Iran’s total exports.

Due to the global Covid-19 pandemic, China did witness a contraction in its trade with Iran in early 2020 by around 30%, but the bilateral relation has remained strong. Both Iranian President Hassan Rouhani and Chinese President Xi Jinping openly declared that, because of Covid-19, “the illegal and inhumane sanctions” should be lifted to allow countries to help each other in these difficult times. On the other hand, in early 2020, Japan decreased its oil imports from Iran after buying around 15.3 million barrels of crude oil in the course of the two months prior to the end of Japan’s exemption to US-imposed sanctions. This decision, as reported by Reuters, is due to the US demand for all countries importing oil from Iran to stop this trade or face sanctions.

Diplomatic ties

Both China and Japan consider Iran as a major supplier of fossil fuels and an importer of manufactured goods. However, their relations with Teheran do not only focus on trade: there is a political agenda in place for both Asian countries in the Middle East. China and Japan have been pursuing diplomatic relations with Iran since the early 1960s, betting on its domestic economy to grow substantially.

Since the end of the 1990s, China has been strengthening its relations with many Middle Eastern countries, investing in their territories to increase their economic capabilities. When considering Iran, one main event that intensified the bilateral relations was the US bombing of the Chinese Embassy in Belgrade. This episode brought Beijing closer to Teheran as a way to demonstrate its indifference towards the US, and once it became a member of the World Trade Organization in 2002 the relationship has grown stronger, maturing into their current state. Moreover, as the United States focused on Iran’s nuclear program, China got involved with its domestic market, becoming in 2007 Iran’s main trade partner.

This relationship has been far from unilateral, as Iran views China as a strong partner, especially technologically. Due to the US imposed sanctions, Iran lacks the freedom to access Western goods, expertise, and capital, and so considers China its main ally regarding technological know-how. Plus, China is one of the only countries that is not concerned by the Iranian regime’s violations of human rights, such that it is believed Beijing helped Teheran technologically monitor the popular revolution that occurred in 2009.

Iran-China relations have consequently become one of the main internationally discussed topics, especially after the signing, in mid-2020, of a 25-year Comprehensive Strategic Partnership. This agreement shows how mature the Chinese westward expansion has become as it will enable Beijing to use Iran’s natural resources, provide its presence in the Middle East with an official basis, and strengthen its influence through a planned $400bn in foreign direct investments. Interestingly, this deal does not appear to be a direct reaction to the US-imposed sanctions, as both Teheran and Beijing had been discussing its terms since 2016. Despite it not being a reaction, it is however a consequence as the US pressures on Iran have acted as a strong incentive for Teheran to cozy up to Beijing. Foreign Policy described this agreement as “bad news for the West” as it will influence the entire geopolitical equilibrium in the Middle East, allowing Iran to increase its influence in the region, notwithstanding its already volatile situation, and because it opens a door for China to deepen relations with other countries in the region. Additionally, it allows China to interfere more effectively with US actions in the Middle East, consolidating its power while providing countries in the US’ sights with an alternative.

Japan’s political links to Iran are very different in nature and in rationale. In fact, Japan is believed to be an important link between Teheran and Washington, as it has acted as a mediator for the two on several occasions. Iran has even gone as far as tailoring parts of its nuclear program (calling it the “Japan Program”) after that of Japan, which enables it to have all the needed components to build a bomb while not deploying any ready-to-use nuclear arsenal.

Pioneered by former Japanese Prime Minister Shinzo Abe, Tokyo-Teheran relations move on thin ice. Japan’s political and economic relations with the United States are extremely deep and strategically important for the country’s stability, such that Tokyo cannot risk jeopardizing them by going in too deep into a relationship with Iran. However, both Japan and Iran have agreed on a mutually respectful relationship and, in order to do so, Japan has refused to participate in US military incursions in the Middle East, allowing Tokyo to maintain a neutral position in the region while negotiating mutually-beneficial solutions with Teheran. Recently, Japan’s leading news media agency Kyodo News, leaked news of a secret (and failed) agreement with Teheran. The information reported on a possible agreement between the two countries that would have bypassed US sanctions and allowed for indirect trade between the US and Iran. In fact, the agreement would have permitted crude oil to be transported to the US, through Japan, in return for corn and soybeans. However, the deal was not signed because of “US non-cooperation, despite Washington’s initial greenlight”, Kyodo News said.

Japan vs. China

China and Japan are therefore pursuing a completely different agenda, focusing on different aspects of Iran. Japan mainly engages politically, acting as a middleman between Iran and the West, while still trying to maintain stable and beneficial relations. On the other hand, China is mainly involved economically but also has a political thrust. China considers Iran as a bridge to the West, as a way to influence decision making, and also as a reliable country acting as a bridge between Beijing and the rest of the Middle East.

The presence of two strong Asian countries in Iran, and generally in the Middle East, is extremely important when considering international geopolitics. The Middle Eastern regions have always been a field of interest for the West, who, since the end of the 1800s, used its natural resources and benefited from their position as a corridor for the East. On the other hand, Asia’s new-found interest in the region stems from the fact that Western role and influence in the Middle East has recently been reduced (particularly since the US military started withdrawing from Syria, Afghanistan, and Iraq) and in part, because China’s Belt and Road Initiative (BRI) passes through those territories.  

The presence of both Japan and China in Iran, and generally in the Middle East, may not have short-term consequences on the balance of power in the region as influence is being built gradually. However, long-term consequences on Iran’s regional standing due to its relations with China could have strong repercussions as this economic presence may well morph into a military and technological one soon. In this context, it remains to be seen what kind of counter-influence Japan will be able (and willing) to deploy, as it currently remains one of the only countries left willing to mediate between the United States and Iran. Moreover, how a Biden administration will interact with the Middle East, and particularly with Iran, will probably be different from the Trump administration, and so has an opportunity to change the current scenario by bringing the US back in the game and possibly upset China’s push in the region.

Picture credits: Reuters