Why China Opposes US Sanctions on Iran

01/15/2012 by Richard Weitz

Treasury Secretary Timothy Geithner’s failure to secure Chinese government support for imposing sanctions on Iran should come as no surprise. The Chinese government has long resisted sanctions that are not approved by the UNSC, which gives Beijing the right to veto them. And within the UNSC China has only supported  limited sanctions due to its competing national security issues.

Chinese-Iranian economic ties have soared in recent years. China has become the leading investor and trade partner of Iran, surpassing European countries and staying ahead of Russian and Indian business enterprises. PRC firms have helped modernize Iran’s energy industry and transportation infrastructure (including highways and railroads and even Tehran’s Metro system) as well as extract natural resources such as coal, copper, and aluminum.

Iran has a friend in China. Don't expect help from the PRC on stopping Iranian power ambitions. Image Credit: Bigstock

China’s leading state-owned energy corporations have invested in both Iran’s upstream development (crude oil exploration and production) and its downstream development (refining and distributing oil-based products). Under a 2009 agreement, the China National Offshore Oil Cooperation (CNOOC) is developing Iran’s North Pars natural gas field and constructing a liquefied natural gas (LNG) plant there. The terms of this $16 billion project, which should be competed in 2015, allows CNOOC to receive half of its LNG output.

The China National Petroleum Corporation (CNPC) is developing parts of Iran’s Masjed-i-Suleiman oil field, the Zagros Basin, the North Azadegan oil field, and the South Pars gas field. It also has a development contract for North Pars. Sinopec is developing Iran’s Yadavaran oil field as well as increasing and modernizing Iran’s petroleum refineries including a major refinery at Arak. In addition to North Pars, each of these other deals is also estimated to be worth billions of dollars.

Expanding Iran’s refining capacity is important since, though Iran is a major crude oil and natural gas exporter, its refining capacity has lagged behind growing domestic consumption. The Obama administration has sought to exploit this vulnerability by using sanctions to discourage other nations from providing gasoline to Iran. China’s state owned oil firms have been supplying about half of Iran’s total gasoline imports.

Thanks primarily to the growing value of these energy-related exchanges, PRC-Iran trade has been increasing by an average of 30% annually in recent years, except for the short-term 2009-10 slowdown due to the global recession. This year two-way commerce should reach around $40 billion.  As a result, China has become Iran’s largest trading partner, responsible for about 14 percept of its imports and exports in 2008.

In addition, Chinese companies such as the PRC defense conglomerate NORINCO have sold Iran important industrial and military technologies, especially suitable for cruise missiles. During the 1980-88 Iran-Iraq War, the PRC provided Iran with missiles, tanks, and other weapons.  Iran has been manufacturing variants of Chinese-designed anti-ship missiles such as the C-801 and C-802 since the early 1990s.

The Iraq War that began in 2003 has driven Beijing and Tehran closer, with China eager to secure additional Middle Eastern oil supplies and Iran seeking diplomatic allies to counterbalance Western military threats and economic sanctions.  From 2005 through 2009, Iran has emerged as the second-largest purchaser of PRC weapons, buying 14% of China’s military exports by value. Iranian imports from the PRC included over 1,000 anti-air and anti-ship missiles as well as some 50 infantry combat vehicles. In early March 2010, China helped launch a factory for producing Iran’s Nasr-1 anti-ship missile, which is identical to China’s C-704 missile.  The Stockholm International Peace Research Institute estimates that the PRC sold $312 million worth of arms to Iran during the last five years, lagging only behind Russia, which sold $684 million worth of weapons to Iran. Russia’s lead has been declining due to the recent cancellation of what could have been a $800 million contract for S-300 surface-to-air missiles.

The Chinese government has consistently opposed unilateral or multilateral economic sanctions against Iran by other countries that are adopted outside the UNSC. China cannot veto these sanctions, as it can with proposed UNSC measures. PRC diplomats denounce these supplementary sanctions as unfair and improper since they often apply to Iranian business activities that involve PRC firms despite the lack of Beijing’s lack of consent to these measures.

Throughout the past decade, Chinese diplomats have repeatedly insisted on softening proposed UNSC sanctions, especially those that might constrain their country’s energy and economic collaboration with Iran. Despite their shared goal of preventing Iran’s acquisition of nuclear weapons, Chinese diplomats have resisted American efforts to induce Beijing to pressure Tehran into making more concessions on the nuclear issue by curtailing its bilateral ties with Iran or by imposing comprehensive multilateral sanctions that could disrupt PRC-Iran energy and commercial exchanges.  Thanks to hard bargaining, they have managed to exempt their main economic interests Iran from existing UN economic sanctions. By visibly fighting against the sanctions, moreover, they helped persuade Tehran that China is a reluctant sanctioner and that the focus of Iranian wrath should fall elsewhere.

The Chinese have reacted especially strongly when the United States has applied sanctions to PRC entities dealing with Iranian entities as an illegal extraterritorial application of U.S. domestic aw and thus as an infringement of China’s sovereignty. When the Bush administration sanctioned six PRC companies for violating U.S. sanctions on Iran, the PRC Foreign Ministry objected to the application of U.S. domestic legislation on PRC entities because these acts “are not in accordance with international law, nor are they in accordance with international requirements on non-proliferation.” The Ministry “demand[ed] that the U.S. stop the relevant sanctions in order to facilitate the healthy development of Sino-U.S. economic and trade relations on the basis of equality and mutual benefit.” But it did offer to collaborate with U.S. authorities in investigating the transactions and pledged “that if we find that Chinese enterprises have truly acted in violation of Chinese government laws and regulations, we will earnestly pursue the issue and punish in accordance with the law.”

More recently, the PRC government attacked the 2010 Comprehensive Iran Sanctions, Accountability, and Divestment Act and related EU sanctions that were adopted after the UNSC agreed to more limited sanctions in June. The Ministry of Foreign Affairs complained that, “Not long ago, the U.N. Security Council approved Resolution 1929 concerning Iran’s nuclear issue. China believes that all nations should fully, seriously, and correctly enforce this Security Council resolution, and avoid interpreting it as one pleases in order to expand the Security Council’s sanctions.” PRC representatives made the same complaints about the latest round of sanctions adopted by Britain, Canada, and the United States on November 21.

China’s denunciation of supplementary sanctions—which in the U,S. case include the Iran Sanctions Act of 1996, the Iran Nonproliferation Act of 2000, the Iran Nonproliferation Amendment Act of 2005, The Iran Freedom Support Act of 2006, and The Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010–implies that one reason the PRC votes for UNSC sanctions is to avert more severe measures taken outside the UNSC. Having seen how the United States and Britain acted unilaterally against Kosovo in 1998 and Iraq in 2003 after they could not secure UNSC authorization to use force, PRC policy makers are presumably aware that, If Beijing were to attempt to block all UNSC sanctions, than the Council (and China) would lose influence as Iran’s opponents proceeded to act without UNSC approval.

Chinese policy makers are well aware that, if the political opposition comes to power in Tehran, PRC business and strategic interests could suffer since, as in Libya, the new regime might strive to punish China for its past support for the Iranian clerical regime. Chinese interests would suffer even if the new government eschewed a punitive policy and simply reconciled Iran with the West by agreeing to make its nuclear programs more transparent and more constrained.

Some Iranian businesses would naturally gravitate toward Western partners, undermining China’s monopoly position, while the end of active confrontation between Iran and the West would allow U.S. diplomacy and military power to refocus elsewhere, probably including the Asia Pacific region, which already has received a recent boost in U.S. diplomatic and military resources. Beijing could also no longer play its Iran card since Washington would no longer need China’s help to constrain Iran, depriving Beijing of the implicit threat of supporting an anti-American government in Tehran if the United States sold more arms to Taiwan.

Beijing’s desire to avoid regime change in Tehran leads PRC policy makers to try to dissuade Iranian leaders from taking provocative actions and instead show more flexibility regarding their nuclear program. Even more, it leads PRC policy makers to oppose the use of force against Iran’s leaders or coercive sanctions that Chinese analysts suspect are aimed at overthrowing the Iranian regime by encouraging a popular revolution under the guise of seeking to moderate the Iranian government’s nuclear policies.

To avert sanctions, PRC diplomats try to keep the Iran issue inside the IAEA rather than having the Agency Board refer the case to the UN. The IAEA is charged under the Nuclear Non-Proliferation Treaty (NPT) with verifying States Parties’ compliance with the treaty. The agency monitors the nuclear programs of its members and the IAEA secretariat reports any possible contraventions to its 35-nation Board of Governors. This body will press the state under review to provide additional information to verify that it is not seeking to use nuclear energy for military purposes. If the state fails to satisfy IAEA concerns, the agency can then refer the case to the UN Security Council, which can impose sanctions and adopt other measures to enforce compliance with the NPT.

Yet, there is a major countervailing consideration. If PRC policy makers block all sanctions in the IAEA or, as in the case of Iran, when the agency has already referred the case to the UNSC, then they encourage the Western powers to act on their own. So China may need to agree to at least some punitive measures or other UN action just to keep the UNSC the main institutional player in the Iran nuclear issue. Within the UNSC, China enjoys the unique privilege of being able to veto U.S. and other countries’ policies towards Iran. If decisions are taken elsewhere, such as in the NATO and EU headquarters in Brussels, or unilaterally by Washington, than Beijing’s influence is much less.

In the end, Chinese policy makers calculate whether PRC interests would suffer more through agreeing to modest UNSC sanctions or if the U.S. and the EU were to adopt their own supplementary sanctions independent of the United Nations.  PRC diplomats would accept some UN sanctions to avert more severe unilateral Western ones that inflict greater harm of Chinese business interests, which China can normally protect from UN measures. PRC representatives normally complain bitterly when Western countries proceed to impose their own sanctions even after China has consented to some multilateral ones.

A cynic would expect that Chinese business leaders welcome the other countries’ supplementary sanctions because they leave Chinese companies as one of the few commercial partners for Iran. PRC firms have been eagerly “backfilling” for Western firms that have been exiting Iran’s energy and other sectors. For example, China National Petroleum Corporation enlarged its investment in Iran’s South Pars Gas Field after several foreign energy corporations withdrew from the project.  The economic sanctions have also made it hard for Chinese corporations to repay their Iranian sellers for many purchases. Instead, the Chinese have offered to barter Chinese goods and services for Iranian energy exports, a process that, when accepted, further strengthens China’s hold over the Iranian economy.

Yet, this cynical approach of encouraging other governments to adopt self-denying sanctions can prove counterproductive if the stratagem severely damages China’s relations with these countries or if they decide to use force or clandestine measures without Beijing’s approval, circumventing the UNSC and China’s veto privileges on the Council.