Iran-China Economic Relations

Historical Background
Iran and China, both ancient civilisations with a desire to see their former glory returned to them, have developed strong economic and thereby political ties. According to George Simpson, analyst at the Middle Eastern Quarterly, both states are resentful of Western and in particular American hegemony.

China overtook Japan to become the world’s second largest economy in 2011 and demand for oil has been growing. As of August 2012, China is the second largest consumer of oil after the US. With Iran's abundance of crude oil amongst other natural resources, it has become a leading supplier of energy to China. According to the Middle Eastern Quarterly, this economic relationship has been blossoming since an agreement was reached in October 2004, when Beijing and Tehran signed oil contracts worth more than $120 billion.

For it’s part, China has been greatly contributing to the modernization of Iran’s oil production facilities. Despite the international isolation imposed by the West, spearheaded by the United States, China largely remained a viable trading partner following the 1979 Islamic Revolution in Iran. The economic relations burgeoned from when in 2003 trade between China and Iran reached a record $4billion, tripled to $16billion by 2006 and in 2008 stood at $29billion.

As of 2009, although Russia was the biggest supplier of arms to Iran, China was also an important source. Since the 1980s, China transferred missile components and technology to Iran despite US-led efforts to cease nuclear proliferation.

Changing Economic Relations
China was one a few countries given a waiver to evade the sanctions placed on Iran by the international community in efforts to halt the build of Tehran’s nuclear capability. This became vital to Iran’s export-dependent economic lifeline. China alone, as of July 2012, buys half of Iran’s exported crude. However, as Iran's nuclear development plans have not been put on hold, America is getting more proactive in clamping down on financial or economic support to Iran from China. On 28 July 2012, the US imposed sanctions on the Chinese Bank of Kunlun, charging them with abetting Iran to circumvent the international sanctions on its oil exports.

According to Foreign Affairs, driven by its economic self-interest, and tempered by sympathy for Iran’s grievances, China remains the only major player still actively supporting Iran’s oil industry. However, by October 2011, various Chinese oil companies such as CNPC terminated oil contracts with Iran, pulling out staff and resources indefinitely. Nevertheless, economic relations have not deteriorated. Customs data reports show that in 2011, China imported 17 million barrels of oil a month from Iran, and as of July 2012, oil tankers carrying up to 20 million barrels of Iranian crude were heading for China.