How Iran Sees the China-US Trade War

The Diplomat

2 days ago

As the expiration date for the truce in the trade war between the United States and China approaches, policymakers in Tehran see both immediate risks and potential long-term opportunities for the Islamic Republic of Iran. This is demonstrated in analysis produced by the Strategic Council on Foreign Relations (SCFR), an entity tasked with advising Supreme Leader Ali Khamenei on diplomatic affairs. Although not a decision-making body, the SCFR can indicate the direction of Iranian policymaking, due to its proximity to Khamenei's office and the involvement of key loyalists to the Supreme Leader, including former presidential contender Saeed Jalili. In its assessments of the China-U.S. trade war, the SCFR reveals how the Islamic Republic sees the rift between Washington and Beijing, while having little ability to influence its outcome.
Amid international sanctions and diplomatic isolation, Iran has expanded its engagement with China. In recent years, China emerged as a critical economic partner for Iran – receiving up to 90 percent of Iranian oil exports, according to some reports. While the United States has sought to curtail these trade links, evasive shipping practices, avoidance of dollar transactions, and the use of 'teapot' refineries have enabled Iran and China to bypass sanctions. This has offered the Islamic Republic a crucial economic lifeline. Their partnership was formalized under a broader 25-year cooperation agreement between Tehran and Beijing signed in 2021.
Outside of the energy sector, Iran's participation in the Belt and Road Initiative has facilitated Chinese infrastructure and utilities investment. In the wake of conflict between Iran and Israel, speculation has also emerged that Iran could bolster its security ties to China, especially amid military setbacks and apparent frustrations with Russia. The U.S. has sought to counter Iran's movement toward China, especially under the Trump administration, as a means of enhancing leverage over the Islamic Republic. During the past several months, Washington has moved to sanction entities involved in transporting and refining Iranian oil for the Chinese market.
In the short term, upholding the status quo between the U.S. and China would be in Iran's interest, either by Beijing and Washington maintaining the interim tariff reduction deal or reaching a more permanent settlement. According to SCFR analysis, a reinvigorated China-U.S. trade war could harm Iran's economic lifeline, by reducing China's demand for production inputs like oil. Given its dependence on the Chinese market, this would have significant ramifications for Iran's already weak economy. It would also intensify inflation and weaken Iranian foreign currency reserves, both of which have been recurrent issues for the Islamic Republic's monetary system.
Compounding these factors, diminished exports to China would strengthen sanctions enforcement by the West, which the Islamic Republic has failed to significantly alleviate via diplomatic means. As Iran seeks to regain its footing ahead of renewed competition with Israel, these pressures could undermine efforts to curb domestic dissent and replenish its military forces, leading to wider strategic challenges.
Iran also sees opportunity in the China-U.S. trade war, as a potential disruption to the existing international order. In particular, the potential long-term weakening of the U.S. dollar could support Iran's strategic interests. As noted by one SCFR publication, reducing the dollar's dominance as the world reserve currency would diminish the efficacy of sanctions and relative U.S. economic power. This would dovetail with efforts by the Islamic Republic to support other global 'de-dollarization' initiatives, including the formation of a Shanghai Cooperation Organization bank and the expansion of the BRICS New Development Bank. Nevertheless, the SCFR may be overly optimistic on the prospects of de-dollarization, as a clear alternative has yet to emerge.
Additionally, the SCFR claims that China could seek to develop new export markets in the Middle East, including Iran, necessitating a stronger economic and diplomatic push in the region. This would be to Iran's advantage, as it could entail further Chinese investment and non-oil trade, both of which the Islamic Republic has consistently pursued. That said, Chinese direct investment in Iran has been limited thus far. It is also to China's advantage that Iran is economically weak and isolated, as it enables the import of Iranian oil at a significant discount.
Despite limited influence over the situation, the SCFR asserts that the China-U.S. trade war must be 'optimally utilized' to Iran's advantage. In particular, it identifies 'global polarization' and economic uncertainty as factors that could create opportunities for deepening trade relations with other developing states. Specifically, Brazil and India are highlighted as potential import partners, with the potential to reduce Iran's dependence upon any single patron. However, it is unlikely that either could match China's energy demand. Furthermore, much of Iran's success in diversifying commercial relations has come through states such as Belarus and Serbia, which are unlikely to import Iranian oil in significant amounts, despite offering certain opportunities.
Overall, the SCFR's assessment reflects a lack of options for the Islamic Republic to proactively shape the situation to its advantage. This further indicates that the status quo may be Tehran's preferred outcome, for the time being.
In sum, the SCFR's perspective on the China-U.S. trade war reveals a reactive posture. This is marked by an effort to preserve the Islamic Republic's current advantages while seeking new openings amid global economic shifts, primarily designed to erode and challenge U.S. influence. Still, Iran's ability to capitalize on these developments remains constrained by structural weaknesses, international isolation, and its growing dependence on its energy exports to China. As such, Tehran's strategic calculus ultimately hinges on maintaining regime resilience, while seeking space to balance and maneuver within broader great power competition.