July 23, 2020 | Policy Brief

Iran-China Trade Plummets Despite Plans for Strategic Partnership

July 23, 2020 | Policy Brief

Iran-China Trade Plummets Despite Plans for Strategic Partnership

Chinese customs data show that trade with Iran continues to fall sharply, primarily because Beijing is buying less and less crude oil from Tehran. Despite reports that Iran and China are poised to conclude “a sweeping economic and security partnership” that would last for 25 years, the trade data suggest Tehran may not be an especially attractive partner for Beijing’s investments.

According to monthly data from China’s General Administration of Customs (GACC), trade with Iran dropped 41 percent to $6.4 billion in the first five months of 2020, compared to $10.9 billion during the same period in 2019. This decline reflects a 62 percent reduction in Chinese imports from Iran, although Chinese exports to Iran remained stable, falling just 1 percent to $3.69 billion in the first five months of 2020.

The main driver of these trends was an 87 percent reduction in Beijing’s purchases of Iranian crude, which fell from $4.84 billion in January–May 2019 to just $608 million in the same interval in 2020. Thus, Iran had only a 0.8 percent share of Chinese crude imports in the first five months of 2020, which totaled $79 billion. Diminished oil purchases account almost entirely for China’s swing from a $3.45 billion trade deficit with Iran in January–May 2019 to a $971 million surplus during those months in 2020. This is China’s first trade surplus with Iran in many years.

U.S. sanctions are the principal cause of the sharp reduction in Chinese imports of Iranian crude. In April 2019, the United States announced it would stop issuing waivers that allowed limited purchases of Iranian crude, instead seeking to push Tehran’s exports to zero. Continuing purchases have led to penalties for some Chinese firms, yet customs data indicate that sanctions have altered China’s behavior significantly.

That said, the United States should evaluate whether additional shipments of Iranian crude continue to reach China in the form of re-exports via third countries. For example, Chinese imports of crude oil from Malaysia, per GACC data, have risen from about $400 million per month in 2018 to over $550 million since last fall. Reuters reports that much of this is Venezuelan oil routed through Malaysia to avoid sanctions, but there are indications that Iran employs a similar ruse.

Meanwhile, China’s trade relations with key Arab states in the Persian Gulf region remained relatively stable. Trade fell 8.1 percent with Saudi Arabia and 5.0 percent with the United Arab Emirates in the first five months of 2020. In that period, the overall volume of trade with the Saudis and Emiratis was $27.6 billion and $18.2 billion, respectively, as compared to $6.4 billion with Iran.

For China’s non-oil imports from Iran, there were mixed results. The value of imported plastics dropped 25 percent, from $1.09 billion in 2019 to $823 million in 2020. By contrast, Tehran’s exports of organic chemicals increased 65 percent, from $389 million to $644 million, while its exports of semi-finished iron products went from zero to $156 million.

China’s exports to Iran are more diverse than its imports. Top exports include telephone sets, parts and accessories for motor vehicles, bodies for motor vehicles, and orthopedic appliances. Since Iran’s auto industry is under U.S. sanctions, Chinese firms that sell automotive goods may expose themselves to Treasury Department penalties.

A more effective partnership between Tehran and Beijing will materialize only in the absence of U.S. sanctions, so the administration should designate any Chinese firm or bank that violates them. Still, the Tehran-Beijing pact is laying the groundwork for China to reap the fruits of Washington’s potential return to the Iran nuclear deal in a Biden administration. For now, Beijing and Tehran will continue to share mutual interests on the diplomatic and military fronts, but China will work with all sides in the Persian Gulf rather than back Iran against its Arab adversaries. The trade data for the last few months attest to that cold reality.

Saeed Ghasseminejad is a senior Iran and financial economics advisor at the Foundation for Defense of Democracies (FDD), where he also contributes to FDD’s Center on Economic and Financial Power (CEFP). For more analysis from Saeed and CEFP, please subscribe HERE. Follow Saeed on Twitter @SGhasseminejad. Follow FDD on Twitter @FDD and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.


China Iran Iran Politics and Economy Iran Sanctions Sanctions and Illicit Finance