January 29, 2021 | Policy Brief

With Trump Gone and COVID-19 Vaccines Arriving, Iran-China Trade Will Flourish in 2021

January 29, 2021 | Policy Brief

With Trump Gone and COVID-19 Vaccines Arriving, Iran-China Trade Will Flourish in 2021

New data from Beijing show that China’s imports last year from the Islamic Republic fell to their lowest level since 2005; meanwhile, China’s exports to Iran reached their lowest level since 2009. However, the Biden administration’s impending reversal of President Donald Trump’s “maximum pressure” policy, coupled with the possible end of the pandemic, puts Tehran and Beijing on a path to expand trade and investment in 2021 and beyond.

China imported $6.4 billion from Iran in 2020, down more than half from $13.43 billion a year earlier. Beijing exported $8.51 billion to Iran, down from $9.59 billion in 2019 and a 39 percent drop from the 2018 level of $14.03 billion, according to China’s customs data. The combination of plunging imports and lesser declines in exports means China had a $2.1 billion trade surplus with Iran in 2020, a sharp contrast with China’s $7.7 billion trade deficit in 2018.

Low oil prices and a reduction in China’s oil imports from Iran drove the shift from deficit to surplus. According to Chinese trade data, imports of crude petroleum oils and oils obtained from bituminous minerals dropped from $15 billion in 2018 to $7.08 billion in 2019 and $1.3 billion in 2020.

Despite reports that Tehran circumvents sanctions by exporting a significant amount of oil to China through Malaysia, the Chinese data do not bear this out. China imported $4.8 billion of crude, HS code 2709, from Malaysia in 2018, or 2 percent of its total crude imports. HS code refers to the Harmonized System, an international standard system of coding to classify traded products. The numbers were similar in 2020: $3.7 billion, or 2.1 percent of total imports. Even if there are some re-exports of Iranian crude via Malaysia, they barely compensate for the $13.7 billion decrease in direct Iranian exports over the past two years, a plunge that has reduced Iran’s share of Chinese crude imports from 6.2 to 0.7 percent.

There are similar stories about Venezuelan oil going to China through Malaysia, yet once again, the growth in the value of crude imports from Malaysia is less than the decline in imports from Venezuela, not to mention the combined exports Iran and Venezuela have lost since 2018. Even if one examines a broader basket, HS Code 27, that includes mineral fuels, oils, and waxes, this relationship holds true. There is no doubt that Iran has been exporting some oil to China through trans-shipment, but it is nowhere close to what Iran has lost, in terms of value and volume, over the last two years. Of course, it is possible that Chinese statistics deliberately understate the extent of crude imports from both Malaysia and Iran, or that Beijing employs other irregular accounting practices to reduce the figures.

Iran’s trade balance with China also deteriorated because Beijing’s surging 2019 purchases of plastics and rubber, a key export for Iran, simply evaporated. Those purchases fell from $2.35 billion in 2018 to $2.14 billion in 2020. China’s imports of non-oil minerals also dropped in the 2018–2020 period, from $2 billion to $478 million. China’s 2020 imports of metals amounted to $842 million, above the figure for 2018. Both non-oil minerals and metals have been under pressure from sectoral designations and enforcement actions by the U.S. Treasury Department since 2019.

With Trump gone and Washington’s pressure campaign ending, and with the prospect of the decline of the COVID-19 threat through vaccination and better treatments, Iran-China trade will likely flourish in 2021. China is in a favorable position, more than America’s European allies, to reap the benefits of Tehran’s access to world financial markets and of the world’s access to Iran’s market. Throughout the maximum pressure campaign, China helped to keep Tehran afloat.

The Chinese Communist Party, in rhetoric perhaps the new administration’s primary foreign policy concern, will probably benefit the most from President Joe Biden’s efforts to restore President Barack Obama’s nuclear deal by lifting sanctions on the Islamic Republic.

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), Iran Program, and China Program. For more analysis from Saeed, CEFP, the Iran Program, and the China Program, please subscribe HERE. Follow Saeed on Twitter @SGhasseminejad. Follow FDD on Twitter @FDD and @FDD_CEFP and @FDD_Iran. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.

Issues:

China COVID-19 Iran Iran Politics and Economy Iran Sanctions Sanctions and Illicit Finance