China’s Policy Toward Iran: Arms for Oil?

Publication: China Brief Volume: 8 Issue: 21

Major powers deliberated on September 19 in Washington over a fourth round of UN sanctions against Iran to curb its nuclear program, but deliberations ended with no firm commitments amid Chinese and Russian opposition to stronger punitive measures.

State Department spokesman Robert Wood told the press that the meeting of senior officials from the permanent five members of the UN Security Council and Germany concluded without an agreement on either the timing or content of a new UN resolution on Iran. Wood was quoted as saying that the six major powers “remain committed to explore possible further measures on the second tracks,” referring to sanctions under consideration by the six. He added that the six urged Iran to accept an offer of trade and other incentives presented in June by a European Union representative in exchange for giving up uranium enrichment. Iran has thus far rejected the offer and stated it will not give up sensitive nuclear work (Reuters, September 19).

On several occasions, Iran’s President Mahmoud Ahmadinejad has brushed aside the threats of more sanctions on his country. He told a news conference in Tehran on September 18 that “whatever they do, Iran will continue its activities. Sanctions are not important, the era of such threats has ended.” Ahmadinejad made clear that Iran had no plans to suspend its uranium enrichment program, which the United States and other Western countries claim has military purposes.

The International Atomic Energy Agency (IAEA) stated in a report on September 15 that due to Iranian authorities’ stonewalling and obstruction, its investigation into whether Iran had covertly researched ways to make an atom bomb had effectively come to a standstill. Commenting on the report, Stephen Hadley, President George W. Bush’s National Security Adviser, said it was “not reassuring” that Iran was not cooperating with the IAEA, adding that such a move only increased suspicions in the international community about Iran’s nuclear program. On the other hand, however, Ahmadinejad told Iran’s state-media Press TV that the IAEA report had confirmed the peaceful nature of Iran’s nuclear program and that Tehran had cooperated with the UN agency with “full transparency” (Reuters, September 18). He also accused the IAEA for its bias in using Western intelligence to investigate Iran’s nuclear programs, which claims that Iran had linked projects to process uranium, test high explosives and modify a missile cone in a way suitable for a nuclear warhead (Bahrain Tribune, September 19).

Iran’s nuclear ambition has withstood three rounds of limited UN sanctions imposed so far. Iran has counted on China, a time tested and staunch ally—and Russia, now at odds with the West over Georgia—to delay, obstruct, and water down any tougher measures sought by the EU and the United States. If past experiences can serve as a guide, the fourth round of UN sanctions against Iran would be no less an ordeal, taking months of negotiations and haggling, going through comma by comma, and the end result may be, for all intents and purposes, another toothless resolution.

China has been on the record over the years opposing UN sanctions against its friends—such as Iran, North Korea or Sudan. When he met President Ahmadinejad, who had arrived in Beijing for a one-day visit to attend the opening ceremony of the Beijing Paralympics, Chinese President Hu Jintao urged world powers on September 6 to show flexibility in resolving the prolonged standoff over Tehran’s nuclear program. Hu said that China respected Iran’s right to the peaceful use of nuclear energy and called for more diplomacy. “At present, the Iran nuclear issue is faced with a rare opportunity for the resumption of talks, and we hope all parties concerned could seize the opportunity and show flexibility to push for a peaceful settlement of the issues” (Xinhua News Agency, September 6). “China, as always, will be committed to pushing for the settlement of the issue through peaceful negotiations, and will continue to play a constructive role to this end,” Hu added.

According to Xinhua, the Iranian leader told Hu that he hoped a solution acceptable to all parties could be found, “and that the Iran side is willing to keep exchanges and consultations with the Chinese side” (Xinhua News Agency, September 6).

Some Western observers regard China, a major consumer of Iranian oil and gas, as a key to breaking the diplomatic impasse. In reality, however, Beijing has its own agenda toward Iran and the Middle East, hence its reluctance to consider steps that might hurt its critical strategic ties with Iran and endanger its crucial energy and economic interests.

China’s Strategic Objectives

Since the Shah’s ouster in the late 1970s Beijing has viewed Iran’s Islamic Republic as a potential political ally and has sought to cultivate a strategic partnership with Tehran. In addition to being a major source of energy, Iran is an important regional power, capable of playing a leading role in the diplomatic balance in the Gulf region and Middle East, hence a highly valuable anti-Western partner for China. It appears that China and Iran share the ancient Chinese and Arab proverbial belief that “my enemy’s enemy is my friend,” and they have cooperated to counterbalance U.S. hegemony in the region.

One instrument that China has utilized with subtle perfection is the transfer of arms and weapon technology, which greatly enhances China’s ability to win friends and quickly gain influence while earning billions of dollars. In some cases, Beijing has adopted an “arms for oil” formula, providing weapons in exchange for oil from Iran and Sudan. China’s extensive arms sales to Iran since the 1980s have bolstered Iranian military and weapon production capabilities considerably, with long-term and far-reaching consequences on the balance of power in the Middle East. Iran arms and sponsors terrorist groups in Iraq and other Gulf states and is well-known patron of the Hezbollah guerrillas in Lebanon (sometime in cooperation with Syria) [1]. Hence, Iran poses a significant threat to both the Arab states and Israel, as well as the United States (Gulf Daily News, August 16).

Iran’s acquisition of advanced conventional weapons from China has also posed an immense threat to U.S. ships and troops in the Persian Gulf. In the fall of 1987, Iran fired Chinese-made cruise missiles, the “Silkworms,” at two U.S. oil tankers in the Gulf. In the 1980s, Poly Group, a Chinese arms company controlled by the PLA, exported more than $1 billion worth of Silkworms to Iran (Newsweek, July 4, 1988). The Silkworm has been succeeded by the Chinese variant Eagle strike missile in the 1990s, a much more sophisticated and dangerous weapon modeled on the French Exocet. The new cruise missile has two versions: a solid-fuel, rocket-powered model (designated C-801 by NATO) and a longer range turbojet-powered model (C-802). In 1996, Iran obtained Houdong fast patrol boats from China which were equipped with the C-802 missile. In the late 1990s, two Iranian Houdong missile patrol boats carried out simulated high-speed attacks against the U.S. aircraft carrier Kitty Hawk and the cruiser Cowpens [2]. Similar provocations occurred again in recent months.

Iran has repeatedly vowed a crushing response to any attacks, and it has flexed its military might in recent months by holding war games and showing off an array of weaponry and missiles. During war games in July 2008, aides to the supreme leader Ayatolla Ali Khamenei warned that Iran would target U.S. bases and ships in the Gulf as well as Israel if it were attacked (Khaleej Times, September 1, 2008).

Indeed, there are acute worries in the Gulf region and elsewhere that Iran could cause a global economic catastrophe if it carried out its repeated threat to close the Strait of Hormuz. A horseshoe-shaped waterway that stretches between Iran and the northern tip of Oman, the Strait of Hormuz is the only path for ships in and out of the Persian Gulf. According to The Gulf, a Bahrain business weekly, on a typical day, around 50 tankers carrying between 14 million and 17 million barrels of oil and oil products pass through the 180 km-long strait—roughly 40 percent of the world’s internationally traded supplies (Gulf Daily News, August 24).

Iran has large number of Chinese made C-801 and C-802 anti-ship missiles deployed in coastal batteries along the eastern shore of the waterway. This arsenal is expected to play a key role in any effort to block or control the waterway (Gulf Daily News, August 24). The shipping lanes are known to be narrow, ideal for the use of anti-ship missiles because naval or civilian vessels have little room for evasive action. Over the past year, coalition naval forces in the Persian Gulf and the Arabian Sea have conducted a series of exercise aimed at countering possible Iranian attempts to close the Hormuz Strait. These include attacks by large swarms of small, high-speed boats or maritime suicide attacks.

Iran claimed that it had amassed a fleet of 1,000 low-tech speedboats to counter the Fifth Fleet’s armada of 30-40 high-tech warships. Attacks using cruise missiles would be more dangerous. Iran has 3 frigates and 20 fast-attack craft, including Chinese-supplied Houdong boats, which are capable of mounting such attacks [3].

In early July, Iran test fired an improved version of the Shahab-3 missile, which Iranian officials say has a range of 2,000 kilometers and could reach Israel, as well as improved Zelzal and Fateh missiles (The Jersualem Post, July 9; Khaleej Times, September 1). Such an intermediate-range ballistic missile may have been produced with China’s assistance (Washington Times, September 11, 1997). The Shahab-3 is a derivative of the North Korean No-dong missile, for which Chinese and Iranian assistance has been well documented by Western sources [4]. For instance, according to Western sources, as early as 1997 Iran had received from China’s Great Wall Industries Corporation, "guidance, and Solid propellant motor technology” as well as general missile testing technology. “The Shahab-3 and 4 programs appear to be getting considerable assistance from China and Russia” [5]. Much longer range versions are under development, including the Shahab 4 and 5, which could reach the United States [6].

It should be emphasized that the Sino-Iranian cooperation on arms deals may not only be confined to conventional weapons; it also includes “NBC”—nuclear, biological, and chemical—weapons expertise and technology. Whereas Beijing has vehemently denied its sales of weapons of mass destruction and ballistic missile technology to rogue states, international intelligence agencies have collected enough information to identify China as the world’s “leading proliferator” [6]. For diplomatic and other important reasons, the United States and EU rarely blow a whistle on China’s illicit arms sales to rogue states and its outrageous violations of international nonproliferation goals.

From time to time, the United States has sanctioned Chinese companies for selling Iran weapons, weapons-related products and other dual-use commodities that can have military use, and Beijing has condemned such action.

Sino-Iranian Energy and Economic Ties

In response to U.S. pressure, some European companies have cut their trade with Iran or withdrawn investment. Royal Dutch Shell and Repsol of Spain withdrew from Iran last year. In early July, French oil giant Total announced that it would pull out of a planned investment in a huge gas project in Iran’s South Pars gas field. As Western companies have moved out, Chinese-state owned companies have stepped in to fill the void and take over business, as has been the case in Africa. On July 28, Iran’s Pars Oil and Gas company and China National Offshore Oil Corporation (CNOOC) announced an agreement to exploit the North Pas gas field; they plan to introduce gas from the North Pass field into international markets soon (Tehran [FNA], July 28).

China is Iran’s top oil market, and Iran is China’s third-largest oil supplier behind only Angola and Saudi Arabia, exporting about 300,000 barrels of oil to China. Moreover, China’s oil giant Sinopec Group is planning to buy 250 million tons of natural gas in 30 years from Iran and will help Iran develop its huge Yadavaran oilfield in exchange for Iran’s commitment of exporting 150,000 barrels of oil per day to China for 25 years at market price [7].

In addition to the energy sector, China is also involved extensively in many areas of Iran’s economic development. More than 100 Chinese state companies are working in Iran to help build infrastructure projects—highways, ports, shipyards, airports, dams, steel complexes and many other projects [8]. When Tehran’s subway was completed in February 2000, Chinese Foreign Minister Tang Jiaxuan was present for the opening ribbon-cutting ceremony. Likewise, President Jiang Zemin made a state visit to Tehran in April 2002 to cement ties with Iran.

A casual visitor to Tehran is impressed by the supply of Chinese products in the supermarkets and department stores. Bilateral trade between the two nations is expected to reach $11 billion in 2008, surpassing $9.5 billion in 2007. China is already Iran’s second-largest trading partner, behind only the UAE [9].

China, Iran, and Russia have overlapping interests on many issues. They are partners to the Asian Energy Security Grid, an alterative to U.S.-led Western control of the world’s energy resources. Iran has also joined the Shanghai Cooperation Organization (SCO) as an observer. Iran’s President Mahmoud Ahmadinejad was present when the SCO convened a summit meeting in mid-August. The organization has been largely perceived as a Chinese tool to counter U.S. presence in Central Asia and promote Beijing’s economic interests.

Although Beijing and Washington are not at present involved in an open confrontation in the Middle East, the potential for Sino-U.S. conflict over Iran and competition on energy issues cannot be overlooked. There is fear in the Middle East that the Iran-Israel military conflict could become a proxy war with the potential to escalate into a direct Sino-U.S. conflict.


1. Edward Timpelate and William Triplette, Red Dragon Rising (Washington DC: Regnery Publishing, 1999), pp. 73 and 108.
2. Bill Gertz, The China Threat (Washington DC: Regnery Publishing, 2000), p. 104.
3. Anthony H. Cordesman, Iran’s Military Forces in Transition: Conventional Threats and Weapons of Mass Destruction, (Connecticut: Greenwood Publishing Group, 1999) p. 191.
4. Federation for American Scientists, Shahab-3 / Zelzal-3,
5. Bill Gertz, "Missiles In Iran of Concern To State," Washington Times, September 11, 1997, pp. 1, A14.
6. Bill Gertz, The China Threat (Washington DC: Regnery Publishing, 2000), p. 106.
7. Edward Timpelate and William Triplette, Red Dragon Rising, (Washington DC: Regnery Publishing, 1999), pp. 98-99.
8. Author’s interviews with officials from Iran-China Chamber of Commerce during a field visit from September 10-14, 2008.
9. Ibid.
10. Ibid.