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Explained: In China-Iran, India’s concerns

China and Iran are close to sealing an economic and security deal. What does it mean for India and its investments in Iran, given its standoff with China and the need to factor in US sanctions on Iran?

Written by Shubhajit Roy , Edited by Explained Desk | New Delhi |
Updated: July 19, 2020 11:34:21 am
china iran, china investment in iran, India chabahar rail project, iran china chabahar project, india iran chabahar project, China Belt and Road Initiative, us iran sanctions, indian express explained, Prime Minister Narendra Modi and Iranian President Hassan Rouhani at the Hyderabad House in New Delhi in 2018. (Express Photo: Tashi Tobgyal)

China and Iran are close to sealing an ambitious deal on an economic and security partnership, a move that has caught the attention of policymakers in India and across the world.

The seeds were sown during Chinese President Xi Jinping’s visit to Iran in January 2016, when the two sides agreed to establish ties based on a Comprehensive Strategic Partnership, while announcing discussions would begin aimed at concluding a 25-year bilateral pact.

A 18-page draft agreement shows it will facilitate the infusion of about $280 billion from Beijing, which wants to buy oil from cash-strapped Iran. China will also invest $120 billion into Iran’s transport and manufacturing infrastructure, thus giving it inroads into major sectors in Iran including banking, telecommunications, ports and railways. Iran is already a signatory of China’s Belt and Road Initiative (BRI), and this is in line with China’s “debt-trap diplomacy”. The deal has come under criticism from Iran’s political actors, including former President Mahmoud Ahmadinejad.

Ancient ties

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Relations between Iran and China date back to 200 BC, when civilisational contact was established between the Parthian and Sassanid empires (in present-day Iran and Central Asia) and the Han, Tang, Song, Yuan and Ming dynasties. When the Kushan empire since the first century, with Kanishka at its helm, became the crossroads for Sino-Indian Buddhist transmissions, many Iranians were translating Sanskrit sutras into Chinese.

Fourteenth-century Chinese explorer Zheng He, a Ming dynasty navy general, came from a Muslim family — legend has it that he may had Persian lineage — and sailed through India and Persia. Relics from his journey include Chinese-Tamil-Persian inscriptions.

In 1289, Mongol emperor Kublai Khan established a Muslim university in Beijing, where Persian works were translated into Chinese.

As countries with historical contacts, Iran and China view each other as successor states to civilisational empires. Both share a sense of past humiliation in the hands of foreign players.


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Modern diplomacy

Modern-day diplomatic ties between Iran and China are just about 50 years old. China was invited to the 2,500-year celebration of the Persian Empire in October 1971.

In the 1970s, the ties were lukewarm, since the Shah of Iran Mohammed Reza Pahlavi was close to the US. China’s topmost leader Hua Guofeng (1976-81) — who became the chief of Communist Party of China after Premier Zhou Enlai and Chairman Mao Zedong — was one of the last foreign leaders to visit the Shah in August 1978, before he was overthrown in 1979. The visit is said to have left a very strong negative sentiment about China among Iranians. After Shah was overthrown during the Islamic Revolution in 1979, China was quick to recognise the new government.


The next test of Sino-Iranian ties came during the Iran-Iraq war (1980-88). With Iran deprived of weapons from western countries, it turned to China. Behind a facade of neutrality, China obliged and the Iranian regime bought cheap, low-technology arms through intermediaries in Hong Kong and North Korea. China under Deng Xiaoping, which also sold arms to Iraq discreetly, signed arms contracts with Iran including for anti-ship missiles.

The nuclear programme

Coincidentally, June 3-4, 1989 marks a landmark for China and Iran. The Tiananmen Square incident coincided with the death of the Islamic Republic’s founder, Ayatollah Khomeini. China suffered global censure and western sanctions, and Iran consolidated its theocracy under its new leader Ali Khamenei.

Through the 1980s and ’90s, China provided direct assistance to Iran’s nuclear and missile development programmes. After a 1997 commitment to US President Bill Clinton by Chinese President Jiang Zemin, China stopped further assistance to the programme and sales of complete missiles, but Iran by then had progressed sufficiently to carry on.

While support to Iran continued under the radar, China was forced to take a position in June 2010 at the UN Security Council against the Iranian nuclear programme after the International Atomic Energy Agency flagged violations. UN sanctions on Iran followed.

That changed Iran’s behaviour over the next few years, and the P-5+1 (permanent members of the UNSC & Germany) countries negotiated the nuclear deal with Iran in 2015.


With the US under the Trump administration walking out of the nuclear deal with Iran in 2018, China has moved in to negotiate broader and deeper ties with Iran. It had sown the seeds in 2016 itself, when the rest of the world, including India, had started engaging with Iran — PM Narendra Modi went to Tehran in May 2016.

Today, both China and Iran see the Western Pacific and the Persian Gulf as regions of contestation with the US.

Stakes for India


While India watches China with concern, what is alarming for New Delhi is that Beijing is also concluding a security and military partnership with Tehran. It calls for “joint training and exercises, joint research and weapons development and intelligence sharing” to fight “the lopsided battle with terrorism, drug and human trafficking and cross-border crimes”.

Initial reports in Iran have suggested China will deploy 5,000 security personnel to protect its projects in Iran. Some reports suggest Kish Island in the Persian Gulf, located at the mouth of the Strait of Hormuz, may be “sold” to China. Iranian officials have denied this.


Also read | Besides oil imports, US sanctions hit India plan to develop Iran natural gas field

With a growing Chinese presence in Iran, India is concerned about its strategic stakes around the Chabahar port project that it has been developing, and for which it committed Rs 100 crore in the last Budget. The port is close to Gwadar port in Pakistan, which is being developed by China as part of its China-Pakistan Economic Corridor that links it to the Indian Ocean through BRI.

India’s pace in developing the project has been slow due to US sanctions. That has made Iran impatient and last week, it decided to start work on the Chabahar-Zahedan railway.

Tightrope walk

Now, India finds itself caught in the geopolitical rivalry between the US & China over Iran. While India got a waiver from US sanctions for development of the port — on the grounds that it will help access Afghanistan bypassing Pakistan — it is still not clear whether railway and other projects are exempt from sanctions.

Iran has started laying the tracks for a 628-km railway link between the provincial capital of Zahedan with Chabahar. The government faces elections in 2021, and plans to complete the railway’s initial 150km section by March 2021, and the full length by March 2022.

India has committed to supplying tracks and rakes. Since steel is not exempted, New Delhi feels it will wait for Washington to make a concession before it decides to provide tracks and rakes.

India’s dilemma also stems from the fact that robust support from the US is essential when it is locked in a border stand-off with China. India may want to wait for the results of the November US election. If Joe Biden comes back to power, there may be no threat of sanctions; but if Trump is re-elected, India may prefer a long-term, strategic decision before continuing with the railway project. “One cannot just spend Indian taxpayers’ money without making sure they won’t be under sanctions,” a government source in New Delhi said.

While New Delhi has indicated to Tehran that it may “join later” with the project, Tehran has conveyed that it could not be denied that in a business partnership, the ruling principle is “first come, first served”. “If one does not react positively and timely to an offer, others may take it soon or later,” a Iranian government source told The Indian Express.

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First published on: 18-07-2020 at 01:19:57 am
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