On August 31, the leaders of China, Russia and India met in Bishkek for the annual summit of the Shanghai Cooperation Organization. Iranian President Masoud Pezeshkian was also in attendance.<\/p>\n
The final declaration of the summit issued on September 1 called for the creation of a new development bank, which in Russian President Vladimir Putin\u2019s words<\/a> would have \u201cmaximum independence from the financial systems of the states which weaponize economic tools in order to obtain unilateral advantages in international affairs\u201d<\/p>\n The summit was held just a week after the United States announced the latest package of sanctions against Iran, which instead of isolation, enjoyed a warm welcome in Bishkek.<\/p>\n As the SCO gathering demonstrated, Washington is already facing major difficulties in ensuring international compliance with its sanctions.<\/p>\n Perhaps its biggest challenger is China. Beijing is once again standing by Iran \u2013 not out of moral or ideological motivations, but because it can and because it is in its interest.<\/p>\n Toothless sanctions<\/p>\n By purchasing\u00a090 percent<\/a>\u00a0of Iranian oil exports, China has single-handedly kept the Iranian economy afloat \u2013 all while evading the US sanctions through a sophisticated network of \u201cdark fleets\u201d (ships used to obfuscate the Iranian origin of their cargo) and \u201cteapot\u201d refineries (private refineries so dubbed for their relatively modest size).<\/p>\n In response to Washington\u2019s \u201cwith us or against us\u201d ultimatum on the sanctions, the Chinese foreign ministry spokesperson said that \u201cChina will do everything necessary to firmly safeguard its rights and interests\u201d. Having fought several trade wars with the US to a standstill, China has developed a high tolerance for US-inflicted economic pain \u2013 and an equally low tolerance for being pushed around.<\/p>\n For Beijing, foreign interference in bilateral trade relations with a third country is not acceptable.\u00a0\u00a0 More importantly, it views Washington\u2019s threat as toothless \u2013 and for good reason.<\/p>\n China is well insulated from the US\u2019 Iran-related secondary sanctions. Chinese banks and companies that do business with Iran often do so exclusively, settling transactions in\u00a0renminbi\u00a0or through\u00a0barter\u00a0\u2013 making them effectively immune to US extraterritorial jurisdiction.<\/p>\n Meanwhile, the handful of Chinese companies that still settle transactions in US dollars are hidden beneath layers of\u00a0shell companies\u00a0that\u00a0can be discarded at little to no cost. This forces Washington into an endless game of regulatory whack-a-mole, in which each entity successfully eliminated is quickly replaced by another.<\/p>\n Washington could, of course, sanction major Chinese banks and companies that have no ties with Iran \u2013 using them as a bargaining chip to pressure Beijing to rein in those that do. Doing so, however, would invite Beijing to retaliate in kind. With the US economy already strained by the war with Iran and the midterms just around the corner, picking a fight with China is the last thing the US needs.<\/p>\n Iran must not lose<\/p>\n Toothless US sanctions aside, China has another motive for standing by Iran\u2019s side: its defeat could be costly for Chinese geopolitical and economic interests.<\/p>\n From Beijing\u2019s perspective, should Iran lose, the entire Middle East would gravitate back into the US orbit. Regional countries currently exploring alternative security partners would have little choice but to seek refuge once more under the US security umbrella.<\/p>\n Such a shift would not only deal a heavy blow to China\u2019s growing influence in the region but also complicate future cooperation on advanced technologies, including 5G, artificial intelligence, and defence.<\/p>\n Worse still, China\u2019s energy interests could be threatened. The country sources 40 percent of its oil imports from the Gulf, with Iran accounting for 10 percent. With such a significant chunk of oil imports originating from countries under US influence, China\u2019s economic lifeline would effectively lie in US hands.<\/p>\n A victory in Iran would also embolden Washington to continue its pursuit of regime-change in other countries that have close ties with Beijing.<\/p>\n This would make it increasingly difficult for China to protect its interests overseas, as was the case when Panama seized two Chinese-operated ports under US pressure.<\/p>\n China\u2019s caution<\/p>\n That said, China does not see itself in a tight alliance with Iran \u2013 hence its reluctance to ramp up support.<\/p>\n It is worried that a total victory for Iran would enable its regional hegemony, driving yet another wedge in the already strained relationship with the Gulf states, and further undermining years of Chinese diplomatic efforts aimed at bridging that divide.<\/p>\n Therefore, Beijing is maintaining a calibrated distance from Tehran \u2013 not too hot, not too cold, but just right. The fact that Pezeshkian is yet to be invited to Beijing makes it clear the Chinese authorities are not eager for a tight embrace.<\/p>\n This was apparent at the SCO summit as well. The Chinese leader met with his Russian and Indian counterparts, but did not have a formal meeting with Pezeshkian. There were formal consultations at the level of foreign ministers.<\/p>\n The message is subtle yet unmistakable: Though Beijing values the relationship, it is keeping its distance.<\/p>\n Balance with Washington<\/p>\n When considering the China-Iran relationship, it\u2019s important to remember that relations with the US, although often fraught by rivalry, are very important for Beijing.<\/p>\n Resetting of China-US relations takes priority, which is why two high-level summits are taking place this year: The first one was US President Donald Trump\u2019s visit to Beijing in May, and the second is Xi\u2019s trip to Washington later this month.<\/p>\n During Trump\u2019s visit to China this May, he and Xi announced<\/a> that the two countries had agreed on building a \u201cconstructive China-US relationship of strategic stability\u201d \u2013 one where cooperation takes centre stage, competition is kept within bounds and never descends into zero-sum games, and war is to be avoided at all cost.<\/p>\n