Home / Articles / Iran-Saudi Normalization: A Regional Process with Chinese Characteristics
In early March 2023, China mediated an agreement between Iran and Saudi Arabia to normalize diplomatic relations. While normalization between the two Middle Eastern rivals was in the works for some time, that Beijing brokered the detente sent geopolitical shockwaves around the world.
The agreement marks Beijing’s most substantial and successful diplomatic engagement in the region to date, undercuts American influence in the Middle East, and is an important victory for China as it attempts to assert itself on the world stage.
However, the more China becomes involved in Middle Eastern diplomacy, the more it risks its reputation as an apolitical partner that is primarily interested in economic growth, and the more it risks losing investments due to political disputes.
The announcement of an agreement to resume diplomatic relations between Iran and Saudi Arabia on March 10 was not entirely unexpected to those familiar with regional politics. Saudi Arabia and Iran had gone through a series of negotiations in Baghdad over the last few years, and while the talks have been stalled since October 2022, there were attempts to revive them as recently as last month. What few expected was that the negotiations would be carried out in Persian, Arabic, and Mandarin and mediated by Wang Yi, China’s top-ranking diplomatic official.
Over the course of four days, from March 6 to March 10, Ali Shamkhani, head of Iran’s Supreme National Security Council, and Musaad bin Mohammed Al-Aiban, national security advisor on the Council of Ministers of Saudi Arabia, agreed to a roadmap for peace. The two sides agreed to re-open embassies within two months and to re-implement the 1998 General Agreement for Cooperation in the Fields of Economy, Trade, Investment, Technology, Science, Culture, Sports, and Youth and the 2001 Security Cooperation Agreement, which had been suspended since the two broke off relations seven years ago. They also both agreed to respect the “sovereignty of states and the non-interference in internal affairs.” Foreign ministers from the two countries are set to meet shortly and hammer out the details of implementation.
The deal is an important example of China’s ongoing attempts to play a more substantial role in international diplomacy and demonstrate its stated commitment to peace, stability, and multipolarity. At the same time, it exposes China to a degree of risk, as it has little control over what is fundamentally a regional peace process. Successful implementation of the agreement is not a foregone conclusion, as tensions remain between Riyadh and Tehran each state’s support for groups hostile to the other, including Saudi Arabia’s support for anti-Iranian media outlets like Iran International and Iran’s support for the Houthi movement in Yemen. As recently as November 2022, repeated threats were being issued by the Islamic Revolutionary Guard Corp and Iranian intelligence officials against Saudi officials that Iran’s “strategic patience” was running out. “If Iran decides to retaliate and punish,” warned Iranian intelligence minister Esmail Khatib, “glass palaces will crumble and these countries will not experience stability anymore.” Only time will tell whether the desire to attract Chinese investment will be enough to overcome any potential friction that may yet come.
Background: Raisi’s Visit and Declining Sino-Iranian Relations
China’s involvement in Saudi-Iran relations is no coincidence. It comes on the heels of a high-profile visit by Ebrahim Raisi to China last month, during which China allegedly informed Iran that Saudi Arabia was interested in negotiations. Raisi arrived in Beijing in February 2023 amid a great deal of media fanfare aimed at domestic and international audiences, including an op-ed published by Raisi himself in People’s Daily and enthusiastic coverage in both local and English-focused outlets like Tehran Times and Global Times. But despite official enthusiasm, the trip was set against a backdrop of flagging Sino-Iranian relations, domestic criticism of Raisi’s Look East policy, and a recent diplomatic incident that led the Iranian government to lodge an official complaint with the Chinese ambassador.
With the conclusion of the 25-Year Iran-China Strategic Cooperation Agreement in March 2022, Sino-Iranian relations were supposed to enter a period of rapid expansion, and plans were announced to substantially deepen political, cultural, economic, and military cooperation. While the first two have seen some modest advancement—Iran opened a Chinese consulate in the port city of Bandar Abbas and signed several agreements for cooperation in the museum and film industries—more substantial ties have yet to materialize. Despite the much-vaunted $400 billion in investment that was supposed to appear, Chinese investors have only put forth a paltry $162 million during the first year of Raisi’s presidency. While the sale of a modest quantity of military hardware and joint military exercises have continued, they do not represent anything new or substantial, despite repeatedcalls to strengthen military ties over the years. Trade has also continued to rise, topping $25.3 billion in the first ten months of the current Iranian year (March 21, 2022, through to January 20, 2023), but still a steep decline from the 2014 high of 51.8 billion. At the same time, China’s relationship with Iran’s neighbors, especially Saudi Arabia, has been expanding at a rapid pace.
Raisi’s trip came on the heels of the major controversy stirred up in Iran by Xi Jinping’s high-profile visit to Saudi Arabia in December 2022. Following the First China-Gulf Cooperation Council Summit in Riyadh, China endorsed a series of joint statements that Iran took issue with, particularly one that called for negotiations and a peaceful resolution to the dispute between Iran and the United Arab Emirates over the islands of Greater Tunb, Lesser Tunb, and Abu Musa. Although the statement fell in line with China’s normal practice of calling for negotiations between all parties on any international dispute, Iranian officials and media pundits were incensed at the suggestion the status of the islands could be negotiated at all, and the government summoned the Chinese ambassador in protest. China did not publicly address the issue, but Vice Premier Hu Chunhua made hasty arrangements to visit Iran and the United Arab Emirates later that week, and the Chinese Foreign Ministry spokesperson indirectly referred to the reason for the visit when answering a question about Hu’s visit, saying: “the [Gulf Cooperation Council] countries and Iran are both China’s friends, and China’s development of relations with both parties isnot aimed at a third party.”
The incident set off a storm of media controversy and commentary that created a series of headaches for the government, which was eager to smooth the incident over and continue to pursue closer relations with China. The day that the news broke, many reformist newspapers ran articles criticizing the Chinese government itself, with one even publishing a piece that endorsed Taiwanese independence. Pundits and politicians across the political spectrum focused on the failure of the “Look East” policy and the need for a new approach. Reformist politician Esma’il Gerami-Moqaddam said that he hoped the shift in China’s policy towards Saudi Arabia would encourage Iranian authorities to better balance their relations between East and West. Centrist newspaper Jomhuri-ye Eslami appealed to the revolutionary slogan “neither East, nor West” in criticizing the government’s “excessive trust” in Russia and China. Some conservative outlets have also begun to question the wisdom of this policy, especially in light of Saudi efforts to involve China in the conflict in Yemen. While the media has been slightly more optimistic about the current trip, prominent reformist website Entekhab News was more critical, asking “how many times are you going to try to sell people this plan?”
Looking at the larger context of the recent Iran-China-Saudi relations, two things become apparent. First, China is motivated at least in part by a desire to mediate between the two camps so that it can continue to develop relations with all parties without fear of triggering a negative response. Furthermore, instability and the risk of hostilities are one of the main factors holding back Chinese investment in Iran, and could potentially threaten all Chinese investments in the Middle East. Given this environment, it is no surprise that China was eager to play a role in reducing tensions and creating a more favorable environment for investment. Second, Iran stands more to gain than Saudi Arabia from deepening its relationship with China, which may prove an important incentive in persuading the Iranians to stick to the deal.
While the promise of Chinese investment may have the potential to bolster the chances of implementation, the process by which the deal was reached was fundamentally a regional process. Tensions between the two sides peaked in 2019, when half of Saudi Arabia’s oil production was knocked out by a drone and missile attack that Washington and Riyadh both suspected was supported by Iran. Negotiations began quietly in 2021, mediated by Iraq’s then-prime minister, Mustafa al-Kadhimi, who enjoyed the support of both sides, but came to a halt when al-Kadhimi was replaced by Mohammad Shia al-Sudani in October 2022. Tensions flared up and cooled down repeatedly over the last few months, as both sides struggled to find an acceptable way forward. According to Saeed Azimi, a journalist based in Tehran, the Saudis, frustrated with the slow pace of negotiations in Baghdad, reached out to China during Xi Jinping’s December 2021 visit and asked them to serve as a mediator. Iran apparently accepted the offer during Raisi’s visit in February 2022.
The important point here is that Saudi Arabia, according to Azimi, reached out to China, not the other way around. The quick pace of negotiations, which concluded after just four days, also suggests that the groundwork was laid long before in Baghdad. The Wall Street Journalreported that China offered Iran some incentives to come to the table without preconditions, including access to frozen funds in Chinese banks and promises to increase investment in the faltering Iranian economy and lend support in international negotiations over its nuclear activities. These reports are unconfirmed, however, and it is still an open question whether China will actually invest in the Iranian economy, or fail to follow through as it has after previous promises. Although it has played a role in the past, Beijing’s ability to currently influence nuclear negotiations, which neither Iran nor the United States shows much interest in at the moment, is also unclear. Given these uncertainties, Chinese incentives were most likely not the deciding factor. Instead, they may have been the price Iran felt it could extract in exchange for handing China a diplomatic win.
Both the Iranians and the Saudis have ample reasons to pursue this deal for their own strategic considerations, as well as reasons to welcome Chinese mediation. On the Saudi side, there has been a growing concern since 2019 about Iranian aggression, and an implicit understanding that the United States is unable to prevent it. Drawing down tensions with Iran and coming to a negotiated settlement with the Houthis would support ongoing efforts to develop and diversity the Saudi economy and become a global power on its own merits, helping it shed its reputation as an American client state. By bringing in China, Saudi commentators seem convinced that Iran will be incentivized to not “cheat” and potentially lose access to increased Chinese investment. For Iran, the deal comes at a time when the Iranian economy is in shambles and the country has been rocked by a series of scandals and protests. Diplomatically isolated and struggling to attract Chinese funds, the Islamic Republic has every reason to want to reduce tension with the Saudis, if only to reduce the output of Saudi-funded anti-Iran media, which it blames for instigating the Mahsa Amini protests. Doing it in such a way that gives the Chinese a greater political stake in investing in Iran only sweetens the pot.
The Future of Sino-Iranian Relations and Chinese Diplomacy in the Middle East
The agreement was welcomed by most countries around the world as a development that bodes well for regional peace efforts. Even the United States issued a cautious approval, despite concerns it leaves Washington standing on the sidelines. It marks Beijing’s most substantial and successful diplomatic engagement in the region to date, and is an important victory for China as it attempts to assert itself on the world stage. Wang Yi called the announcement a “victory for peace” and connected it to China’s broader international strategy as an example of its Global Security Initiative in action. At the closing ceremony of the “Beijing Dialogue”, he claimed that “the two sides have reached a consensus on addressing their respective concerns, clarified the roadmap and timetable, and laid a solid foundation for the follow-up work of both parties. The Beijing dialogue has turned a new page in Saudi-Iranian relations.” Undoubtedly, it allows China to effectively argue that it is a force for peace, stability, and multipolarity. At the same time, China continues to take advantage of diplomatic opportunities as they come, rather than play an active role in Middle Eastern politics. This is likely by design, as China does not want to be seen as enforcing its will; Wu Sike, China’s former special envoy to the Middle East and former ambassador to Saudi Arabia and Egypt, said that agreements such as this “help countries in the region rid themselves of external interference and take their future and destiny into their own hands.”
But with every opportunity, there are also dangers. It is still unknown to what degree the promise to respect sovereignty and non-interference will materialize as actual policy changes, especially when it comes to Saudi support for anti-Iranian media like Iran International and Iranian support for the Houthi movement, which remains in a fragile ceasefire with the Saudi state and has rejected the notion that reduced tensions with Tehran will have an impact on their goals. China has failed to invest in Iran after promising to do so in the past. Fan Hongda, professor of International Studies at Shanghai University, told Iranian media that:
The conclusion of the agreement is only a good start, and whether the normalization process of Saudi-Iranian relations can proceed smoothly is a more critical issue…What kind of guarantees will China provide if one of the parties does not respect the agreement? Frankly speaking … the contradictions between the two countries are still clearly visible.
China may have an interest in the politics of the Middle East, but its main leverage is still economic, and it cannot underwrite the security deal with any sort of military guarantee. As recent reports have shown, China provides “limited security alternatives” that may undermine US policy, but currently lacks the capacity to replace it. There is also a degree of economic risk, as China also has significant investments in Saudi Arabia, Iraq, and the rest of the Gulf Cooperation Council already. Between 2005 and 2021, Chinese investment and contracts in the Gulf Cooperation Council (plus Iraq and Iran) totaled $172.94 billion, an outsized proportion of the total $273 billion investment in the Middle East and North Africa region as a whole (although this is only a small proportion of the total $2.27 trillion in total investment during the same period). It is also the top or close to the top trading partner of most Gulf Cooperation Council countries. If these investments and relationships were damaged or wiped out due to an outbreak of hostilities or even the political fallout of a collapsed deal, it would be seriously damaging to its prestige and its overall strategy. In short, the more China becomes involved in regional diplomacy, the more it risks its reputation as an apolitical partner that is primarily interested in economic growth, and the more it risks losing investments due to political disputes.
Still, there remains the possibility that this may shift the balance in favor of increased Chinese investment in Iran, as the prestige won by ensuring the deal goes through may outweigh potential economic uncertainties or relatively lower returns. It remains to be seen whether this will represent a flash in the pan or a new chapter in both Sino-Iranian and Sino-Middle Eastern relations. For once, however, there is good reason to be optimistic.
The views expressed in this article are those of the author alone and do not necessarily reflect the position of the Foreign Policy Research Institute, a non-partisan organization that seeks to publish well-argued, policy-oriented articles on American foreign policy and national security priorities.