Drawing on the literature on strategic hedging and adapting it to China’s use of economic diplomacy in the service of comprehensive national security goals within the regionalised foreign policy approach of the Belt and Road Initiative (BRI), we examine China’s approach to securing and expanding its interests in the Persian Gulf. To implement the trade and infrastructure connectivity goals of the BRI and to secure the continued flow of diversified energy supplies, China needs to boost relations with both regional powerhouses, Iran and Saudi Arabia, without alienating either of them or the regional hegemon, the United States. The resulting strategy of strategic hedging is based in the Chinese approach to economic diplomacy, which utilises Chinese commercial actors in the service of national strategic objectives. Relations require careful and ongoing management if China is to achieve outcomes which benefit all sides while avoiding becoming entangled in the region’s intractable geopolitical problems.

In the Belt and Road era, one would expect an increase in the amount of Chinese economic engagement with Iran due to its strategic position on the Persian Gulf and its rich oil reserves. Yet by 2020 a committed program of large-scale investment comparable to the China-Pakistan Economic Corridor (CPEC) had not materialized in Iran. The article uses an analytically eclectic framework to examine the record of Chinese economic activity in Iran since the advent of the Belt and Road Initiative (BRI) in 2013. The empirical analysis demonstrates that China uses a strategically hedged approach to economic engagement in the Persian Gulf incorporating ideational as well as material elements. Ideational elements include the BRI's intentional geographical "fuzziness" which enables it to act as a loose "policy envelope" for China's evolving foreign policy needs. Through its hedged approach, China aims to open up local markets to Chinese commercial actors and secure diversified oil supplies. At the same time, Beijing aims to soft balance against US regional hegemony while avoiding the appearance of a challenge to the regional status quo. China also hedges by attempting to maintain solid relations with as many regional actors as possible, including most importantly Iran's regional rival Saudi Arabia, from whom China is receiving ever higher imports of oil. Data reveal that Chinese economic engagement with Iran has increased in the BRI era, but at a slower rate than in some other BRI partner countries and not at the expense of its relations with Saudi Arabia.

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