Can U.S. get Asia to play ball with Iran sanctions?

If they do not cut a deal, China may choose to defy the sanctions, which could lead to other Asian countries defying the sanctions and undermine the new US pressure campaign from its initiation.

By
April 24, 2019 08:22
3 minute read.
Chinese State Councillor and Foreign Minister Wang Yi meets Iranian FM Mohammad Javad Zarif

Chinese State Councillor and Foreign Minister Wang Yi meets Iranian Foreign Minister Mohammad Javad Zarif at Diaoyutai state guesthouse in Beijing, China May 13, 2018. (photo credit: THOMAS PETER/REUTERS)

 
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The most important issue for predicting whether the US’s upped-economic pressure campaign on Iran will work is probably knowing whether the US and China are about to strike a major deal ending their trade war.

If they cut a deal in the coming weeks, the US’ removal of waivers for sanctions against countries who buy Iranian oil could really bring the Islamic Republic’s oil experts to close to zero and force Tehran to cut a new deal.

If they do not cut a deal, China may choose to defy the sanctions, which could lead to other Asian countries defying the sanctions and undermine the new US pressure campaign from its initiation.

The impact of whether China continues to support Tehran economically cannot be underestimated.

China has a number of massive state-run enterprises, which Iran sanctions expert Barak Seener has previously told The Jerusalem Post have “nothing to lose if they enter the Iranian market and they replace companies that have exited like [the French company] TOTAL…they do not suffer any negative consequences because they never have to enter the US market.”

He said that China’s non-state companies “will need as many markets as possible and must assess which is the most profitable market to engage in. They are more likely to abide by sanctions because they need access to US markets.”

The mixed Chinese reaction was observable in October-December 2018 when multiple major Chinese companies initially cut oil imports in anticipation of snapped back US sanctions, but then heavily increased imports once receiving a waiver from the US.

China’s waiver had allowed it to buy 360,000 barrels per day with reports that it bought around 585,000 per day, representing a massive percentage of the around 1.1 million barrels per day which Iran has been exporting since the November 2018 oil sanctions.

Similarly, while Russia has its own oil supply, it has big state infrastructure and energy companies which do not access US markets and they will have no problem doing business with Iran.

India is viewed as more vulnerable than China both in terms of lacking the same mega-state industries which can be insulated from sanctions and in terms of the size of its economy being able to stand instability.

On one hand India, unlike China which blasted the announcement, was silent initially about the US announcement.


Also, there are reports that India has set itself up to function with alternate sources of oil, which could suggest a readiness to drop Tehran’s exports.

On the other hand, India’s past statements have indicated that they do not recognize unilateral US sanctions without broad global backing.

Further, India said in 2018 that it had earmarked at least $20b. in investments in the Iranian energy market and, even if smaller than China, it is a major economic power that can fight back in a trade war.

Working together, China, Russia, India and others may also be more successful at facilitating buying Iranian oil without using US dollars.

This is why China is the key to the equation.

If China drops Iran, India and Russia will likely back off as well.

If China stands by the Islamic Republic, India, Russia and possibly even Turkey, South Korea and others may try to maintain oil trade as well. China could even increase its exports in that scenario and has the ability to keep some exports off-book.

A number of economic analysts are therefore asking, is the Trump administration’s top item to stick it to China in the trade deal, in which case China might stick it to the US on the Iran issue? Or might the Trump administration prioritize gaining Chinese cooperation against Iran and be ready to give the Chinese better terms on other aspects of the broader US-China trade war in return?

The other possibility is that the US will force almost all countries to zero oil exports from Iran, but will leave the issue as still being negotiated with China or will give China a favorable double-standard. Many analysts simply find it difficult to imagine that China and India will completely cut-off Iran given their countries extensive ties.

In any case, it seems that it is no coincidence that a decision point with China is expected in the coming weeks, just as the May 2 end of waivers of sanctions for trading with Iran is due to kick in.

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