Global Affairs: A showdown that wasn’t

With waivers from US nuclear sanctions against Iran that expired Thursday, and US-China trade war talks running this week and next, many thought the beginning of May might be a monumental geopolitical tipping point. Now it seems it won't be. While this week was certainly another important point in the two overlapping standoffs, it seems now that the convergence of events is more the beginning of another stage in the process than an end. The two issues are inextricably connected because China is possibly the main country that can determine whether US sanctions pressure on Iran succeeds or not, and because its choice could be heavily impacted by whether it strikes a broad trade deal with the US. Since the US announced last month that it would not renew waivers from sanctions, the two possible narrative went like this: A US-China trade deal could lead China to turn on Iran, whereas no deal could lead China to support Iran since it is already under heavy US tariffs anyway. It is true that waivers from US nuclear sanctions against Iran will end. This did catch many countries by surprise and for some days seemed like a potential dagger to the Iranian economy that might finally get Tehran to agree to new concessions in the nuclear standoff. But most predictions now are that China and Russia, and possibly others, will neither have collide head-on with the US, nor will they completely desert the Islamic republic. Rather, they are expected to significantly reduce – at least temporarily – some of their trade with Iran so as to give the appearance of cooperation, while cheating on the sanctions quietly. These countries have state companies that do no business with the US, and their economies are large enough for them to find creative ways to barter goods for goods without using US dollars or leaving an obvious paper trail. Iran may also sell oil and other items to China, Russia and others based on a promise for payment at a later date. It has done this before with India to the tune of $6.5 billion. The bottom-line is these Asian countries will likely reduce their on-the-books trade with China enough to let the US proclaim some kind of public victory, while keeping Tehran propped up with trade activity under the radar. China and Russia are likely also to again increase their trade with Iran some months down the line, when there is less attention being paid to the issue. The US is likely to accept this situation because China and Russia are world powers which cannot be toyed with, and from which the US is hoping to get cooperation on other issues. Regarding the US-China trade-war, top US officials had said the May meetings would be decisive and were near a deal. However, whether there is a deal or not in the coming days – and there is a decent chance there will be – it turns out that this is not the real question. The real question will be, how much will China enforce and comply with its promises to the US in six months? If China, as many now expect, temporarily complies, but eventually tries to cheat on some of its commitments (it has promised to cut down on the intellectual property theft of US technology), will US President Donald Trump call it on the issue publicly? Or will he downplay violations and play up his relationship with Chinese President Xi Jinping, the way he has with North Korean provocations and its leader Chairman Kim Jong Un? If Trump does look the other way, the impact of China's continued economic support for Tehran cannot be underestimated. CHINA HAS a number of massive state-run enterprises which Iran sanctions expert Barak Seener 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.” China's mixed reaction was observable in October-December 2018. At that point, multiple major Chinese companies initially cut oil imports in anticipation of snapped-back US sanctions, but then heavily increased imports once they received a waiver from the US. Beijing's waiver had allowed it to buy 360,000 barrels per day. Reports said it had bought around 585,000 per day, representing a massive percentage of the around 1.1 million barrels per day that the Islamic republic has been exporting since the November 2018 oil sanctions. So, broadly speaking, China is likely to initially cut back on its oil purchases from Iran, but then will likely gradually and quietly challenge the US on the issue. Russia also has its own oil supply, a big state infrastructure and energy companies that do not access US markets, and they will have no problem doing business with Iran. Analysts view India as more being vulnerable than China both in terms of lacking the same mega-state industries which can be insulated from sanctions, and regarding whether its economy is large enough to withstand extended instability. On one hand India, unlike China which blasted the US announcement that it would not renew waivers, 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, there are reports that China and India may set up a buyers' bloc as the two leading global importers of oil. If they unify their efforts, their significant joint purchasing power in the global energy sector could be formidable in impacting US policy on Iran sanctions and other issues. Indian media reported in April that both countries had recently set up a joint working group on energy. However, analysts have said that for China, India and any other participating countries to establish an oil buyers' cartel, they would need to establish a workable, unified payment system and a successful futures trading platform. Regardless, India's past statements have shown that they do not recognize unilateral US sanctions without broad global backing. Further, India said in 2018 that it earmarked at least $20 billion in investments in the Iranian energy market. Beyond China and India, other kinds of coordination between Asian supporters of Iran could facilitate buying Iranian oil without using US dollars. This is why China is the key to the equation. Once again, this is why 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 might try to maintain oil trade as well. China could even increase its exports in that scenario, and it has the ability to keep some exports off-book. All of this was why a number of economic analysts had been asking: Is the Trump administration's primary goal to stick it to China in the trade deal, which might lead China to stick it to the US on Iran? Or might the Trump administration prioritize obtaining Chinese cooperation against Iran and give the Chinese improved terms regarding other aspects of their broader trade-war negotiations? It seems that neither scenario will transpire and that China will try to do a form of economic guerrilla warfare, where it cooperates with a trade deal and with US sanctions on Iran to some degree, but not any more than necessary. The bottom line seems to be that Tehran will be able to outlast even the current increased sanctions pressure through the November 2020 US election. The outcome of that election, and not the developments this month, will likely be the key to the ultimate outcome of the US-Iran nuclear standoff.

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