China: Standing Up to US on Iran

A fully loaded Chinese oil tanker ploughing its way eastwards from two Iranian oil terminals raises questions of how far Beijing is willing to go in defying U.S. sanctions amid a mounting U.S. military build-up in the Gulf and a U.S.-China trade war.

The tanker raises the question whether China is reversing its policy that led in the last quarter of 2018 to dramatically reducing its trade with Iran.

The latest move could possibly be in response to a recent breakdown in U.S.-Chinese trade talks.

It’s the economy, stupid

The sailing from Iran of the Pacific Bravo takes on added significance given that U.S. strategy is likely to remain focused on economic rather than military strangulation of the Iranian leadership.

It is important to realize that, despite the recent deployment to the Gulf of an aircraft carrier strike group as well as B-52 bombers and a Patriot surface-to-air missile system.

The Trump administration is reportedly considering a third round of sanctions that would focus on Iran’s petrochemical industry. The administration earlier this month sanctioned the country’s metals and minerals trade.

Throwing down a gauntlet

Esfandyar Batmanghelidj, head of Bourse & Bazaar, a self-described media and business diplomacy company, and the founder of the Europe-Iran Forum tweeted:

The question is whether non-oil trade remains depressed even if some oil sales resume, which I think it will. That’s the better indicator of where Chinese risk appetite has changed. Unfortunately, Iran‘s reprieve will be limited—but better than zero perhaps.

A Chinese analyst interviewed by Al Jazeera argued that “China is not in a position to have Iran’s back… For China, its best to stay out” of the fray.

Needle prick oil politics

Bourse & Bazaar’s disclosure of the sailing of the Pacific Bravo coincided with analysis showing that Iran was not among China’s top three investment targets in the Middle East, even if Chinese investment in the region was on the rise.

The Pacific Bravo was steaming with its cargo officially toward Indonesia as Iranian foreign minister Mohammad Javad Zarif was touring his country’s major oil clients, including China, in a bid to persuade them to ignore U.S. sanctions.

A second tanker, the Marshal Z, was reported to have unloaded 130,000 tonnes of Iranian fuel oil into storage tanks near the Chinese city of Zhoushan.

The Marshall Z was one of four ships that, according to Reuters, that allegedly helped Iran circumvent sanctions by using ship-to-ship transfers in January and forged documents that masked the cargoes as originating from Iraq.

The unloading put an end to a four-month odyssey at sea, sparked by buyers’ reticence to touch a cargo that would put them in the U.S. crosshairs.

“Somebody in China decided that the steep discount this cargo most likely availed … was a bargain too good to miss,” Matt Stanley, an oil broker at StarFuels in Dubai, told Reuters.

The Pacific Bravo, the first vessel to load Iranian oil since the Trump administration recently refused to extend sanction exemptions to eight countries, including China, was recently acquired by China’s Bank of Kunlun.

The bank was the vehicle China used in the past for business with Iran because it had no exposure to the United States. As a result, it was not vulnerable to U.S. sanctions that were in place prior to the 2015 international agreement that curbed Iran’s nuclear program.

Keeping Iran onboard

China’s willingness to ignore — at least to some extent — U.S. sanctions could also constitute an effort to persuade Iran to remain fully committed to the nuclear accord which it has so far upheld despite last year’s U.S. withdrawal.

Iran recently warned Europe that it would reduce its compliance if Europe, which has struggled to create a credible vehicle that would allow non-U.S. companies to circumvent the sanctions, failed to throw the Islamic republic an economic lifeline.

In a letter that was also sent to Russia and China, Iran said it was no longer committed to restrictions on the storage of enriched uranium and heavy water stocks, and could stop observing limits on uranium enrichment at a later stage.

Putin weighs in

Russian president Vladimir Putin warned in response to the Iranian threat that:

As soon as Iran takes its first reciprocal steps and says that it is leaving, everyone will forget by tomorrow that the U.S. was the initiator of this collapse. Iran will be held responsible, and the global public opinion will be intentionally changed in this direction.