May 17, 2019
High noon is almost here. China must quickly decide whether it will challenge Washington head-on and continue to buy Iranian crude, flouting US sanctions.
China appears to have been trying to appease Washington by reducing its exports to Iran by almost three-quarters over the last several months. But it has continued to buy a lot of Iranian oil.
The re-imposition of US sanctions on Iran has significantly slowed Chinese-Iranian trade. Chinese exports to Iran — mainly crucial machinery and parts for Iran’s manufacturing sector — totaled just $428 million in February. Exports had averaged $1.6 billion a month in the period from 2014 until the beginning of 2018.
This challenges the long-standing assumption in Tehran that China would stand by Iran despite sanctions pressures. In the previous sanctions period, from 2008 to 2016, Chinese businesses significantly expanded their commercial presence in Iran, stepping in as Western companies exited the market. Iranians welcomed commercial partnerships with a country they believed to be economically minded and unconcerned by Iran’s regional activities or its domestic governance.
These hopes received a jolt in October, when the Iranian business community was left scrambling after Bank of Kunlun, the state-owned bank at the heart of China-Iran trade, suspended most financial transactions with Iran. Although the bank resumed trade in January, it announced a new policy: It would only service trade exempt from US sanctions. This means trade in food, drugs and medical gear, for which China is not Iran’s leading source of imports.
Bank of Kunlun’s move is consistent with the terms of the oil waiver Washington gave China, which requires Iran’s earnings be paid into an escrow account and reserved exclusively for non-sanctioned trade.
Pedram Soltani, vice president of the Iran Chamber of Commerce, commented that China’s roiling trade war with the US remains a much higher priority for China than Iran. Additionally, the arrest of Huawei executive Meng Wanzhou for sanctions violations has made Chinese enterprises, particularly those with the most global reach, reticent to engage in Iran for fear of being similarly targeted by American authorities.But China’s acquiescence to sanctions is inconsistent with Beijing’s stated opposition to extraterritorial sanctions. In October, Foreign Ministry spokesperson Hua Chunying told reporters: “China always opposes the unilateral sanctions and long-arm jurisdiction. China’s normal cooperation with Iran under the framework of the international law is reasonable, legitimate and legal, and it should be respected and upheld.” In April, when Washington announced it was not renewing waivers so that China and other countries could still buy Iranian oil without suffering sanctions, China said almost the same words.
Pointedly, however, China did not say it would flout US sanctions.
Now, decision time is upon Beijing. It must decide within weeks whether it will continue to buy Iranian crude or shop elsewhere.
If China abandons Iran, it is unlikely that any other country will want to challenge Washington by importing Iranian oil.