Iran and China in Light of US Sanctions


In the era of US President Donald Trump, it is not Russia but China that forms the lifeline of Iran. The bilateral trade has flourished un-interrupted, estimated to spike to $46 billion in 2018. When renewed US sanctions scared French energy giant Total away from South Pars offshore gas field, the China National Petroleum Corporation (CNPC) was quick to show interest in buying the 50.1 percent stake. If Washington did not made an exemption for India, strategic Chabahar port could have as well gone to Beijing.
Being Iran’s largest oil customer and exporter, the waiver for China makes the challenges of isolation a little less daunting.
Iranian Oil Minister Bijan Namdar Zanganeh said, “China’s CNPC has officially replaced Total for the development of phase 11 of South Pars, but it has not actually started working.” Operational and executive modalities are yet to be sorted out. Iran shares the oil field with Qatar as both draw petrochemicals from the same source.

Excluding China from the US sanctions
Prior to the US government’s waiver, it was abundantly clear that the South Pars Field will be dished to China if sanctions force the French company to quit. Even then, the CNPC owned 30 percent share in the oil field that is now set to soar up to 80 percent.
The eight beneficiaries of the waiver are permitted to buy Iranian oil until May 3, 2019. Media reports suggest that tankers are booked till December, thus the countries like South Korea and Japan, won’t be able to utilize their import ceiling prior to January. China, however, is neither constrained by tankers’ availability or the limitation of reliance on the US dollar. It is permitted to buy 360,000 bpd to meet its vociferous energy demands soaring beyond 9 million bpd. Iran, Russia and North Korea remain three prime beneficiaries of Chinese bid to replace the dollar with renminbi or yuan for its international commerce. Even if the dollar-yuan swap is not at hand due to regulatory hurdles and market dynamics, Beijing and Tehran can meanwhile rely on barter trade for items not barred under the US curbs.

China’s support restrains the protests
In the context of angry protests earlier this year, China’s continued support can avert worsening of domestic economic and political situation in Iran. Trump’s sanction-waiver is rendering his own rhetoric of regime hollow. So far, the US policy could deter Iran’s European customers, which are busy finding ways to circumvent the restrictions. Though stakes may be high for Beijing in intensifying Trump-initiated trade war, ties with Tehran send out an indirect yet effective response of pragmatic defiance.
Though both are amongst the oldest civilizations, China and Iran established bilateral relations in 1971. It was during President Ahmadinejad’s era when the countries inked the treaty in favor of barter trade. The government of Hassan Rouhani has strengthened the ties even further. On its part, China has created two banks – Zhuhai Zhenrong Corporation and CNPC’s Bank of Kunlun – to continue financial business without regard for US sanctions. For instance, both the institutions continued to buy half a million bpd from Iran through the Obama era prior to the signing of the nuclear deal. They were immune to the curbs’ impact due to their marginal role in international business.

Future of Iran-China relations
In the light of the spectacular forecast of China’s economic growth by 2030, the Asian giant’s energy needs are set to soar exponentially. Standing by Tehran in tough times will continue to pay back for Beijing in decades to come.
In the pipeline is the 2016 agreement with China to set up two nuclear reactors in Iran. President Xi and President Rouhani then pledged to take the total bilateral trade to $600 billion in 10 years. A little too ambitious it does seem but the foundations for such a long-term partnership have been laid.
Prior to the UN Security Council sanctions, Iran was one of the leading buyers of Chinese military hardware. Though arms’ sale to Tehran requires UNSC nod until the sunset clause of JCPOA comes into effect in 2020, Beijing is likely to remain its most favored and dependable manufacturer. Compared to 2009, the Chinese defense industry has attained remarkable sophistication and thus, an impressive market footprint globally.
Though Iran actively pursues the policy of interference, China has strictly avoided such pursuits. Yet, both have a nearly identical approach to most the international conflicts and issues in the global fora, especially the UN General Assembly and the Security Council. Syria is one glaring example of their convergence of interests.
The growth of China’s financial might strength will result in a parallel economic system to the detriment of the US dollar. The UNSC sanction will be the only deterrent for a ‘rouge’ country’s isolation. Even such curb won’t be possible sans China’s vote amongst the P-5 in New York.
Saudi Arabia has, of late, paid significant attention to its ties with China. Riyadh, being China’s largest energy exporter and bilateral trade recorded at $42.36 billion in 2017, has opened new avenues of cooperation, ranging from the purchase of military hardware to setting refineries. However, the kingdom’s arms’ import worth $20 million in 2017 from China eclipse in front of a whopping $3.4 billion from Washington in the same period.
In October 2018, the Arab kingdom took its first step to embracing the Asian giant’s Belt and Road Initiative by joining the China-Pakistan Economic Corridor. For now, the KSA has chosen Gwadar deep-sea port for setting up an oil refinery. Receding geopolitical and geo-economic might of the United States necessitates that alternate sources of power and legitimacy be entertained. Though aspiring to pursue a multipronged policy, the Gulf nation knows that it must act faster in exercising true leverage in relations with China.

Saudi-China partnership and its impact on Tehran-Beijing ties
Saudi Arabia has long sought to diversify away from its reliance on the US and has increasingly stepped up its engagement with China, its largest trading partner with $42.36 billion in bilateral trade in 2017. During King Salman’s visit in March 2017, the two countries also signed $65 billion worth of deals in areas ranging from energy to space technology.
By assuming the role of Iran’s savior, China has a delicate balance to strike in order to keep lucrative markets and regional influence alike. Beijing will face increasing competition between the Gulf rivals for its strategic partnership, thus challenging its long-held notion of impartiality in foreign disputes.

Editorial Team