China: Support to Iran

Published on May 18, 2018

In the wake of President Trump’s decision to withdraw the US from the Joint Comprehensive Plan of Action and impose harsh new sanctions on Iran, Beijing has undertaken a number of diplomatic moves to lend its strong support to Iran in its latest showdown with Washington. 

*** In a meeting last Sunday with visiting Iranian Foreign Minister Javad Zarif, Chinese Foreign Minister Wang Yi promised a “Comprehensive Strategic Partnership” with Iran and reassured Zarif that both Beijing and Moscow would stick to their bilateral agreements with Iran and support Tehran in rejecting proposals to renegotiate JCPOA. ***

*** Beijing also promised to press the European Union countries to defy the US sanction and to stand by JCPOA if Iran continues to do so. We understand that China also promised that if European companies withdraw from Iranian projects — as is increasingly likely despite EU government threats to defy US demands — Chinese companies will step in where possible. ***

*** We also understand that Iranian President Hassan Rouhani may attend the Shanghai Cooperation Organization summit in the coastal city of Qingdao in East China’s Shandong province on June 9-10. Beijing has indicated the SCO Qingdao summit will issue a statement reiterating its support for JCPOA. ***

*** China sent the Trump Administration a symbolic warning that it will maintain economic and trade ties with Iran even if new US sanctions go into effect by announcing five days ahead of schedule a first inaugural run of a freight train route to Iran with some 1,150 tons of sunflower seeds from Inner Mongolia to Tehran. ***

Reasons Seen Behind Trump Withdrawal

We understand that in Beijing’s analysis of why President Trump withdrew from JCPOA, the move was primarily designed to support the US shale sector’s expansion into global oil markets and take market share left by any curtailment in Iranian exports. 

In Beijing’s eyes, this US tactic was applied previously, under the Obama Administration, in driving down oil prices in 2014 to punish Russia, Iran, and Venezuela. Now in a reversal of that US-inspired manipulation of oil prices, the Trump Administration, Chinese officials maintain, has been pushing oil prices higher both to support the shale sector, and to prop up US stock prices and reduce the risk of a US stock market bubble bursting. 

It may be a curious analysis, but along the same lines of thinking, Beijing believes that Germany, France and Britain will stick to the JCPOA. As a result, the outcome of Trump’s Iran strategy is likely to leave the US alone on the Iran nuclear issue, and Trump’s isolationism could further deprive the US of global influence.

What’s more, Beijing believes Iran can ultimately withstand the economic pressures of new sanctions. Three of Iran’s major economic partners are China, Russia and the European Union, and between the three, they can more than offset the US economic and political pressures. Even during the 2013-2015 economic sanctions period, Iran still sold a third of its oil to China. 

China is Iran’s biggest trading partner and, if necessary, China will import more Iranian oil to support Tehran. 

And even if the European companies withdraw from Iran, despite the EU efforts to buffer them from US territorial over reach with sanctions, the Chinese believe that their support, along with that of Russia, India, and the ASEAN countries, will keep the Iranian economy from a total collapse.

CNPC To Step In if Total Withdraws

If European companies join in US-led sanctions, we understand Beijing will stay in the JCPOA, continue actively trading with Iran, and seek to sway other Asian countries to maintain imports from Iran. 

Beijing also believes the developments over JCPOA and new sanctions will lend a natural advantage to Chinese companies competing for business in Iran. 

For example, CNPC, the Chinese national oil company, is already considering taking over Total’s stake in a giant gas project in Iran if the French company left Iran to comply with any new US sanctions. 

Total signed the $1 billion deal to develop the South Pars gas field (which has the world’s biggest natural gas reserves ever found in one place) in July 2017. The contract gave CNPC the option to take over Total’s stake if it pulled out. Total has indicated it will seek a US waiver to maintain its presences, but we believe such a massive exemption is not likely to be forthcoming from Washington, and in the meantime, both Tehran and Beijing are threatening to make good on their option.

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