EconoMatters, Global HotSpots

Can the US Make the Iran Sanctions Stick?

China’s refusal to cut back on Iranian oil purchases opens up another frontline with the U.S.

Credit: Serhii Lohvyniuk - Shutterstock.com

Takeaways


  • Iranian leaders have said that in the wake of the US withdrawal the future of the JCPOA would depend on Europe, China and Russia ensuring that the impact of US sanctions would be substantially blunted.
  • China’s refusal to cut back on Iranian oil purchases threatens to render the Trump administration’s goal of reducing Iranian exports to zero unachievable.
  • China’s refusal to cut back on Iranian oil purchases opens up another frontline with the US

Iranian leaders have said that, in the wake of the U.S. withdrawal, the future of the nuclear agreement (officially dubbed the Joint Comprehensive Plan of Action, JCPOA) would depend on the ability of Europe, China and Russia to ensure that the impact of U.S. sanctions would be substantially blunted.

Iranian foreign minister Mohammad Javad Zarif insisted earlier this week that China’s role was key. “The role of China in the implementation of JCPOA, in achieving JCPOA, and now in sustaining JCPOA, will be pivotal,” Mr. Zarif said.

China, a signatory to the nuclear agreement alongside Europe, Russia and the United States that withdrew from the accord in May, has rejected U.S. requests to cut Iranian oil exports even though it reportedly promised not to increase them. China is Iran’s top energy export market.

China’s refusal to cut back on Iranian oil purchases threatens to render the Trump administration’s goal of reducing Iranian exports to zero unachievable and means that its November 4 deadline to do so is unrealistic.

Recent Iranian trade figures suggest that the United Arab Emirates, a strong backer of U.S. efforts to squeeze Iran economically, could emerge alongside China as the Islamic republic’s foremost lifeline in seeking to blunt the impact of harsh sanctions. Russia and Oman rather than Europe are emerging as runners-up in possibly enabling Iran to circumvent sanctions.

German financial rules

Casting further doubt on Europe’s ability and will to stand-up to U.S. secondary sanctions, despite its vocal support for the embattled 2015 international agreement that curbed Iran’s nuclear program, are new German financial rules scheduled to take effect this month. The rules could delay or prevent crisis-ridden Iran from repatriating Euros 300 million ($347 million) deposited in an Iranian-controlled bank in Hamburg.

Figures for Iranian trade in the period from March 21 to July 22 of this year, compiled by Iranian energy and economics analyst Faezeh Foroutan, show China and the UAE jointly accounting for 39.8% of Iranian imports and 37.8% of its exports.

By comparison, nine members of the European Union, including heavyweights Germany, France and Britain shouldered only 15.5% of imports and 7.93% of exports.

The UAE’s potential role in helping Iran deflect U.S. sanctions may not be surprising given the fact that Dubai has long functioned as a key transhipment point for Iran with trade in the year ending at the end of March topping $16.8 billion. It is still notable, given Emirati backing for the U.S. sanctions.

The UAE “has been Iran’s no. 1 trade partners for years. The point is the growing role of Russia and Oman,” Ms. Foroutan said, expressing doubt that Oman could replace the UAE in the short term.

Russia willing to invest

Russia, for its part, advised Iran during a meeting between President Vladimir Putin and Ali Akbar Velayati, a senior adviser to Iran’s supreme leader, Ayatollah Ali Khamenei, that his country was willing to invest $50 billion in the Islamic republic’s oil and gas sector.

The two men met days before Mr. Putin’s summit last month in Helsinki with President Donald J, Trump.

Mr. Velayati said a Russian oil company had already signed a $4 billion deal with Iran that “will be implemented soon” and that “two other major Russian oil companies, Rosneft and Gazprom, have started talks with Iran’s oil ministry to sign contracts worth up to US$10 billion.”

Iran and Russia signed preliminary agreements for up to US$30 billion in investments in Iran’s oil industry months before the Trump administration said it would re-impose sanctions.

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About James M. Dorsey

James M. Dorsey is a senior fellow at the S. Rajaratnam School of International Studies and an award-winning journalist. [Singapore]

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