Today's Opinions, Tomorrow's Reality
By David G. Young
Washington, DC, April 23, 2019 --
American bullying of Iran's oil customers risks a backlash from China.
An Iranian oil tanker named "Daniel" is floating off the port of Ningbo in the East China Sea. Daniel has an uncertain future. Having sailed from Iran's Persian Gulf terminal on Sirri island in late March1, its cargo was covered by a Chinese waiver to U.S. economic sanctions on Iran. But this trip may be its last.
Starting in the fall, China agreed to import all its Iranian oil using ships from the National Iranian Tanker Corporation. This allowed the imports to continue despite U.S. and European-based maritime insurance companies refusing to cover tankers operating in violation of U.S. sanctions.2 The self-insured tankers expose Chinese ports to large risks -- should the Daniel or collide with another ship or otherwise cause a major spill, it is unlikely that Iran could cover the costs.3
The problem of insurance shows just one of the many ways U.S. sanctions put a squeeze on the Iranian oil trade. That squeeze is scheduled to get tighter in coming weeks as the U.S. promises to end sanctions waivers as of May 2 for a number of countries, including China, for buying Iranian oil.4
Should China continue its imports after that date, companies making payments to the National Iranian Oil Company -- and any Chinese banks processing the transactions -- will be subject to a declaration of non-compliance by the U.S. Treasury Department, requiring U.S. Banks and financial institutions to freeze company accounts.5 China's largest importer of Iranian oil, Sinopec, would be most affected. It has invested billions of dollars in Iranian oilfields and has built refineries in China optimized to process Iranian crude oil. If Sinopec is not able to convince American officials to give it an exception, it has said it will have to switch to other Middle Eastern suppliers.6
Switching to other suppliers is the easy way out. It's exactly what the Trump administration wants to happen. But proud countries with nationalist governments -- like China -- are unlikely to go along quietly. Cow-towing to a American bullying is not just bad for business, it's bad for domestic politics.
From China's perspective, Iran is like any other legitimate business partner. Sure, it has a repressive undemocratic regime, a ballistic missile program, and a history of nuclear weapons development. But the same things are also true for China. It's hardly surprising, therefore, that Iran's bad boy behavior doesn't rankle the bad boy Chinese government.
The behavior of the United States government, on the other hand, is highly offensive to China. The Trump administration is trying to use its global financial dominance to strong-arm China and other countries into doing something they don't believe in -- ending trade with Iran. It's not just China that opposes America's actions, it is almost every other country on earth except Israel. America's European allies have consistently said they want to continue limited trade with Iran under the terms of a 2015 agreement where Iran agreed to limit their nuclear research activities, in exchange for sanctions relief.
As much as Trump's imperial populism annoys America's European allies, European firms are unlikely to be willing to shoot themselves in the foot to maintain their governments' foreign policy independence. The same goes for most other countries whose sanctions waivers for buying Iranian oil are expiring in early May: Taiwan, South Korea, Japan and India. But China and Turkey -- themselves led by nationalist regimes -- may not be so pragmatic. China may very well encourage Sinopec or other importers to continue the Iranian oil trade as a matter of national policy, and promise them assistance against any sanctions blowback.
Should China choose to take a stand against American bulling, it will pile on top of existing foreign relations conflicts caused by Iranian sanctions. Recall that the detention of Huawei CFO Meng Wanzhou in Canada while she awaits extradition to the United States is itself based on alleged fraud used to cover up evasion of U.S. trade sanctions on Iran. An upcoming extradition hearing -- scheduled7 one week after China's Iranian oil sanction waiver expires -- is certain to exacerbate already tense relations between the United States and China.
How this plays out will do much to determine the future voyages of the Daniel and its sister ships of the National Iranian Tanker Corporation. Should customers of Iranian oil crack American pressure, the Daniel may spend plenty of time floating with nowhere to go.
Related Web Columns:
Rule of Unjust Law, December 18, 2018
1. Marine Traffic.com, Vessel Status, As Posted April 23, 2019
2. Wall Street Insiders, China Shifts to Iranian Tankers to Keep Oil Flowing Amid US Sanctions: Report, August 20, 2018
3. World Maritime News, US: Iranian Tankers are a Floating Liability, November 9, 2018
5. U.S. Treasury, OFAC FAQs: Iran Sanctions, Febuary 6, 2019
7. Asia Times, Huawei Rings Up Stellar Numbers, April 22, 2019