Iran looks warily to China for help as US sanctions resume

Alireza Alihosseini, an Iranian salesclerk at a kitchenware shop, shows Chinese-made goods to customers at the Grand Bazaar, in Tehran. (AP)
Updated 12 September 2018
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Iran looks warily to China for help as US sanctions resume

  • Iran was China’s third-largest source of crude oil until 2012
  • Chinese made goods highly visible in Tehran markets

TEHRAN: It’s hard not to see China wherever you look in Iran.
From Chinese goods flooding markets to its business people eager for deals as Western business interests flee, Iran likely will further embrace Beijing as an alternative market for its crude oil and financial transactions amid uncertainty over the nuclear deal.
That doesn’t mean China offers a safe haven to Iran without conditions. Beijing will try to extract the maximum benefit, analysts said, and there is growing concern that China may take advantage of Iran.
Iran “has had to rely on China to offset the Western-induced isolation, predominantly championed by the United States,” said Arianne Tabatabai, an associate political scientist at the RAND Corp. who recently co-authored a book exploring Iran’s ties with China and Russia. “I think that what we’re going to see . is the return of a quasi-monopoly of key sectors of the Iranian economy by the Chinese.”
Trade and ties between China and Iran date back over 2,000 years to the ancient Silk Road caravan routes that brought the textile to Europe. Modern relations began under then-ruler Mohammad Reza Shah in 1971 after the Americans acknowledged Beijing’s Communist government. The 1979 Islamic Revolution that overthrew the shah caused ties to cool until the mid-1980s.
For China, Iran for years served as a crucial gas pump for its rapid economic growth. Up until 2012, Iran was China’s third-largest source of crude oil imports, according to the US Energy Information Administration.
Then came sanctions over Iran’s nuclear program, sparked by the West’s fears that Tehran’s enrichment and stockpiling of uranium could allow it to build nuclear weapons. Iran has denied wanting atomic bombs.
The US under President Barack Obama and European nations pressured China and other Asian countries to cut back on their purchases of Iranian crude, leading to the 2015 nuclear deal. Under it, Iran agreed to limit its enrichment of uranium in exchange for Western sanctions being lifted.
Now with President Donald Trump’s decision to pull America from the accord, Iranians likely see China as one of the few avenues now open to them.
“China is a vast economy and has enough middle-sized companies that don’t have a lot of exposure to the US that Iran is going to be able to continue large quantities of trade there, assuming the Chinese government lets that happens and wants that to happen,” said Peter Harrell, a fellow at the Washington-based Center for a New American Security and a former US diplomat who worked on Iranian sanctions issues with Beijing.
The Chinese have stressed they want the nuclear deal to continue and support any talks toward that end.
“China has been carrying out open, transparent and normal business cooperation with Iran in the economic, trade and energy sectors. Such cooperation is reasonable, legitimate and lawful,” Chinese Foreign Ministry spokesman Lu Kang said in August. “It contravenes no UN Security Council resolutions or international obligations China has pledged into, undermines the interests of no one, and thus deserves to be respected and maintained.”
He added, in an apparent dig at the Trump administration: “China always believes that reckless imposition of sanctions or threatening to use them will not help solve the issues.” China already faces a billion-dollar tariff fight with Washington itself.
First among China’s wants likely is Iran’s energy supplies as other US allies cut off their purchases by a November deadline. Nearly a quarter of all of Iran’s oil exports went to China in 2017, according to the Energy Information Administration, making it the Islamic Republic’s biggest single market. While oil imports from Iran have dropped some 20 percent between May and August, “China will keep any reductions to a minimal level,” the Eurasia Group said Wednesday.
After French oil major Total pulled out of a $5 billion, 20-year agreement to develop the Iran’s massive South Pars offshore natural gas field, growing rumors circulated that China would take over the concession.
Meanwhile, India may face growing pressure to pull out of Iran’s Chahbahar port on the Gulf of Oman after pledging $500 million to improve it, allowing China to expand its own presence there. China already has invested in Pakistan’s Gwadar port, some 80 kilometers (50 miles) away. Both provide a link to Afghanistan and other landlocked central Asian nations.
“China is really going to be the major savior of Iran because even though other countries say they’re not going to comply with US sanctions — India for example — when push comes to shove, they can’t afford to risk their relationship with the United States,” Tabatabai said.
But already, there are rumblings of concern among the Iranian public.
At Tehran’s Grand Bazaar, most acknowledge Chinese goods are substandard to the ones sold by Western firms and remember how they flooded the market when nuclear sanctions bit into the country in 2006. Fishermen along Iran’s southern coast already complain about Chinese firms gaining access to their fishing grounds.
Analysts expect Beijing also will ring major discounts from Tehran for buying whatever crude it otherwise can’t sell after the November deadline.
China “will want to articulate the moral high ground” by mentioning the US backed out of the nuclear deal, but business will come first, Harrell said. China remains both Iran’s top import and export market.
“One thing I’m sure China is doing with the sanctions is leaning on Iran to get oil price concessions,” Harrell said.
The one thing China, the world’s top oil importer, does not want to see happen is any military action driving up the price of crude oil.
When Iranian President Hassan Rouhani made veiled threats about Iran’s ability to close off the Strait of Hormuz, the Chinese immediately reached out to the Iranian government to express concern.
“If Iran does something stupid that sends global crude oil prices from $73 to $100 a barrel, China is actually the biggest loser by the move by far,” Harrell said. “They have a very strong interest in stability, particularly in the Middle East.”


Brent oil trades near 4-year high, but US crude retreats

Updated 26 September 2018
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Brent oil trades near 4-year high, but US crude retreats

  • The US will apply sanctions to halt oil exports from Iran, the third-largest OPEC producer, starting on November 4
  • Brent is on course for its fifth consecutive quarterly increase, the longest such stretch for the global benchmark since early 2007

TOKYO: Brent crude was trading around its highest in nearly four years on Wednesday, while US crude futures fell as Washington tried to assure consumers that the market would be well supplied before sanctions are re-imposed on producer Iran.
Brent crude futures were up 10 cents, or 0.1 percent, at $81.87 a barrel by 0645 GMT, after gaining nearly 1 percent the previous session. Brent rose on Tuesday to its highest since November 2014 at $82.55 per barrel.
US crude futures were down 4 cents at $72.24 a barrel. They climbed 0.3 percent on Tuesday to close at their highest level since July 11.
The US will apply sanctions to halt oil exports from Iran, the third-largest producer in the Organization of the Petroleum Exporting Countries (OPEC), starting on November 4. The pending loss of Iranian supply has been a major factor in the recent surge in crude prices.
US officials, including President Donald Trump, are trying to assure consumers and investors that enough supply will remain in the oil market while requesting producers raise their output.
“We will ensure prior to the re-imposition of our sanctions that we have a well-supplied oil market,” Washington’s special envoy for Iran, Brian Hook, told a news conference at the United Nations General Assembly on Tuesday evening.
In an earlier speech at the UN, Trump reiterated calls on OPEC to pump more oil and stop raising prices. He also accused Iran of sowing chaos and promised further sanctions on the country.
The so-called ‘OPEC+’ group, which includes the world’s biggest producer Russia, met over the weekend but did not see the need to add new output as the market is well-supplied currently.
“The lack of new production growth guidance by OPEC does not reflect a desire to let prices appreciate meaningfully further, but rather the historical pattern of OPEC responding to rather than front-running production losses,” Goldman Sachs said in a report.
“We continue to expect that the decline in Iran exports will reach 1.4 million barrels per day, and while it is occurring faster than we had previously expected, we continue to expect it to remain offset by a faster ramp-up in production from other producers.”
The investment bank reiterated its view that “Brent prices will stabilize back in their $70-80/bbl range into year-end.”
Brent is on course for its fifth consecutive quarterly increase, the longest such stretch for the global benchmark since early 2007, when a six-quarter run led to a record-high of $147.50 a barrel.
Meanwhile, in the US, the world’s biggest oil user, an industry report on Tuesday showed crude stockpiles unexpectedly climbed last week.
Crude inventories rose by 2.9 million barrels in the week to Sept. 21 to 400 million, compared with analyst expectations for a decrease of 1.3 million barrels, the American Petroleum Institute said.
Official figures on stockpiles and refinery runs from the US Department of Energy’s Energy Information Administration are due at 10:30 a.m. EDT (1430 GMT) on Wednesday.