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China Disinterested in Western Sanctions on Iran

By John Daly | Sun, 29 July 2012 00:00 | 6

Few people are aware that Iran is currently subjected to not one, but three sets of sanctions imposed by U.S., the United Nations and the European Union, the latter two over concerns about Iran’s civilian nuclear energy program, which both Washington and Israel allege masks a covert nuclear weapons program, a charge Iran steadfastly denies.

Now China, Iran’s largest oil export market, has indicated that it might not wholeheartedly go along with Washington’s dictates. Beijing’s intransigence on the issue has given Washington a most unwelcome diplomatic conundrum, if for no other reason than China now holds more U.S. Treasury bonds (debt) than any other nation.

The first U.S. economic sanctions against Iran were instituted in 1979 in the wake of the hostage crisis, when Washington froze about $12 billion in Iranian assets. Extending Washington's reach, in 1996 U.S. legislation, “The Iran-Libya Sanctions Act” (ILSA) threatened even non-U.S. countries and companies with possible sanctions if they invested more than $20 million in developing Iran's energy resources. Renewed in 2001,in September 2006 ILSA was renamed the Iran Sanctions Act (ISA), as Colonel Gaddafi was becoming more diplomatic, leading Libyan sanctions to be lifted, leaving Iran alone in Washington’s economic gun-sights.

ISA is designed to isolate Iran and punish naughty Western companies seeking a foothold in Iran's hydrocarbon sector. Since the 1979 Iranian Revolution it has been a core tenet of U.S. foreign policy to contain the Islamic Republic of Iran, and the sanctions are the most formidable weapon in Washington's arsenal. ISA sanctions have provoked protests, some of whose members note Washington's "double standard" as U.S. foreign policy persistently strives to undercut the Arab League's boycott of Israel while promoting ISA.

In the beginning of 2012, EU foreign ministers agreed to place sanctions on Iranian oil and oil products because of Iran’s non-compliance with the obligations of the Treaty on the Non-Proliferation of Nuclear Weapons and the EU sanctions entered into force on 1 July.

According to the U.S. Energy Information Administration (EIA), Iran's largest export markets are China (543,000 barrels per day), India (341,000 bpd) Japan (251,000 bpd, South Korea (239,000 bpd), Turkey (217,000 bpd), Italy (204,000 bbd), Spain (170,000 bpd) and Greece (158,000 bpd.)

So, how are the sanctions working with Iran’s largest oil export market? According to “China Daily,” China bought more crude from Iran in June than it did on average last year before European Union-imposed sanctions against the Persian Gulf nation went into force on 1 July, with Chinese imports of Iranian oil rising 17 percent from May to 2.6 million metric tons, or about 635,000 barrels a day, according to China’s General Administration of Customs. In contrast, in 2011 China bought 2.3 million tons of crude from Iran on average each month, or about 557,000 barrels per day.

Sanctions have a twofold purpose – first, to punish the transgressor, second, to punish those who break them

So, how is Washington dealing with China’s errant behaviour?

On 28 June the U.S. granted China a six month waiver from having to comply with the new restrictions, effectively giving Beijing until the end of the year to support the policy.

The date is significant in that consideration of renewing exemptions falls after the U.S. presidential elections.

It is also significant because it in effect underlines how little real leverage the Obama administration has over China. In the complicated minuet of U.S.-Chinese relations, Beijing holds a trump card – over $1 trillion in U.S. Treasury bonds. Should Beijing decide either to stop buying them or unload what they already have, Washington would quickly find itself in uncharted financial waters.

So, the shadow play continues. China is not going to sacrifice its economic growth simply because Washington and Tel Aviv are in a tizzy about Iran’s purported nuclear weapons program. Washington, on the other hand, must need to be seen as “tough” on Iran, and expect to see both President Barack Obama and presumptive Republican nominee Mitt Romney, about to visit Israel, ratchet up the rhetoric against Iran.

But at the end of the day, as noted above, China holds some very expensive U.S. economic trump cards, which, if they cashed in the chips, could quickly crater the weak U.S. economic recovery.

China is now one of twenty nations that have received exemptions from the sanctions, which were a provision of the National Defense Authorization Act signed into law on 31 December 2011, and the “wriggle” clause is that after a country receives waivers from the sanctions, they can be renewed after 180 days, if the penitent nations show “significant reductions” in their imports of Iranian oil.

Want to bet that in December China’s exemptions are renewed?

By. John C.K. Daly of Oilprice.com

Leave a comment

  • Philip Andrews on July 30 2012 said:
    The US is caught in an unresolvable dilemma relating to the realities of 'decline of power'. US commercial greed in China has causaed the US to put its head into the jaws of the Chinese tiger.

    China vcan do what she pleases on the world stage and the US can do almost nothing about it except symbolically. As can the Russians esp. in Europe and the ME and the Iranians.

    So long as the Iranians have Russia and China backing them, they will most likely survive whatever rthe West/US decides to throw at them. This reality is also being played out in Syria where the West's talk of 'rolling back Iranian power' is flummery to disguise the fact that Russia and Iran have extermely sophisticated intelligence capabilities in Syria that the West can't match.

    This reflects a growing split between the Euro-Atlanticist power system of the 19th/2oth centuries and the much more ancient Eurasian system. Power is now shifting back to Eurasia. The West in its 'cocoon' has yet to acknowledge this reality...
  • John Wilkins on July 30 2012 said:
    The fact that China owns so many Treasury bonds is totally irrelevant. let China sell them if they want. They have to sell them im dollars. To who? Whoever would buy them has to buy them in dollars and hold them in dollars and therefore nothing at all changes. The Chinese hold so many Treasuries because they want to keep their currency competitive. If china wants to sell and they can't find another buyer the fed will buy them. They have no leverage on the United States because of their Treasury holdings.
  • Randy on July 30 2012 said:
    "Now China, Iran’s largest oil export market, has indicated that it might not wholeheartedly go along with Washington’s dictates."

    Dictates? Most of the democracies of the western world stand-by these sanctions. It is not just Washington that is nervous about the Iranians acquiring nuclear capabilities, but most of the rest of the world as well. Look at what the non-elected Chinese leadership has said to the UN with regards to Syria. There are few ordinary Chinese who would agree with what their own government is doing on the world stage. Most Chinese are good and decent people. The killing of civilians in Aleppo is ok to just a handful of communist thugs operating out of Beijing. What gives them the right to speak for all Chinese? No one elected them,...to anything. Just ask the people of Hong Kong. Why is the "legitimacy" of the unelected Chinese leadership never questioned? The use of the word 'dictates,' as noted above, is more apropos to the statements coming out of Beijing rather than any western democracy.

    Why is the legitimacy of
  • Louise on July 31 2012 said:
    It is time for the US Government to concentrate on doing the things that it needs to do rather than wasting its time sanctioning Iran.

    It is time for the US Government to throw AIPAC out of America, then it needs to stop giving Israel $3 billion dollars ever year in aid unless it stops building illegal settlements on Palestinian land. Then the US Government needs to implement some serious financial regulations so that it cannot ever cause another GFC. Then the US needs to stop members of the US Congress having dual citizenship.

    China has every right to buy Iran's oil because the US does not control the world's oil supply.

    It is good to see that when China is faced with a dictator who is making threats, China ignores the threats and goes about its business with the sort of independant thinking that the Americans once had.
  • Randy on July 31 2012 said:
    @ Louise...

    "...when China is faced with a dictator ..."

    Which western 'dictator' are you speaking of?

    Furthermore, can you tell us who elected the current Chinese government to their positions of power? When was the election, and who was the opposition?
  • Daniel on July 31 2012 said:
    One Man's meat is another Man's Poison.I totally agree with the atticle. The world has never voted on any single country to dictate it's ways of life and belief on the rest of the world. Democracy in one county can be dictatorship in another....this is due to how different people have different cultures and belief. A Master may sometimes see no wrongdoing in keeping a slave. So we should be fair if we are to live in harmony in this world. Israel is scared of Iran acquiring Nuclear weapons but it never thinks of how it's neighbours have lived with the fact that Israel has Neclear weapons.That's one rule for me and one rule for the other. China and Russia are i guess fed up of these double standards.

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