As we all know by now, at the end of 2011 President Obama signed an act to impose trade sanctions on Iran in an effort to force economic pressure on the Persian nation with the hope that they will halt their nuclear enrichment program. The sanctions will punish any foreign financial institution which conducts transactions with Iran for its crude oil by cutting off that institution from the US financial system. The sanctions officially take effect on the 28th of June this year.
China is Tehran’s largest customer, investor, and trading partner, and will find it impossible to significantly reduce that position enough to earn a waiver from the US sanctions. Geopolitically it backs Iran, but its economy is also heavily reliant upon the US economy; it cannot afford to halt all trade with Iran, nor be banned from the US financial system.
China is very much stuck between a rock and a hard place … but maybe they have a chance at escape.
They could avoid the US sanctions completely by bartering oil from Iran. In fact they have already started by trading some Chinese products for Iranian oil. Iran has been accepting, Chinese washing machines, refrigerators, toys, clothes, cosmetics, and toiletries; but Iran needs cash as well. Unable to financially trade with Iran that is impossible, but gold offers the next best thing, and that is why in February Tehran announced that they would start to accept gold as payment for its oil.
Last year, China imported $21.7 billion in Iranian oil and exported $14.8 billion in goods and services, and as the sanctions start to take effect Beijing will likely use gold to make up the difference.
By. James Burgess of Oilprice.com
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