The United States has warned China that it will not turn a blind eye to rising Iranian oil exports to Chinese ports, the Financial Times reported, citing a senior Biden administration official.
According to the report, Washington has not missed the substantial increase in Iranian crude shipments to China. It has reminded Beijing that there are still sanctions in place against the Islamic republic.
“We’ve told the Chinese that we will continue to enforce our sanctions,” the unnamed official told the FT. “There will be no tacit green light.”
Yet the Trump-era sanctions may be waived if Iran and the U.S. make it to the negotiation table.
“Ultimately, our goal is not to enforce the sanctions; it is to get to the point where we lift sanctions and Iran reverses its nuclear steps,” the official told the FT.
China has indeed been ramping up shipments of crude from Iran: from an average of 306,000 bpd last year, this month, China has been taking in some 856,000 bpd of Iranian crude—a 129-percent rise over February.
China’s interest in Iranian oil goes hand in hand with the comprehensive strategic partnership between the two countries. The initiative expects trade between the two countries to reach $600 billion over the next decade. In addition, China’s Belt and Road initiative (BRI) attempts to strengthen regional political, economic, and strategic ties, with a focus on the energy industry.
But Iranian oil is also attractive for a very simple reason: Iran is selling it at a deep discount because of the sanctions. The low price makes Iranian crude attractive for other Asian buyers, too, such as India, which has been on the hunt for alternatives to Middle Eastern OPEC oil because of its high price.
Regarding the sanctions, Iran has demanded that the U.S. first lift sanctions before negotiations on the nuclear deal start. The U.S. wants negotiations first, sanction-lifting later.
By Irina Slav for Oilprice.com
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China has never stopped importing Iranian crude even for one minute since the sanctions were imposed on Iran. On the contrary, it has been buying Iranian crude in increasing volumes approaching 1.0 million barrels a day (mbd).
China’s motivation is underpinned by the comprehensive strategic partnership between the two countries, the Belt and Road Initiative (BRI) in which China has allocated a special place for Iran and the price discount amounting to $3-$5 a barrel which China has been receiving for its Iranian crude imports. Trade between China and Iran is expected to reach $600 bn over the next decade.
China will certainly ignore the United States’ warning. So what can the United States do in this situation?
1- It can punish China by adding more tariffs on its exports. China can easily retaliate by imposing its own tariffs on US exports. Moreover, it can stop buying any oil and LNG from the United States thus virtually killing these exports. Furthermore, China’s economy is 16% bigger than the United States’ based on purchasing power parity (PPP) and far more integrated into the global trade system thus it can take far more punishment that the United States’ in a resumption of the trade war.
2- The United States may try to intercept China-bound Iranian oil shipments but this can lead to a very dangerous confrontation with both China and Iran.
3- It can try to change the status quo in Taiwan but this is a Red Line that could lead to war between the two countries.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London