The USA are going to impose sanctions on China. What do they expect in connection with it?
A senior government energy official believes, that in the face of threat of economic sanctions from the side of the USA, China might buy more Iranian oil than any other country could. And this would definitely decrease the effects from the sanctions. But this is not the only effect. The sanctions, hence, the increased purchases of Iranian oil, could bring Iran close to China. So, both countries could unite their forces at the time of tensions between Washington and Tehran, and Washington and Beijing.
In May, the new US president Donald Trump has made an important decision that set another direction to the relationship development between the USA and Iran. He pulled the USA out of the nuclear deal with Iran. Moreover, he insists on imposing new sanctions to Iran.
The oil prices started growing immensely, but China can buy a lot of Iranian oil and that could again cause the prices drop.
Foreign oil companies are withdrawing their assets from Iranian industry, and some international banks started declining the financing even of the major oil traders. The EU doesn’t support the sanctions, but other major market participants, such as Turkey, for example, are already decreasing their activities in the countries that might suffer from the USA sanctions.
China is already buying a lot of Iranian oil. Actually, the country is the largest purchaser of the oil from Tehran. Moreover, Chinese officials claim, that they are negotiating about the increasing of the volumes. Iranian officials also claim, that the country doesn’t have any problems to sell the crude oil, as long as China buys it. “We don’t have any problem selling our oil” to China, the Iranian official said.
China`s Foreign Ministry, China National Petroleum Group and China Petrochemical Group, the two major oil companies in the country, haven’t provided any comments to the White House or any other officials. Earlier, Beijing has expressed an extremely harsh criticism in response to the USA sanctions, but now, all requests about the situation with the Iranian oil were left without a response.
Within the sanctions again Iran, the USA had a goal to reduce the exports of the country to zero level. However, China is a serious obstacle to that target.
Recently, Mike Pompeo, the USA Secretary of State, told, that they are considering the Iran sanctions relief for some countries. Those countries, including South Korea and India, will be able to buy Iranian oil in some time. However, Chinese companies will have to face new sanctions if they continue buying Iranian oil.
But not everybody believes that China is really going to increase oil imports from Iran. However, there are factors that should influence the import of oil positively. Because of sanctions imposed by the USA, Iranian oil will be cheaper. The other two traditional oil suppliers to China, Libya and Venezuela, are struggling with the internal problems. So, it is logical for China to increase the oil purchases volumes from Iran and not to move from another major supplier, Saudi Arabia. Let`s remind that the Chinese economy is the world economy No 2, and its demands in oil are not decreasing, but rather increasing on a daily basis. It is expected, that by 2019, China will need 400,000 barrels per day, in comparison to the present need of 200,000 barrels per day.
China supported the sanctions imposed by the United Nations in 2010, and reduced the purchased volumes of Iranian oil, but this time, with the USA sanctions, the situation is quite different. China has already announced, that they aren’t going to provide any support to sanctions against Iran.
Most likely, the Chinese companies are going to make purchases through a bank that was dealing with the Chinese purchases of Iranian oil during previous sanctions. This will facilitate the procedure and help to avoid sanctions.
Normally, banks are dependent on their access to US dollar, however, Bank of Kunlun Co Ltd, which is a unit of one of the major oil company in China, China National Petroleum Group, doesn’t care about dollars. It is exposed to the global system in a very limited manner, so, for it, there is no problem in dealing with Iran even during any sanctions imposed.
The procedure is well adjusted and very simple. The Central Bank of Iran has accounts in Kunlun. There, to those accounts, payments for oil are made. How do Iranians use that money? This is very simple, as well. they buy Chinese goods.
The representatives of Kunlun left these comments without any official response.
For now, China sees huge potential in Iran and investing a lot in the country`s infrastructure. As well, China is the biggest trading partner of Iran.
In May, when Donald Trump informed about his plans to impose further sanctions on Iran, the Foreign Minister Javad Zarif first of all went with an official visit to China.