London (Informed Comment) – China has rhetorically thrown its weight behind Russia and Europe in continuing to back the Joint Comprehensive Plan of Action (JCPOA) between Iran and the P5+1 countries after US President Donald Trump announced that he was withdrawing America from what he called “the decaying and rotten” agreement set up to contain Iran’s suspected nuclear ambitions. The US has said it will reimpose sanctions on the Islamic Republic, including so-called ‘secondary sanctions’ which punish any foreign firm which does business with the Iranians by forbidding them to do any business with US banks or financial institutions. The re-imposition of these has particularly enraged foreign governments whose companies do a lot business in Iran, in particular French and Chinese firms.
Among America’s allies who stand to lose out unless the Trump administration decides to exempt them, France looks to be particularly hard hit by the end of the JCPOA. Paris has tripled its trade surplus with Tehran in just two years according to its Economy Minister Bruno Le Maire, and now its firms will have just six months to wind up their business operations there or face crippling penalties from Washington. Major French companies involved in Iran include some of the country’s most well known names, including Renault, Total, Peugeot and Sanofi. Le Maire was widely reported for remarks he made to French radio listeners in which he said it was “not acceptable” for the US to be the “economic policeman of the planet”. Europeans generally have been angered by what are seen as high handed US government actions over Iran, such as the newly appointed US ambassador to Germany’s clumsy Twitter instruction to German businesses that they should “wind down their Iranian operations immediately”.
But beyond annoying its European allies, the Trump administration’s threats are unlikely to move US rivals Russia and China, which both have extensive business ties with Iran that are likely to survive the fall of the JCPOA. In particular China is likely to see the withdrawal of America from the nuclear deal as a chance to improve its political relations with Tehran, which will not be in a position to be choosy about whom it does business with once US secondary sanctions snap back into place. But economically speaking the reality of Chinese influence in Iran is more complex than the American attempt to push Beijing and other foreign countries into re-isolating Tehran admits. In the short term many Chinese firms who do business in Iran may take a big hit; in one example, for breaching US sanctions Chinese telecom equipment maker ZTE Corp received a seven year ban on US companies selling it components and software in April that could shut it down for good.
But this ignores several critical factors featuring in Chinese thinking over Iran and the US. The first is that China is in Iran for the long haul, with the Islamic Republic now physically linking itself to China via a new “Silk Railway”. Intended to carry goods and passengers between the two countries under China’s frequently renamed “One Belt, One Road” initiative, the 10,399 km long railroad linking the capital Iranian capital to Yiwu in China’s eastern Zhejiang province was built as Chinese-Iranian cooperation deepened during the sanctions period. Bilateral trade between the pair grew from $4 billion in 2003 to $53 billion in 2013 for example, as Chinese firms displaced European ones in the Obama era. Geography makes Iran a Eurasian trade hub and China sees it as both a vital link in its projected Asia-Europe trading route and as a component in Beijing’s plans for regional integration with Central Asia.
Secondly with a potential trade war brewing between America and China, Beijing is unlikely to be in a very helpful mood regarding American problems with the Islamic Republic. It’s position is closer to that of the Europeans and many Americans themselves, which is that since the JCPOA was an international deal brokered under the authority of the United Nations, Washington’s withdrawal is unfortunate, but not an end to the matter. US demands on Iran will be added to the list of others Beijing has no intention of doing anything about, and punishing Chinese companies like ZTE Corp who operate there further would be swiftly interpreted as one more American move to prevent China from achieving its ‘rightful place’ in the region, as elsewhere.
This matters because in spite of everything China’s major interest in Iran remains the same as every other power since the beginning of the twentieth century, namely privileged access to Iran’s oil and gas supplies. According to energy research firm Greenscape, almost one third of Iranian oil exports have flowed to China this year, making Beijing the Islamic Republic’s best customer. China’s economy is still a massive energy consumer in spite of efforts by the ruling Chinese Communist Party to diversify the country away from fossil fuel use; and while Iran is more dependent on oil and gas sales to raise money than ever since the American withdrawal from the JCPOA, the price of oil is also surging thanks to Trump’s actions.
Just as an agreement between OPEC countries and Russia has tightened up global supplies to economies like China’s, so Washington’s actions now threaten to remove the Iranian supply as well. Iran’s crude oil exports surged by 1 million barrels per day when sanctions were last removed in 2016, so this backward step now is likely to incline both Beijing and Tehran to explore a bilateral energy deal that deepens Iran’s dependency upon China in the longer run. Pushing Iran into China’s waiting arms was unlikely to have been a major US policy goal in the Middle East, but that is what seems likely to happen now that America has started trying to unravel the JCPOA agreement that was keeping a lid on tensions in the region. Trump’s withdrawal from his predecessor’s greatest foreign policy achievement may end up being an even bigger mistake than the one the diplomats and analysts are already calling it.
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