The US may not have achieved its avowed goal of “crippling sanctions” against Iran yet, but it is coming closer. In recent months, the 27-member EU – collectively Iran’s second-largest export market – approved an oil embargo that will go into effect in July. Western governments have frozen the foreign assets of Iran’s central bank and frustrated nearly every aspect of the country’s international trade.
The new sanctions are beginning to bite, raising unemployment in Iran and complicating trade financing. But whether they will achieve their aim of halting the country’s alleged nuclear weapons program is less clear, because China, the petro-state’s largest single buyer of oil, has not been playing along.
Iran is China’s third-biggest supplier of oil, behind Angola and Saudi Arabia. It now supplies 11% of Chinese oil, and that proportion is growing: Imports from Iran increased by almost one-third in 2011, well outpacing the 6% overall growth in China’s crude imports.
Chinese diplomats have not overtly supported any initiatives against Iran which could threaten its oil supply, be they crippling sanctions or a military strike by Israel or the US. China has threatened to veto any UN sanctions. On the other hand, Chinese politicians have repeatedly stressed that China “adamantly opposes” any Iranian nuclear weapons program.
Between those two extremes, China has considerable flexibility. “Chinese diplomats can seek to reassure Western governments about their support for preventing Iran from developing nuclear weapons,” said Richard Weitz, a senior fellow at the Hudson Institute, a US-based think tank, in a recent paper. “Meanwhile, [Chinese] military strategists can fantasize of forming an anti-US alliance with Tehran that would give China maritime bases in the Persian Gulf, and Chinese firms can focus on making money.”
And make money they will. As the number of export markets for Iranian oil shrinks, the remaining buyers are in a better position to extract discounts, according to a recent report by the Rhodium Group. Chinese oil companies could take advantage of the buyers’ market to drive down prices. Cheaper oil may only further discourage China from getting tough on Iran.
Yet Sino-Iranian coziness may be just what other diplomats are counting on. Michael Levi, senior fellow at the Council on Foreign Relations, recently wrote that taking Iranian oil off the market altogether would cause prices to spike, endangering already-fragile economies around the world. He speculates that some policymakers may have approved sanctions only because they knew China would not, thereby allowing these countries to curry favor with the US without incurring greater costs for oil. “The fact that one or two big countries won’t go along with oil sanctions is precisely what makes those sanctions politically possible,” he said.
Anonymous sources told Reuters in early February that Beijing is looking to diversify its oil supplies away from Iran, possibly spurred by the (largely symbolic) sanctions the US imposed in January on a small Chinese company that supplies petroleum products to Iran. Chinese imports from Iran did fall in January, but analysts caution that so much oil cannot quickly be sourced from elsewhere – at least not cheaply. For the near future, Beijing’s foot-dragging on sanctions looks set to continue.