China Keeps Buying Iranian Oil, And the Trade War Adds A Reason to Defy US Sanctions
Since President Donald Trump withdrew the United States from the Iran nuclear deal in May, Iran has been pleading with other nations to keep its oil-dependent economy alive. The need for economic ties to the rest of the world increased when the Trump administration announced planned sanctions on Iranian oil exports starting in November. For Iran one nation matters more than any other to its oil economy, and it is also Trump's largest global trade rival: China.
European companies have been winding down their purchases of Iranian oil, and the threat of sanctions on Iranian business has pushed out banks, many of which had paid severe fines for sanction violations in the past. But China, already the biggest buyer of Iranian oil, is not expected to heed U.S. demands. In fact, the Iranian oil sanctions could give China leverage in stalled trade negotiations with the United States.
"Now that the trade relationship is in jeopardy, why would they do that?" Derek Scissors, resident scholar of the American Enterprise Institute, said of China's pulling back on purchases of Iranian oil. "If we tell the Chinese, 'Oh, we'll cancel our pending tariffs as long as you stick to the Iran sanctions,' they'll do it in a second."
On July 23 a war of words between the United States and Iran erupted, with Trump and his top national security advisor John Bolton threatening Iran. The harsh White House words apparently came in response to recent suggestions from Iran that it could close the Strait of Hormuz, a critical seaway for global oil shipments. The U.S. Energy Information Administration states that by volume of oil transit, the strait is the busiest global choke point for oil. In 2016, data from the EIA showed total flows through the channel reached a record high of 18.5 million barrels a day. China, Japan, India, South Korea and Singapore are the largest destinations for oil moving through the strait.
On July 24 Iran's foreign ministry reportedly said it would implement countermeasures against the United States if it tries to block its oil exports. "If America wants to take a serious step in this direction, it will definitely be met with a reaction and equal countermeasures from Iran," Foreign Ministry spokesman Bahram Qassemi was quoted as saying.
China, the world's top crude-oil buyer, imported around 718,000 barrels a day on average from Iran between January and May of this year, according to official Chinese customs data ¡ª equivalent to more than a quarter of Iran's oil exports. China's increased its imports of Iranian oil by 9.3 percent during the same time period from the year prior and is not expected to slow down purchases anytime soon. The United States expects that China will buy even more oil once the U.S. sanctions take place in early November, as reported recently by The Wall Street Journal.