Sunday October 20, 2019

U.S. EXEMPTS CHINA FROM IRAN OIL SANCTIONS

 

June 29, 2012

 

On June 28, the United States granted China a six-month renewable exemption from newly implemented U.S. sanctions on Iranian oil imports. The U.S. sanctions will deny access to the American financial system to the banks of any foreign country that purchases Iranian oil. Under the law, formally enacted yesterday, countries that import Iranian oil can receive exemption from the sanctions if they significantly reduce the volume of their crude oil purchases from Iran. The United States previously granted exemption to eighteen of the twenty major buyers of Iranian oil, exempting China and Singapore yesterday before the sanctions went into effect.

The U.S. sanctions are part of a coordinated Western effort that will also include an EU embargo on Iranian oil starting July 1. Western states aim to use sanctions to inflict a significant cost on the Iranian economy, which is heavily dependent on oil exports, in order to pressure Iran to comply with international regulations concerning its disputed nuclear program. The U.S. and other Western states have called on Iran to halt uranium enrichment, which they believe is intended to develop a nuclear weapon but Iran claims is for civilian purposes.

So far, Western sanctions have inflicted a significant cost on the Iranian economy. According to the International Energy Agency (IEA), Iran’s crude oil exports this year decreased by 40 percent compared with 2011. The threat of the new American and European sanction regimes taking effect this week has caused Iranian exports to fall by an estimated 1 million barrels per day, a loss of approximately $630 million in profits per week, since the measures were announced in December and January.

As China is the largest buyer of Iranian oil, accounting for almost 20% of Iran’s oil exports, China’s compliance with the U.S. sanctions will be significant for their success. However, China has consistently opposed Western sanctions against Iran, arguing that economic pressure increases tensions with Iran and is counterproductive to negotiations and progress on the nuclear issue. In a response to the U.S. decision to exempt China from the newest sanctions, Chinese Foreign Ministry spokesman Hong Lei stated, “China is always against one country’s unilateral sanctions on another country, according to its domestic law. It is even less acceptable for such unilateral sanctions to be imposed on a third country.” China voted in support of the most recent fourth round of UN sanctions on Iran in 2010, however the resolution included no restrictions on energy investment or trade and China has maintained its right to import crude oil from Iran to meet its economic development needs.

Under the six-month exemption granted to China, China can continue to import Iranian oil, but must demonstrate that it has further reduced purchases in order for the exemption to be renewed. In its decision to grant China exemption on Thursday, the U.S. State Department ruled that China had “significantly reduced” oil imports from Iran, citing data that Chinese imports of Iranian oil dropped 25 percent between January to May this year compared with the same period in 2011. However, some U.S. policymakers have criticized the State Department decision, arguing that China does not intend to comply with the sanctions and will continue to support Iran’s economy as the largest buyer of Iranian oil. The reduction in China’s oil imports at the beginning of this year was primarily due to an ongoing pricing dispute between China’s state owned oil company Sinopec and the National Iranian Oil Co. China’s imports of Iranian oil rebounded in May, increasing 35 percent from the previous month after the two sides reached an agreement and renewed their contract in late March.

According to Mark Dubowitz, head of the non-profit Foundation for Defense of Democracies, the United States was likely prepared to take the risk that China would continue to purchase Iranian oil after the exemption to avoid “a major diplomatic spat with Beijing”. The United States needs China’s cooperation in the ongoing P5+1 negotiations with Iran as well as on other international issues such as Syria. It is possible that for similar reasons China may choose to reduce its oil imports from Iran in the future, to avoid Iran from becoming a major source of tension in U.S.-China relations.

 

For more information on China, U.S. sanctions and Iranian oil imports, please see the following news sources:

BBC – “China Iran oil imports rise as payment dispute resolved

New York Times – “U.S. Exempts Singapore and China on Iran Oil

Reuters – “U.S. grants Iran sanctions exemptions to China

Xinhua – “China responds to exemption from U.S. sanctions

 

For Chinese language commentary on China’s exemption from U.S. sanctions, please see the following news sources:

Phoenix (凤凰网) – “美国宣布豁免中国金融制裁 因缩减伊朗原油进口

Xinhua (新华) – “中美暂免因伊朗石油禁运引发金融冲突

 

Compiled and edited by Amanda Watson.