Yves here. We have yet another report from uber-neocon Simon Watkins, here on the US plans to mess Iran oil sales to China. resilc, who had worked extensively overseas and alerted us to this piece, was dismissive.
The conventional wisdom on sanctions is that they do harm but don’t prostrate a country unless is it small or small-ish and already damaged (see Syria and arguably Cuba after very long duration). A second bit of conventional wisdom is that sanctions can often be evaded, albeit at cost. Here, Iran is already selling oil to China at a serious discount. So Watkins is overconfident about the possibility of success, as opposed to making Iran or its intermediaries incur more costs and thus have to offer even bigger breaks to China?
By Simon Watkins, a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for Credit Lyonnais, and later Director of Forex at Bank of Montreal. He was then Head of Weekly Publications and Chief Writer for Business Monitor International, Head of Fuel Oil Products for Platts, and Global Managing Editor of Research for Renaissance Capital in Moscow. Originally published at OilPrice
The Trump administration is intensifying its crackdown on Iranian oil shipments to China.
Unlike his first term, Trump’s second presidency is actively using economic and geopolitical pressure.
The Trump administration is targeting tankers, brokers, financiers, and shipping hubs that facilitate Iranian oil exports to China.
The second presidency of Donald Trump has already demonstrated that a lot was learned from the first. Gone is the belief that a retreat into neo-isolationism is the best way to ‘Make America Great Again’ as he promised his supporters. After all, of the 14 different presidents (aside from Trump) since 1932, 10 achieved greater annual economic growth in the U.S. than Trump, with 3 doing worse, and 1 managing the same 2.3% rate. Trump’s first presidential term also marked the beginning of the accelerated surge in Chinese and Russian power into former geopolitical strongholds of the U.S., most notably the energy-rich Middle East.
Consequently, this neo-isolation of his first presidency has been replaced with a full-on version of the Wolfowitz Doctrine, albeit one overlain with Trump’s own brand of business hustle. In essence, it boils down to piling pressure on potential rivals to keep them on the defensive, from which position the U.S. can conclude deals to its own advantage. As part of this ongoing strategy, Trump’s team has been stepping up a ‘double whammy’ tactic to further disable the key threat to its Middle Eastern objectives – Iran – and in the process add to the economic pressure on its only possible superpower rival, China.
Specifically in this regard, the U.S. in recent days has been targeting tankers and ports that have been instrumental in enabling the continued flow of Iranian oil out in the wide world and especially into its major buyer, China. Under the terms of the ‘Iran-China 25-Year Comprehensive Cooperation Agreement’, as first revealed anywhere in the world in my 3 September 2019 article on the subject and also fully detailed in my latest book on the new global oil market order, Beijing receives extremely preferential pricing on Iranian oil and gas imports.
As China is reliant on energy imports to power its economic growth, the more oil and gas it can secure at prices below the rest of the world, the greater the advantage it has in engineering growth at a lower cost than it could effect on its own. The more it can grow in such a fashion, the greater the funding it can offer to countries it is targeting in its geopolitical expansion programme that runs under the umbrella of the ‘Belt and Road Initiative’. And the greater this funding, the more leverage China has over these targets to secure key strategic tracts of land or sea in lieu of debts owed or investments made – including most notably, Iran and Iraq’s major airports and naval ports under long-term co-operation agreements, Sri Lanka’s Hambantota Port, and Djibouti’s Doraleh Port, among others.
The U.S. has long been aware of this key link between Iran and China and Trump’s first presidential team tried to do something about it. Specifically, Washington imposed sanctions on various companies and individuals that were seen to be instrumental in the moving of Iranian oil to China with the express intention of reducing such flows to ‘zero’. Indeed, several high-profile reports in August 2020 cited data released on 26 July by China’s General Administration of Customs (GAC) as clear evidence that China did not import any crude oil from Iran in June ‘for the first time since January 2007’.
This was absolute nonsense or wishful thinking or some combination of the two. Not only was China continuing to import many millions of barrels of crude oil from Iran every single month, but plans remained in place to continue to do so. Specifically, as exclusively highlighted at the time by OilPrice.com, from 1 June to 21 July (51 days), China imported at least 8.1 million barrels of crude oil – 158,823 barrels per day (bpd) – from Iran in a number of relatively direct ways, a senior oil and gas industry source who worked closely with Iran’s Petroleum Ministry exclusively told us. The vast majority of these 8.1 million barrels were delivered by crude oil container ships.
The key element in this narrative that the U.S. appeared to be overlooking at the time was quite simply that any and all Iranian crude oil that went into ‘bonded storage’ was not put through Chinese Customs at all – and was not even recorded as having been ‘paid for’ – and consequently did not appear on any GAC documentation. This holds true to this day. That said, Washington’s latest moves to cut off this vital source of funding for Iran and this crucial source of cheap energy for China focus on identifying specific tankers associated with such shipments, including those used in the widespread Iranian practice of disguising it as being the supplier by doing ship-to-ship transfers to tankers flying the flag of another country. As also analysed in full in my latest book on the new global oil market order, such ship-to-ship transfers have been commonplace in and around the waters of Malaysia (and to a lesser extent Indonesia) for years before the vessels then made their way to ports in China.
So unashamedly proud was Iran of these and other efforts to outfox the U.S.’s sanctions on these oil exports that in December 2018 at the Doha Forum, Iran’s then-Foreign Minister, Mohammad Zarif, stated that: “If there is an art that we have perfected in Iran, [that] we can teach to others for a price, it is the art of evading sanctions.” Towards the end of 2020, Iran’s then-Petroleum Minister himself, Bijan Zangeneh, added a little detail to one such tried-and-trusted method: “What we export is not under Iran’s name. The documents are changed over and over, as well as [the] specifications.”
However, a senior legal source who works very closely with the U.S. agencies involved in such sanctions exclusively told OilPrice.com last week that a major new raft of sanctions targeting the key elements in these such ship-to-ship transfer hubs is in the offing. This would include not just the ships involved, but their companies, owners, brokers, financiers and bankers with any connections to these activities. Although the initial focus of such additional measures will be on the longtime Malaysian side of the operations, it may also be that the Chinese end is eventually targeted directly too, said the source. Although Beijing has already made some moves to be seen to be addressing Washington’s concerns – with Shandong Port Group notably banning ships sanctioned by the U.S. in January – much more remains to be done, according to the source.
The recent extension of U.S. sanctions on Iran’s key regional ally – Iraq — flagged that the U.S. can and will go after the major financing centres that China uses in its dealings with Tehran if Washington thinks Beijing is consistently overstepping the line in challenging key areas of strategic interest for the U.S., the source added. With China’s finances failing, Russia’s dismal showing in Ukraine and Syria, and Iran and its proxies incapacitated by U.S. ally Israel, Trump’s second presidential term looks like a good time to reset the global power balance, he added.
Consequently, it is highly likely that a quickly-scalable ladder of consequences – tariffs, sanctions, and other measures – will be used on Iran and China and its allies, for perceived breaches of what Trump’s new Presidential Administration deems acceptable policies with relation to the U.S. and its own allies. This will be an integral part of a broader new initiative to “put Beijing back in its box”, as the Washington source told OilPrice.com, and neutering the threat from its ‘Axis of Upheaval’ into the bargain.
