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Relations between China and Iran are put to the test after US President Trump imposed sanctions on Chinese energy company Zhuhai Zhenrong for allegedly violating restrictions on the Iranian oil sector.
US Secretary of State Mike Pompeo said the sanctions had been put in place as the company engaged in the sale and delivery of Iranian oil without derogation from Washington. This action can be seen as another step in Trump's sanctions agenda to bring the regime to its knees. The crisis between Iran and Washington is heating up, but will also affect China, with the Asian giant remaining Iran's largest oil importer. Trump seems to want to not only take risks in the Persian Gulf, but also take a stand in the ongoing trade war between China and the United States.
According to Pompeo, the Chinese energy company Zhuhai Zhenrong "is knowingly engaged in a major transaction for the purchase or acquisition of Iranian crude oil" after the expiration of a waiver US sanctions covering China on May 2nd. Block all property and interests in Zhuhai Zhenrong property in the United States and preventing its CEO Youmin Li from entering the country. Related: Hedge funds unexpectedly set the stage for an oil rally
The Chinese reaction was as expected. The Chinese Embbady in Washington has rejected US sanctions. It also rejects the so-called "long-arm jurisdiction" of China and other countries that invoke its domestic law. "Remarkably, it would appear that the Chinese entity is known for its approach to the Iranian conflict, as is the case in China. The company already adopted it in 2012 for its oil agreements with Iran, although it acts as an independent commercial entity, the company has been a subsidiary since 2015 of the conglomerate Nam Kwong based in Macao and controlled However, the group claimed that the company was split on September 30, 2018. The Trump administration's actions should be seen as a sign that the parties have taken a hard line on Washington. implementation of sanctions by Iran Washington can be expected to have attacked the relatively small Chinese entity because it directly threatens other companies, such as Russian companies, clearly indicating that the world has changed.
Another possible reason for the strict implementation of the sanctions is that there is more and more evidence that Iran is still able to export large volumes of crude oil to Asia. Reports indicate that a multimillion dollar Iranian crude oil storage facility is being set up in China, just waiting to arrive on the market whenever necessary. There are also signs that Washington is warning its allies to rely on its Iranian policies. On July 28, Britain, France, Germany, Russia and China will meet with Iran in Vienna to discuss how to save the 2015 nuclear deal. EU foreign policy said the meeting had been convened at the request of France, Germany, the United Kingdom and Iran, and that it would consider the issues related to the implementation of JCPOA in all its aspects.
The possible disagreement between the United States and China over Iran should not be taken lightly. At present, China is one of the only fervent supporters of the Tehran regime. In June, China and Iran held a joint naval exercise near the strategic Strait of Hormuz in the Persian Gulf. A Chinese flotilla of two Chinese destroyers, a logistic ship and a helicopter, worked with the Iranian navy. After the exercise, the Chinese headed to Oman. The Iranian navy has badigned its destroyer Alborz, a helicopter and about 700 people to the exercise. For China, the Persian Gulf is of utmost importance and Iran plays a major role in its crude oil supply strategy. In the case of a possible confrontation between Iran and the United States, the role of China should be taken into account. Related: Reuters: OPEC reduces its weight on the Arab oil producing economies
Beijing has stepped up its cooperation with Iran and the Gulf Arab States over the past two years, as this week shows a new deal between ADNOC (UAE) and CNOOC. Beijing is also supporting Tehran's bid for the Shanghai Cooperation Organization – a security bloc composed of China, Pakistan, India and Central Asia, widely seen as a counterweight to NATO. Chinese sources have already said that China is about to increase its military presence in the Middle East in order to support its "Belt and Road Initiative" and further interfere in the affairs of the region. China's current neutrality, while applicable, remains the key to stability in the region. Trump's willingness to take risks shows the volatility of the current situation. Actions against Iran will involve any Chinese companies and armed forces in the region.
For the global oil market, Washington's current approach could be a significant boost to rising prices. By showing Washington's willingness to punish Asian buyers of Iranian oil, a possible resumption of the Iranian oil industry becomes even more unlikely. Even the millions of barrels of Iranian crude oil stored in China and elsewhere are not out of reach of the American president willing to act when he is talking
By Cyril Widdershoven for Oilprice.com
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