Last week WiC wrote about Washington’s hopes of persuading the Chinese to buy less Iranian oil. There has been no public indication that Treasury Secretary Tim Geithner had been successful in his efforts – not too surprising, given Beiing’s reluctance to appear to yield to pressure on any issue, as well as its reliance on Iran to supply about 10% of its oil imports.
Shortly after Geithner’s visit, a statement from the US State Department made public agreement even less likely: it announced it was imposing sanctions on a Chinese state enterprise for its business dealings with Iran.
The target was Zhuhai Zhenrong, cited by US officials for brokering delivery of more than $500 million worth of petrol to Iran between July 2010 and January last year. (Puzzled? Due to a shortage of refining capacity Iran imports petrol for much of its domestic consumption.) Zhenrong’s sales were far in excess of Washington’s permissible limit of $1 million’s worth of individual shipments, to a cumulative cap of $5 million annually.
The move – part of the US effort to pressure Tehran over its nuclear programme – means that Zhenrong is now prevented from receiving US export licences, getting trade support from the US Export Import Bank, and raising loans over $10 million from US financial institutions.
Zhenrong doesn’t deny its links to Iran, having taken the lead in the import of Iranian crude since the late 1990s. It remains active today: Chinese media estimates that it currently imports 120,000 barrels per day (although this is half what it bought last year, see WiC134).
But the punishment relates to the operations of Guangdong Zhenrong Energy, a company in which Zhuhai Zhenrong is said to hold a stake. US officials say this is the firm that has been contravening the rules by selling gasoline to Iran.
Neither the Chinese government nor Zhenrong accepts the verdict.
From the Foreign Ministry, the riposte was one of “strong dissatisfaction and firm opposition”, with the annoyance phrased mostly on grounds of principle.
“The US is attempting to internationalise its unilateral sanctions against Iran, and to implement sanctions against a Chinese company according to its domestic law,” a spokesman insisted last weekend. “This is without reason, and against the content and spirit of resolutions of the United Nations Security Council on the Iran nuclear issue.”
Zhenrong kept things simpler, professing itself baffled by the charge. The allegations were “truly puzzling,” a spokesperson told the Legal Mirror, as Zhenrong had never exported fuel to Iranian customers. Nor would the sanctions hurt its business, as Zhenrong has no dealings with US companies.
Still, industry insiders seem to think that Washington’s case against Zhenrong could have been shaped more as a message to larger entities like PetroChina and Sinopec. They have invested significantly in the US energy sector and would be much more exposed to the financial fallout if they were deemed to be in breach of the US rules.
Further complicating the picture are amendments in the National Defense Authorisation Act, signed by President Obama on New Year’s Eve, which promises to hit financial firms that deal with Iran’s central bank on petroleum transactions.
The legislation isn’t due to be implemented for another six months. But it looks like being a headache for Chinese banks, some of which will be dealing with the Iranian central bank directly on oil imports.
Might this set the backdrop to a new round of disagreement between Washington and Beijing? The Chinese are not the only country who will be affected. There is a sense of alarm from other importers of Iranian oil, as well as a wider anxiety about the impact on world oil prices should the measures be enforced.
Even Obama himself has expressed unease at some of the Act’s provisions, complaining that they may force him “to take certain positions in negotiations with foreign governments”.
Hence he has reserved a get-out option: a waiver that he can employ in cases “vital to the national security of the United States”.
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