U.S. efforts to reduce global demand for Iran’s oil exports as a means to pressure it into curbing its nuclear ambitions could present major problems for China, the leading customer of Iranian crude exports. China reacted strongly over the weekend to U.S. sanctions on Zhuhai Zhenrong, a Chinese firm the U.S. calls the largest supplier of refined petroleum to Iran. (Although a major petroleum producer, Iran is dependent on gasoline imports due to limited domestic refinery capacity.) Those imports violated U.S. law, the U.S. State Department says, and as a result Zhuhai Zhenrong is “barred from receiving U.S. export licenses, U.S. Export Import Bank financing, and loans over $10 million from U.S. financial institutions.”
The Wall Street Journal reported that the company appears to have no U.S. assets, so the sanctions are “largely symbolic.” But they raised the ire of the Chinese government. On Saturday Chinese Foreign Ministry spokesman Liu Weimin called U.S. efforts to internationalize its sanctions against Iran by target a Chinese company were “completely unreasonable and don’t conform with the spirit or content of U.N. Security Council resolutions,” according to a statement (in Chinese) posted on the ministry’s website.
Last week U.S. Treasury Secretary Timothy Geithner visited Beijing, seeking to convince China to back further sanctions against Iran. Last month President Obama signed legislation that would block firms that deal with Iran’s central bank—the key processor of oil receipts—from the U.S. financial system. Exceptions would be made for states that significantly reduce crude oil purchases from Iran. Japan, a major importer of oil from Iran, said it would support the U.S. measure. But China responded cautiously. Vice Foreign Minister Cui Tiankai said ahead of Geithner’s visit that China’s oil imports should be considered separately from the dispute over Iran’s nuclear program.
But even as China appeared to reject U.S. calls for reducing its purchases of Iranian oil, Prime Minister Wen Jiabao traveled to the Middle East, where he discussed plans to boost Chinese energy supplies. In Saudi Arabia, China’s largest foreign oil supplier, Wen told Crown Prince Nayef that both countries “must strive together to expand trade and cooperation, upstream and downstream, in crude oil and natural gas,” Reuters reported. Wen was also in the kingdom as Chinese oil company Sinopec completed a $8.5 billion deal with Saudi Arabian oil firm Aramco to build a refinery at the port of Yanbu by 2014. Wen is also visiting Qatar and the United Arab Emirates over his six-day trip.
China is anxious to strengthen and diversify its oil supplies regardless of the growing dispute between Iran and the U.S. and Europe. But the nuclear issue could even give an advantage to China in its negotiations with Iran. Bloomberg reported last week that China’s position as a willing buyer of Iranian crude, even as other nations agree to reduce imports, could allow it to push for cheaper prices even as it benefits from the security of U.S. military patrols in the Strait of Hormuz. The growing tensions with Iran offers great risk for China, but it comes with opportunity as well.
