China’s stance vis-a-vis the US sanctions against Iran’s oil exports is evolving. These are early days. Quite obviously, the Chinese assessment that Iran is not going to wilt under US pressure gives a realistic picture. But it means that there is a long haul ahead and India needs to do some creative thinking. In the improved climate of Sino-Indian relations, a window of opportunity is opening for New Delhi to take a coordinated approach with Beijing.
No sooner than the Trump administration announced in a statement on April 22 its decision that it will not extend the exemption period beyond May 2 for countries buying oil from Iran — so-called “waiver” — the Chinese Communist Party tabloid Global Times came out with an editorial acknowledging that the US decision poses a “tough choice.”
China is the biggest importer of Iranian oil. The Global Times editorial blasted Washington for this “typical manifestation of unilateralism and hegemony” and weighed in on China’s policy options. The editorial offered the following advice: “We think China should clarify its interests and principles surrounding the purchase of oil from the Middle East nation and strive to minimize the loss to China’s national interests.”
That is to say, first, China should no doubt “oppose the hegemonic approach of the US but it can’t take the lead in confronting the US on issues involving Iran. ” China will push back at the US by rallying world opinion against its Iran sanctions, but will not take a confrontationist approach.
Second, “Beijing needs to coordinate with other major powers to respond to US sanctions against Iran… There is a need to strengthen coordination among countries. If the issue can be dragged, then let it drag. Otherwise, the issue can be modified. If it cannot be modified, let it be dealt with on a case-by-case basis.”
Third, “The operational safety of Chinese enterprises should be given priority and they have the right to continue to cooperate with Iran or withdraw, keeping in mind the situation on the ground.” The editorial sums up: “China does not want to have a showdown with the US over Iran, nor can Beijing just let Washington do what it wants… we cannot disregard principles or interests. This is a time to test wisdom.”
However, an editorial by the government-owned China Daily on April 23 was more forthright: “Major importers of Iranian oil, China included, have the legitimate right to have normal business ties and conduct trade with Iran, including importing oil from it, should they so choose. The Chinese government is committed to safeguarding the legitimate rights and interests of its enterprises and willing to play an active and constructive role in promoting the stability of the international energy market.”
Significantly, China Daily also hinted at willingness to make coordinated moves with other affected countries such as India.
China has skirted US sanctions against Iran before. This time around too, the likelihood of that happening is being discussed by western analysts. China will find the back door, inevitably. Apart from ship-to-ship transfers of oil, China also has the option to continue to buy some Iranian crude through the banks in China that are already under US sanctions.
The US-China trade talks do not complicate Beijing’s policy calculus on Iran oil. The trade negotiations envisage US exports of oil / LNG to China worth tens of billions of dollars. (The Wall Street Journal reported in March that in a move that would be announced as part of a broader US-China trade deal, China’s state-owned China Petroleum & Chemical Corp., known as Sinopec, will agree to a long-term contract to buy about $18 billion of liquefied natural gas from Cheniere). This eases the US pressure on China.
On the contrary, the pressure is much higher on India, which meets 80% of its oil demand through imports. Iran used to be the third largest source of supply till the US butted in. The “waiver” allowed India to import 1.25 million tonnes of oil from Iran per month (which itself meant a 30% reduction in the level of imports).
Most important, India could avail of concessional terms, which meant a saving of around a quarter of combined costs due to favourable conditions such as prices, transportation and insurance. Equally, the rupee payment mechanism worked to India’s advantage.
India has to pay Iran in rupees for oil imports and money is deposited in a special account in India, which Iran uses to purchase humanitarian supplies such as rice and medicines from India. In essence, it was barter trade that committed Iran to buy Indian products, creating export earnings for Indian business.
President Trump is notoriously tight-fisted and will never compensate India for all this financial loss. On the other hand, he hopes to take the opportunity to expand US oil exports to India, which are not based on attractive trade terms. (Besides, why should India want Trump to navigate its energy security?)
Suffice to say, with the expiry of the “waiver” on May 2, India’s oil import costs (and its US dollar payouts) will rise, and its export revenue will decrease. India’s economic growth and exchange rate’s stability will come under great pressure. The expert opinion uniformly warns that the US sanctions against Iran will push up international oil prices, thereby increasing India’s overall oil import bills. Washington claims to be generous in leaving India-Iran cooperation over Chabahar port out of the purview of the sanctions. But the US sanctions will in due course severely stymie cooperation between India and Iran over Chabahar.
The question must be frontally asked: What are the US’ intentions toward India? New Delhi has reason to be worried about Washington’s real interests, long-term strategy and the uncertainty in ties with the US. The US’ interests and strategy appear to narrow down to using India to contain China.
Mike Pompeo has rushed to claim credit for the blacklisting by the UN of Masood Azhar. Sections of the Indian media are beside themselves with joy. But the same man went into hiding a couple of weeks ago when EAM Sushma Swaraj telephoned him in Washington seeking flexibility in the US sanctions against Iran oil.
According to media reports, EAM said India should be allowed to import Iranian crude for some more time without being impacted by US secondary sanctions, as the general election is underway in the country, and that the next government with a fresh mandate will take a final call on this issue.
But Pompeo ducked, pleading helplessness — only to resurface from hiding ten days later on May 1 with the astounding claim that his boys got China to lift the block on Azhar. What to make out of such friends?
Unfortunately, the government is waffling by claiming it is ready to deal with the impact of US sanctions against Iran by getting extra supplies from other oil producing countries to compensate for loss of Iranian oil. The matrix is not about the availability of oil — as explained above — but about the huge economic costs. Simply put, India is called upon to underwrite Trump’s maverick Iran policies.
From the Indian perspective, what matters most in the coming period will be the scope to create a trading bloc with China that would allow the two countries to buy Iranian oil without going through the US banking sector.