by Ilan Berman, Forbes.com
If economic sanctions fail to stop Iran’s march toward the bomb, and either the U.S. or Israel is compelled to use force against the Iranian nuclear program, China will shoulder at least some of the blame.
Since this summer, concerted international pressure has unmistakably tightened the financial noose around Iran’s ayatollahs. The June passage of a new round of United Nations sanctions against the Islamic Republic has been followed by an exodus of European and Asian firms from the Iranian market, and new, stricter regulations on financial dealings with the regime in Tehran. Simultaneously, unilateral American sanctions have honed in on Iran’s most glaring economic vulnerability—its deep dependence on supplies of refined petroleum from abroad—with marked results. According to energy consultancy EMC, Iran’s gasoline imports plummeted by 50 percent, from 120,000 to 60,000 barrels per day, in the month after the imposition of U.S. sanctions, as skittish foreign suppliers scrambled to exit the Iranian market.
But the push to isolate Iran economically may end up being undermined by a key global actor. China’s leaders may have reluctantly gone along with the latest round of Security Council sanctions passed this summer. Yet, even as other foreign stakeholders have constricted their financial stakes in Iran, Beijing has done the opposite.
In July, Iran’s Oil Ministry announced that it had reached a sweeping, $40 billion deal with China to revitalize its petroleum refining industry. That agreement reportedly includes plans for financing the construction of a new gasoline refinery in southern Iran, as well as an overhaul of Iran’s aging Abadan refining facility. At the same time, Beijing is negotiating with Iran to build a $2 billion railway linking the Iranian capital of Tehran with the cities of Arak, Malayer, Hamedan,
Kermanshah and Khosravi. China is even said to be working on a “western railway” that would link the PRC to the Mediterranean via Central Asia, southwest Asia and the Levant. Such a transportation corridor would, by necessity, traverse Iranian territory, physically connecting the Iranian regime with Syria, Lebanon and Pakistan, among other nations—and reinforcing Iran’s trade relationships in the process. So pernicious and potentially damaging are these developments that the European Union’s new foreign policy chief, Catherine Ashton, recently visited the PRC to publicly urge the Chinese government not to fill the void left by Western companies fleeing Iran, lest it undermine the “cohesion” of international sanctions.
But what, concretely, can be done about Beijing’s behavior? So far, the United States hasn’t bothered to truly find out. For years, Washington has toed a conciliatory line toward Beijing, coaxing and cajoling China’s leaders into alignment with its policies toward the Islamic Republic. If, however, it hopes to keep the economic pressure on Iran, the White House may soon need to demonstrate to the PRC that its dealings with Iran come at a concrete cost.
America certainly has the ability to do so. Under the 1996 Iran-Libya Sanctions Act (now simply the Iran Sanctions Act), Congress mandated a range of penalties—from prohibitions on U.S. contracts to a denial of financial loans from U.S. institutions—on companies that simultaneously trade with Iran and with the United States.
Currently, at least three Chinese companies meet this criterion, according to a new study from the Washington-based Foundation for Defense of Democracies. The first is the China National Petroleum Corporation, or CNPC, which in January of 2009 inked a $2 billion deal to develop Iran’s large North Azadegan oil field. The second is Sinopec, the China Petroleum & Chemical Corporation, which is reported to recently have resumed gasoline shipments to Iran, and is known to be helping Iran improve its refining industry. The third is the China National Offshore Oil Corporation, or CNOOC, which has been deeply invested in developing Iran’s natural gas sector since at least 2006. All three have subsidiaries that are publicly traded on the New York Stock Exchange, and which therefore can be targeted because of their parent corporations’ dealings with Iran.
Of course, no one in Washington wants to disrupt economic or diplomatic relations with China. Yet, official protestations notwithstanding, it has become abundantly clear that Beijing’s recent dealings with Tehran can’t simply be written off as business as usual. To the contrary, the burgeoning Sino-Iranian trade relationship threatens to undermine the sanctions regime that has been painstakingly erected by the Obama administration and its allies over the past half-year.
The United States, in other words, now faces a sobering reality. It can have a consolidated international economic front that stands a prayer of derailing Iran’s nuclear drive, or it can have a non-confrontational relationship with China. It cannot, however, have both.