While the seeds are making their steady progress across Asia, there’s a growing risk of Iran and Israel breaking into open conflict in the meantime. French President Emmanuel Macron has already predicted that the U.S. decision to pull out of the Iran deal would lead to war, especially after Iranian Foreign Minister Mohammad Javad Zarif warned that his country may restart suspended elements of its nuclear program if U.S. sanctions are imposed. Iranian rocket attacks Wednesday and subsequent Israeli retaliatory attacks early Thursday indicated how quickly the situation could escalate.
While the United States is now urging foreign companies to wind down their operations in Iran, China appears to be doing the opposite. Thursday’s launch of a freight train connection was only the latest measure that Beijing has taken to intensify trade relations with Iran, and there seem to be no plans so far to give in to U.S. demands.
During a media briefing Wednesday, Chinese Foreign Ministry spokesman Geng Shuang said that Iran and China would “maintain normal economic ties and trade.”
“We will continue with our normal and transparent practical cooperation with Iran on the basis of not violating our international obligations,” he said. China faces the same problem that U.S. allies in Europe are currently facing: Even if European governments are opposed to new sanctions on Iran, European companies would have to abide by those rules or risk severe fines by the United States.
Even though they have expressed their outrage, some high-ranking European officials have already acknowledged that they would currently have few options to rein in the United States if it decided to punish European companies for continuing to trade with Iran.
China, however, appears more defiant.
When asked whether China would order its companies to withdraw from Iran to avoid U.S. sanctions, the Chinese Foreign Ministry spokesman indicated that Beijing might defy the Trump administration. “I want to stress that the Chinese government is opposed to the imposition of unilateral sanctions and the so-called long-arm jurisdiction by any country in accordance with its domestic laws,” he said.
“The difference is that China has more companies that are isolated from the U.S. market — and possible sanctions,” said King’s College London security fellow Dina Esfandiary. “And even if they aren’t isolated, all the Chinese government has to do is to create new, separate companies.”
That’s how China has to some extent managed to circumvent U.S. sanctions in the past and would likely be able to replicate this time. Rather than trading in U.S. dollars, China and Europe could use their own currencies, for example. There are also plans to create separate funds and banks the United States would be unable to punish for having ties to Iran.
“The more the United States (overreaches), the more other countries are going to look for ways to set up longstanding systems that U.S. sanctions would no longer be able to affect,” said Esfandiary. In other words: Trump’s Iran decision could weaken U.S. sanctions threats in the long run.
Some analysts have even suggested that Chinese entities could act as intermediaries for European companies that want to continue trading with Iran but fear violating U.S. sanctions. Speaking to CNBC, former U.S. diplomat Carlos Pascual said that oil sales from Iran via China or Russia to the rest of the world could circumvent U.S. measures.
“It’s those types of leakages from Russia and China that are the most obvious ones where the Iranians could still find outlets to be able to export their product,” Pascual said.
Circumventing sanctions against Tehran worked even at a time when Russia and China both agreed with isolating Iran to some extent over its nuclear program, prior to the 2015 deal. Now, avoiding punitive actions would be even easier, experts agree. “The days of joint international isolation of Iran are over,” said Esfandiary, even though she cautioned that “there is less willingness to anger the U.S. in Europe than there is in China.”
Tehran sells more to China than to any other country and celebrated a 25 percent increase in exports there last year. The value of Chinese exports to Iran also increased by more than 20 percent.
The European Union, however, also has an interest in upholding its trade ties with Iran. Iranian exports there increased by 375 percent from 2015 to 2016, and European companies have already invested a significant amount of money in Iran, raising the stakes of any decision that could result in the deal’s collapse.
If Europe turns to Chinese know-how to circumvent U.S. sanctions, the United States might find that the country being isolated in this situation is not Iran after all, but itself.
Simon Denyer in Beijing contributed to this report.