Iran Turns Its Economic Hopes to China — But Its Hopes May be Dashed

The American sanctions campaign continues to have devastating effects on Iranian commerce. Europe and India are pivoting to alternate supplies of oil and cutting their own exports to Iran. Tehran now pins its hopes on China not following suit — yet economic data for the last two months appears to show that even Beijing is cutting back on its Iranian imports.

Europe, India Turn Away from Tehran

Data published by Reuters Monday indicated that German exports to Iran have fallen by nearly half in the first six months of 2019, as European companies scale back business ties with Tehran to avoid being ensnared by reimposed American secondary sanctions. Sales to Iran plunged by 48 percent to $759 million from January through June year-on-year, according to the Federal Statistics Office. Similarly, imports from Iran declined by 43 percent to nearly 110 million euros.

"The fact that trade between Iran and Germany has collapsed that massively is not a big surprise, unfortunately," according to the BGA trade association. "German companies are forced to choose between their market activities in Iran and the United States, so it's clear which market is preferred."

Adding to Tehran’s woes, India, Iran’s second-largest oil customer, has responded to renewed American sanctions by ramping up purchases of U.S. and Venezuelan oil exports. India, which imported a total of 27.2 million tons of crude oil 2017-2018, has historically relied on Iran for nearly 17 percent of that total.

Yet industry data indicates that India has significantly increased its purchases from the U.S., reaching a total of 184,000 bpd in the six months from November 2018 to May 2019, compared with approximately 40,000 bpd in the same period a year earlier.

China Scales Back on Iranian Oil Imports

Oil experts remain divided on precisely how much Chinese imports of Iranian oil have dropped. According to three data firms which track oil tanker movements, China imported between 4.4 million and 11 million barrels of Iranian crude in July or 142,000-360,000 bpd. The lower end of that range would mean China had slashed Iranian imports to roughly one-third of their year-earlier level, while the upper end of that range would indicate only a modest drop. It is worth noting that China recorded Iranian oil import levels of 208,205 bpd in June — down from 354,016 bpd in May — which was the lowest in nearly a decade and 60 percent below their year-ago level, according to data from the General Administration of Customs.

China had been buying an average of 690,000 bpd from Iran, before the U.S. under President Trump left the JCPOA and re-imposed sanctions on Iranian oil. The data for 2019 so far indicates that that average has declined to 437,000 BPD. On the other side of the ledger, China has sold around $4.5 billion of goods to Iran in the first half of 2019, marking a 46 percent decline compared with the same period last year.

Despite the Trump administration’s declared aim of reducing Iranian oil exports to zero, a complete oil cutoff appears unlikely. According to one oil trader, if China had completely cut off oil purchases from Iran, the current oil price would be significantly higher: “If you take two to three million barrels a day off the market by sanctions on Venezuela and Iran, plus the OPEC cutbacks, you would have to see a higher price.”

It is equally unlikely, however, that China will act in total disregard of U.S. sanctions. Indeed, a recent Bank of America report noted that a Chinese decision to fully cast off sanctions and “reinitiate Iran crude purchases could send oil prices into a tailspin,” with prices potentially sinking to as low as $30 a barrel.

Iran To China: Buy More Of Our Oil

Reflecting the strain of sanctions as sales to the West decline, Iranian Vice President Eshaq Jahangiri was quoted by Iranian media as saying, “Even though we are aware that friendly countries such as China are facing some restrictions, we expect them to be more active in buying Iranian oil,” shortly after a meeting with Song Tao, Head of the International Liaison Department of the Communist Party of China, who had been visiting in Tehran this week.

Immediately after meeting the head of the International Liaison Department of the Communist Party of China, Song Tao, on July 30, Iranian MP Ali Larijani asserted, "Consultations between Iran, China, and cooperation of certain friendly countries can help counter the U.S. animosity and neutralize its consequences," but qualified that the "success of this plan is contingent upon practical steps."

This bid for Chinese economic aid follows in the footsteps of Supreme Leader Ayatollah Ali Khamenei's October 17, 2018 comments to a group of Iranian academics returning from various Western countries: "We should look to East, not West. Pinning our hope on the West or Europe would belittle us as we would beg them for favor and they would do nothing."