China and the EU: Will support to Iran be enough?

The decision by President Donald Trump to withdraw from the Joint Comprehensive Plan of Action (JCOPA) nuclear pact has made both the EU and other signatory countries like China and Russia scramble to try and save the deal, but their life support packages are not certain to overcome the drastic US financial and trade curbs on complying companies.

Both the EU and Beijing have undertaken a number of diplomatic moves to lend their strong support to Iran in its latest showdown with Washington.

On the Chinese side, in a meeting with visiting Iranian Foreign Minister Zarif, Chinese Foreign Minister Wang Yi promised a ”Comprehensive Strategic Partnership” with Iran and reassured Zarif that both Beijing and Moscow would stick to their bilateral agreements with Iran and support Tehran in rejecting proposals to renegotiate JCPOA.

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Beijing also promised to press the European Union countries to defy the US sanction and to stand by JCPOA if Iran continues to do so. China also promised that if European companies withdraw from Iranian projects, as is increasingly likely despite EU government threats to defy US demands, Chinese companies will step in where possible.

The first test will be if the French energy company Total withdraws from its South Pars Iran $ 5 billion joint venture if it does not obtain a US waiver by November, leaving the Chinese national oil company CNPC to take over the French stake .

Some of the biggest deals that are at risk include the Norwegian firm Saga Energy's $3 billion deal to build solar power plants and Airbus multi-billion dollar deal to sell 100 jets to IranAir.

Reviving legislation

For their part, the Europeans have been stung into belated action and the bloc has begun reviving legislation that will allow European companies to continue doing business with Iran, despite US sanctions.

These are the so-called “blocking statute” introduced in 1996 to circumvent US sanctions on Cuba but was never used but the Europeans have announced that an updated version of the measure should be in force before 6 August, when the first sanctions take effect.

The result is a standoff with the US whereby the EU legislation will prohibit European companies from complying with the penalties and permit compensation for affected firms.

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The EU is not mincing any words, fearing that the trade flow with Iran would drop sharply and the European Commission President Jean-Claude Juncker made specific reference to small and medium-sized companies as they are deemed to be less vulnerable to US sanctions compared to the large EU firms who conduct business in the US or who use American parts such as Airbus.

But the introduction of the new EU legislation is not guaranteed as the Commission said that the European Parliament and member states could raise objections to the statute but the measure could also be activated sooner if there was strong political support amongst members.

Other European initiatives include allowing the European Investment Bank to lend to EU projects in Iran and of more significance given the American stranglehold on using the US dollar, to urge EU governments to explore “one-off” transfers to Iran’s central bank to help authorities to receive their oil-related revenues.

To reassure the Iranians that the EU would continue to honour their side of the JCOPA deal, if Iran remained committed, the EU Energy Commissioner Miguel Arias Cañete travelling to Tehran to personally make that commitment to rather sceptical Iranian audience.

Chinese outreach

The Chinese outreach was also on many fronts. There is a possibility that Iranian President Hassan Rouhani may attend the Shanghai Cooperation Organization (SCO) summit in the coastal city of Qingdao in East China’s Shandong province on June 9-10, which could boost cooperation with Asian countries and seek to sway other Asian countries to maintain imports from Iran.

Above all China sent the Trump Administration a symbolic warning that it will maintain economic and trade ties with Iran even if new US sanctions go into effect by announcing five days ahead of schedule a first inaugural run of a freight train route to Iran from Inner Mongolia to Tehran. Beijing also believes the developments over JCPOA and new sanctions will lend a natural advantage to Chinese companies competing for business in Iran.

China believes Iran can ultimately withstand the economic pressures of new sanctions. Three of Iran’s major economic partners are China, Russia and the European Union, and between the three, they can more than offset the US economic and political pressures.

Even during the 2013-2015 economic sanctions period, Iran still sold a third of its oil to China. China is Iran’s biggest trading partner and, if necessary, China will import more Iranian oil to support Tehran, especially if these are offered at a discount, something that would also appeal to India as that country has began to raise concerns at oil prices reaching the $80 a barrel levels threatening India’s economic growth.

ALSO READ: ‘No alternative’ to Iran nuclear deal, EU foreign policy chief tells US

What is shaping up today is not only a test of will between the US and the EU and other countries signatory to the JCOPA agreement, but a long term chilling of the European–American transatlantic special alliance and relationship.

This is pushing the Europeans to consider a more Europe-centred policy depending on themselves, aptly illustrated by the comment of EU President Donald Tusk who said that the Europeans should be grateful to President Trump and quipped that “with friends like this, who needs enemies …”.

Whatever the final outcome of JCPOA, and whether it is buried or not under US sanction pressure and the inability of the signatory countries to compensate their companies for lost business opportunities with Iran, the days of multilateral agreements have been rudely shattered. The North Korean leader seems to have quickly learned that lesson and the US – North Korea summit, if it goes ahead, is not going to be as easy as many had thought a few weeks ago.

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Dr. Mohamed Ramady is an energy economist and geo-political expert on the GCC, former Professor at King Fahd University of Petroleum and Minerals, Dhahran, Saudi Arabia and co-author of ‘OPEC in a Post Shale world – where to next?’ His latest book is on ‘Saudi Aramco 2030: Post IPO challenges’.