What Happened: Iranian Foreign Minister Javad Zarif is in the midst of a visit to Beijing at the head of an Iranian ministerial delegation. His Chinese counterpart, Wang Yi, met Zarif at a state guest house on Feb. 19, and welcomed Iran’s efforts to deepen "strategic trust" with China. The delegation includes Iranian parliamentary speaker Ali Larijani, the leader of Iran’s central bank and the country's finance and petroleum ministers.
Why It Matters: With U.S. sanctions blocking transactions with Iran conducted through international payment channels, countries wanting to do business with the Islamic republic have set up creative ways to bypass sanctions' punitive measures. It's possible that this week's visit will result in the emergence of ideas for a trade mechanism that insulates Iranian-Chinese trade from sanctions. Before the United States withdrew from the Joint Comprehensive Plan of Action nuclear deal in May 2018 and applied sanctions on Iranian exports, China had been the No. 1 global importer of Iranian oil, cementing its importance as an economic partner to Tehran. In turn, Iran imported a significant amount of manufactured goods from China. That leaves a variety of possibilities in terms of bartering arrangements that could bypass U.S. sanctions.
For instance, a payment channel already exists between China and Iran through Kunlun Bank, although the volume and type of transactions that can be facilitated through this channel would not be sufficient to fulfill the Iranian desire for a large-scale trade in oil, goods and financial transactions. Chinese companies have already shown a willingness to defer to U.S. sanctions pressure, meaning that unless alternative financing schemes are set up, they'd likely pass on doing business with Iran.
China remains an important Iranian political and diplomatic ally as the U.S. pressure campaign against Iran intensifies. Wang specifically praised Zarif’s Feb. 17 address during the Munich Security Conference that outlined his country's defiance in the face of sanctions, noting that China has always opposed unilateral sanctions and "long-arm jurisdiction." But China's government, too, must take into account the increasing pressure from the United States related to criminal charges it filed against Huawei, which are linked to the company's work with Iran.
Background/Context: After the U.S. State Department’s waiver announcement in November, Chinese energy companies Sinopec and CNPC were allowed to import some 360,000 barrels per day of crude oil, roughly half what they were importing before the U.S. pullout from the nuclear deal. China has appeared willing to comply with U.S. sanctions, leading many observers to believe that China could be seeking better terms from Iran over its continued oil purchases, perhaps routed through smaller banks and companies that China could more easily shield from U.S. sanctions. That strategy, however, would pose a risk for China.
