Trump Administration Not Turning a Blind Eye to Chinese Violations of Iran Oil Sanctions

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By David Adesnik
Source: Foundation for the Defense of Democracies (FDD)

The U.S. imposed sanctions on a Chinese oil trading firm and its chief executive on Monday “for knowingly purchasing or acquiring oil from Iran, contrary to U.S. sanctions,” according to Secretary of State Mike Pompeo. The move indicates the Trump administration will not look the other way as China continues to import millions of barrels of Iranian crude.

The target of U.S. sanctions, Zhuhai Zhenrong, is one of two state-owned enterprises that serve as China’s principal importers of Iranian oil, the other being Sinopec. “We said we would fully enforce our sanctions, and we are backing this up with real action,” Pompeo added.

The Obama administration sanctioned Zhuhai Zhenrong in 2012 for exporting gasoline to Iran, then suspended those sanctions as part of the 2015 nuclear deal with Tehran. While the sanctions were in place, the Chinese firm remained a leading importer of Iranian oil, bringing in about 240,000 barrels per day.

The U.S. aimed a lethal blow at Tehran’s finances in late April by ending the waivers that allowed China and several others importers to continue purchasing Iranian oil despite the re-instatement of sanctions in 2018. In May, Iranian exports plunged to an all-time low following the decisions of Japan, South Korea, India, and Turkey to comply with U.S. restrictions. Whereas Iran exported about 2.4 million barrels per day before the Trump administration withdrew from the nuclear deal, its exports fell to 500,000 barrels per day or less after the U.S. waivers expired.

Precise figures for Iranian exports are now unavailable because, in violation of maritime law, Iranian tankers conceal their activity by turning off the transponders that broadcast their location. However, Tanker Trackers’ analysis of commercial satellite imagery has shown that the Iranian-flagged tanker Salina delivered about one million barrels of crude to China in late June – the first delivery since the expiration of U.S. waivers – while the Iranian-flagged Horse and Humanity made deliveries in July. Meanwhile, Bloomberg listed deliveries from the Iranian-flagged Amber and Panamanian-flagged C. Infinity, while reporting that other tankers were en route or anchored off Chinese shores.

Tanker Trackers estimates that Iran’s total exports after the cancellation of U.S. waivers amounted to 500,000 barrels per day in May and closer to 600,000 in July. Bloomberg’s tracking service put the figures at 355,000 for May and 400,000 for June. The only country besides China that now imports Iranian crude is Syria, which brought in 100,000 barrels per day in June.

Given that Iranian exports to Syria appear to be a subsidy in kind, China is now Tehran’s only paying customer. Nonetheless, millions of barrels of Iranian oil in China may not yet have a buyer, according to Bloomberg. Rather, the oil is in bonded storage, meaning that it arrived in China but has not passed through customs, so it is not yet counted as an import by official Chinese customs data.

The sanctions on Zhuhai Zhenrong may be more of a warning shot than an effort to impose substantial costs on China. The Financial Times reported that the firm has little overseas exposure, thereby limiting the effect of sanctions. The more difficult challenge for the U.S. will be how to deal with global titans such as Sinopec and China National Petroleum Corporation if they are violating sanctions.

If the Trump administration is determined to drive Iranian oil exports down as close to zero as possible, it will need to convince Beijing that it is ready to punish all sanctions violators.

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