Abacus | Asia faces a devil’s bargain over US sanctions on Iran’s oil
Donald Trump’s re-imposition of sanctions on Tehran leaves oil importers with a stark choice: pay punishing prices on the open market, or buy cheaply from Iran and face the wrath of the United States
In just over a month, on November 5, the US government is due to re-impose sanctions on Iran’s exports of oil. As Iran’s biggest customer – buying roughly a third of its 2 million barrels a day of exports last year – China will be heavily affected by the US action. How Chinese oil buyers respond will have deep implications, not just for China itself, but for other economies across Asia and around the world.
So far China is talking tough, with state-owned oil importers insisting they will pay no attention to the US prohibition on buying Iranian crude. But when it comes to the crunch, China’s big oil companies may well decide that complying with the US ban is the lesser of two evils.
The risk is that if they continue to buy shipments of Iranian oil, they could find themselves the target of secondary US sanctions aimed at disrupting their ability to make or receive international payments in US dollars. For businesses operating in US dollar-denominated global energy markets, such secondary sanctions could prove crippling.
At first glance, the threat of US secondary action against Chinese buyers of Iranian oil might not seem much of a danger.
After all, China can buy Iranian oil through barter, or settle its purchases in yuan, avoiding the need to make payments in US dollars.