China and Russia push into Iran
Chinese and Russian state-backed companies are maneuvering to profit from European firms leaving Iran, threatening the Trump administration’s bid to raise economic pressure on Tehran. As The Wall Street Journal writes in an article "China and Russia Push Into Iran, Exploiting Europe’s Caution", their efforts show how Iran’s business landscape has shifted since the Trump administration withdrew from the nuclear pact, which lifted crippling sanctions on Iran in exchange for curbs on its nuclear program, following 17 months of rising pressure.
Secretary of State Mike Pompeo has threatened the “strongest set of sanctions in history” if Iran doesn’t rein in its military activities across the Middle East and stop testing long-range missiles. European executives who tried to make inroads in Iran since the Obama administration struck the nuclear deal in 2015 are now concerned Beijing and Moscow will seize an insurmountable advantage in a large, growing market. “What would be not good neither for the U.S., nor for Europe, is if that at the end only Russia and China can do business in Iran,” said Patrick Pouyanné, chief executive of French energy company Total SA, in a speech in Washington after the policy shift this month.
China Petroleum & Chemical Corp. , or Sinopec, a giant Chinese-state oil company, sent a delegation to Tehran this month to complete a $3 billion deal to further develop a giant Iranian oil field that Royal Dutch Shell PLC was negotiating for until it decided in March the sanctions risk was too great, say Iranian and Western oil executives. That deal, to develop the Yadavaran oil field, would be potentially the biggest foreign investment in a decade.
China National Petroleum Corp., another state-owned giant, has an option for the $1 billion investment pledged by Total for a natural-gas development in Iran that the French company is considering leaving because of U.S. sanctions, CNPC and Iran officials say. CNPC is Total’s partner in the project. Chinese companies have also joined with Iranian peers to renovate railways, build metro lines and manufacture cars. Cheap clothing, cookware, consumer electronics and sunflower seeds imported from China have become popular in Tehran’s street markets.
Russia has viewed Iran more cautiously as a business partner, but its companies have worked to build ties there. Russia is selling oil-drilling equipment to Iranian energy companies that don’t have access to Western technology. Russia’s biggest state oil company, PAO Rosneft, last year agreed to work on “strategic” deals worth $30 billion in Iran, though their status is unclear. A Russian state-owned oil company, Zarubezhneft, remains the only foreign company to sign a new type of Iranian contract offered to investors to develop crude petroleum in Iran. In March, Zarubezhneft signed a $700 million contract to develop two small fields, part of investment opportunities that European oil companies such as the U.K.’s BP PLC and Germany’s Wintershall AG had hoped to be a part of but are now unlikely to join due to U.S. sanctions.
The initiatives by Russia and China signal risks to the Trump administration’s plan to pressure Iran. Many Russian and Chinese companies don’t have as extensive connections with the U.S. financial system as do European firms, allowing many of them able to work there with less fear of retribution. The EU is working with Iran to find ways for European businesses to keep working there, though the U.S. has threatened sanctions against them. Russia and China had supported the United Nations sanctions imposed on Iran in 2010 through the U.S., the U.K. and France. Their participation is partially credited with helping to bring Iran to the bargaining table to enact a nuclear deal that Russia and China also signed. This time, Russia and China say they don’t support U.S. efforts to squeeze Tehran harder and are analyzing at how to do business there.
Iran had already been shifting its economic and political focus toward Russia and China since President Donald Trump’s election. Beijing was the first destination of Iranian Foreign Minister Javad Zarif after Mr. Trump said he was exiting the nuclear pact. The U.S. has shrugged off Russian and Chinese business help for Iran. Mr. Pompeo told reporters on Tuesday that “Russia and China see [Iran’s interference in the Middle East] as a threat as well.” But the impact of U.S. sanctions is significant enough that even Chinese and Russian companies can’t ignore them, a U.S. official said. If they had to choose between doing business in Iran and in the U.S., they would prefer the latter, he said. The U.S. has made it clear it will pursue Chinese companies with U.S. connections if they violate its restrictions on Iran. The Justice Department is investigating whether Huawei Technologies Co. breached the Iran policy. A CNPC manager said the company is worried about how Chinese banks will react to taking on more investment in Iran and about procuring oil equipment for work in Iran. Russia is advising companies against doing business with the Islamic Revolutionary Guard Corps, an Iranian paramilitary group with business interests that is under strict U.S. sanctions. In siding with Iran over the U.S., Russia and China risk opening another front in a burgeoning series of disputes with Mr. Trump over disputes spanning the Ukrainian conflict to steel tariffs.
But the lack of European competition is an enticing prospect. Russia sees Iran as another platform for the expansion of its oil industry into the Middle East and as a natural if sometimes awkward ally against the West. The two countries’ militaries have both helped bolster President Bashar al-Assad in the Syrian civil war. Russian trade with Iran doubled to more than $2 billion in 2016, the year that nuclear sanctions ended, much of it wheat and industrial equipment.
China is by far Iran’s largest business partner, buying about a third of its oil exports, bringing bilateral trade to a record $37 billion in 2017, up 19% from a year earlier. China sees Iran as a trade corridor for its “One Belt, One Road” initiative—a revival of the “Silk Road” route that exported its goods westward. Roozbeh Aliabadi, partner at New York-based Global Growth Advisors, which advises Chinese and other foreign companies entering Iran, called U.S. sanctions on Iran “a huge gift to China.”