News : Economy
- Published: Saturday, 06 October 2018
By Edward Carney
In a report published on Thursday about the Chinese oil company CEFC, the New York Times reported that in addition to engaging in illegal activities related to the energy trade, a top executive for the company also undertook other illicit projects, including a conspiracy to have CEFC act as an intermediary in sanctions-busting transactions between Iran and foreign businesses.
The report indicates that it is not presently known whether a detailed plan was formulated or put into practice, but the story is indicative of some of the challenges that the US might face from major global adversaries as it works to economically and diplomatically isolate the Islamic Republic of Iran. But at the same time, federal prosecutors’ revelation of that plot underscores the notion that the US will be diligent in identifying and obstructing instances of illegal behavior that strives to alleviate pressure on the Iranian regime.
On the same day that the New York Times reported upon the plot by CEFC executive Patrick Ho, another Chinese business returned to the headlines after a federal judge ruled that ZTE Corp had violated the terms of its probation and would not remain under monitoring for an additional two years, until 2022. As Reuters notes, the original judgement against ZTE related to its illegal shipment of goods to Iran in defiance of US sanctions that were in place at the time.
Vigorous enforcement of past sanctions is arguably of particular importance under present conditions, as the Islamic Republic is bracing for the re-imposition of banking sanctions and secondary sanctions on the Iranian oil trade that were suspended under the 2015 Iran nuclear deal. US President Donald Trump pulled out of that deal in May, and the first round of sanctions returned to force in August, prompting further declines in the value of Iran’s national currency, as well as further economic protests among the Iranian population.
These sorts of developments have been highlighted by multiple Trump administration officials who insist that economic pressure is already having the desired effect, even before full-scale re-implementation and even in the presence of defiant attitudes among many European governments and some Asian businesses. The European Union has gone so far as to announce its intention to form a “special purpose vehicle” for sanctioned transactions between Iran and European companies, but details of the project were sparse and it has so far had little impact on the exodus of European companies from the Iranian market.
The Financial Times elaborated upon this situation on Thursday, noting that major oil companies were “spurning the EU’s attempt” ahead of the November sanctions deadline, “because of fears the effort would leave businesses exposed to harsh penalties from the Trump administration.” The reported added that a survey of oil trading executives failed to identify any who would be willing to risk the consequences involved in continuing to purchase Iranian oil.
And while countries like China may be historically more willing to take on these risks, it bears mentioning that even some close allies of the Islamic Republic are currently taking steps that could help to increase the pressure from US-led sanctions. As an example, Newsweek reported on Thursday that Russia, which has supported Iran in nuclear negotiations and in its intervention on behalf of the Assad regime in Syria, has joined Saudi Arabia in “quietly” increasing petroleum outputs in order to compensate for the loss of Iranian exports among those countries that are complying with the forthcoming sanctions.
The silent nature of the increases is reportedly part of an effort to not look as if Russia or OPEC are acting on the orders of the US. President Trump tweeted in June that he hoped the Organization of Petroleum Exporting Countries would “increase output substantially” in order to “keep prices down.” The perception of a response to this demand is perhaps less important to Saudi Arabia, a close US ally that is already routinely subjected to Iranian accusations of subservience to Western powers. But Russia may be keener to avoid such perceptions at a time when its relations with the US are in flux and it still shares some but not all of Iran’s strategic goals in the Middle East region.
Regardless of Russia’s motivations or any fears regarding how it will be perceived, it reportedly entered into an agreement to begin raising output last month and to continue doing so through December. This reverses a previous agreement between Russia and OPEC to reduce outputs in order to buttress prices that were falling at the time. Iran was exempted from that deal prior to the American withdrawal from the 2015 nuclear agreement, as it sought to bring its output back up to self-reported pre-sanctions levels.
The Newsweek report indicates that Tehran quickly seized upon the reversal in order to accuse Moscow and Riyadh of violating their preexisting commitments. It remains to be seen whether this will put substantial strain on cooperative relations between Iran and Russia, but it is essentially certain that Iran’s protests will contribute to the escalating war of words between the Islamic Republic and its Gulf Arab adversaries.
In some cases, questions linger about the extent to which the rhetorical exchanges between these countries have been reflected in actual policy. But those questions may begin to fade as the developing situation prompts some of the more tentative Arab nations to truly step up pressure on the Iranian regime and its oil economy. Bloomberg reported on Thursday that the United Arab Emirates had continued to buy Iranian oil despite standing right alongside Saudi Arabia in raising the alarm over Tehran’s expanding, destructive influence on the region.
But the report went on to say that this situation may be coming to an end as the UAE looks to tightly police the flow of oil imports through its ports in advance of the return of US sanctions on November 4. Energy Minister Suhail Al Mazrouei declared on Tuesday that “alternatives are available in the market,” although he did not go into detail as to what these alternatives might be. The expanded Russian and Saudi Arabian supplies may represent two such alternatives, but it has yet to be determined whether those and other countries will be both willing and able to quickly compensate for the loss of Iranian oil.
The answer to this question may depend in part on how vigorously the UAE and the rest of the world demand those alternatives, and the Bloomberg report concluded by noting that the extent of that demand may depend “on the U.S. and whether it emphasizes strict adherence to sanctions.” In recent weeks, the Trump administration has slightly moderated its tone on that point, suggesting that it might grant some waivers to countries that depend on Iranian oil, but only if they first took measures to substantially reduce those imports.
This is certainly not to say that the administration has seriously scaled back the overall assertiveness of its Iran strategy. Quite the contrary, Secretary of State Mike Pompeo and National Security Advisor John Bolton both offered strong warnings to the Islamic Republic in recent days, with Bolton insisting that there will be “hell to pay” if Tehran continues its malign behavior, while Pompeo said that the Iranian regime will be held responsible for any deaths of American personnel or damage to diplomatic infrastructure following a missile attack on the Basra consulate by militant proxies of the Islamic Republic.
This attack presumably contributed, also, to Secretary of Defense James Mattis’ conclusion that Tehran has grown resistant to “any sort of restraint,” thereby underscoring the need for strong, multilateral efforts to constrain its behavior. According to the Washington Examiner, Pompeo echoed this sentiment but also suggested that the Iranian regime’s apparent efforts to step up its threats against regional and Western adversaries are evidence that the US government’s “comprehensive pressure campaign [is] serious and succeeding.”
Pompeo went on to say, “We must be prepared for them to continue their attempts to hit back, especially after our full sanctions are re-imposed on the 4th of November.” The White House evidently perceives these prospective attempts as falling into a number of different categories, and PJ Media reported that Secretary Mattis had identified several distinct examples of Iran’s lack of “restraint,” including its interventions in Syria, its provision of weapons to proxies that have fired them into Arab states, and the attempted bombing of the June 30 rally of the National Council of Resistance of Iran just outside Paris.
This last incident and other terror plots against Western targets may be especially important in turning the US pressure campaign into something truly multilateral. Recently, the French government announced asset freezes for two Iranian intelligence agents and the Iranian Ministry of Intelligence as a whole, based on its firm determination that Tehran was responsible for the plot against the NCRI. Agence France Presse then reported on Thursday that this was likely to have a strongly adverse impact on the European Union’s efforts to buttress the nuclear deal and assist the Islamic Republic.
So far, Iranian officials have generally remained defiant of US sanctions threats, and the Associated Press quoted Supreme Leader Ali Khamenei as telling a gathering of the Basij civilian militia that Iran would “slap” the US over the issue. No doubt, the recent actions of several different countries and businesses have emboldened this attitude. But many of these actions, including Chinese sanctions evasion, Arab oil policies, and EU commitment to the 2015 nuclear deal, are under significant threats, either from US sanctions enforcement or from the Iranian regime’s own threatening behavior against would-be advocates in the West.