China Will Continue Buying Iranian Oil

There's a big hole in the latest sanctions against Iran.

If economic sanctions against Iran are going to hurt the country sufficiently in order to cause the leaders in Tehran to consider backing away from their apparent plans to at least develop the technology to create nuclear weapons, then it’s going to have to involve cutting off their ability to sell their oil on the world market. Not only is it their biggest export, it’s also their biggest source of hard currency. The United States and many of our European allies have committed to a sanctions regime that may end up including this step at some point in the future, but it’s not really going to matter, because the most oil-thirsty country on the planet plans to keep on buying as much Iranian oil as it needs:

BOAO, China -(MarketWatch)- China will import crude oil from Iran based on its demand and won’t be influenced by the edicts of “some country,” the former head of China’s National Energy Administration said Sunday.

Speaking at the 2012 Boao Forum in China, Zhang Guobao said recent U.S. and European Union sanctions against importing crude from Iran don’t include “halting normal trade.”

A U.S. appeal earlier this year for countries to reduce crude imports from Iran has pushed up global crude prices, which has been harmful to the global economy, Zhang added. Higher oil prices combined with slower economic growth will also hurt oil demand, he said. Still, global oil prices probably won’t rise much, he added.

Zhang said the release of strategic oil reserves by countries such as the U.S. wouldn’t help keep crude prices in check because “releasing inventory only can affect prices for a short time.”

Separately, Fu Chengyu, chairman of China Petroleum and Chemical Corp. SNP +1.11% , known as Sinopec Corp., said oil sanctions against Iran will push prices higher, which is bad for the global economic recovery

China isn’t the only oil thirsty nation saying it will continue buying Iranian oil, India has said much the same thing, and in reality there isn’t much that we can do about it. Theoretically, the West could impose a blockade on Iranian ports but that would be considered an act of war and, under present circumstances, an unjustifiable one at that. We could close the Straits of Hormuz, but that would also block oil from the rest of the Persian Gulf, and would also be an act of war in violation of International Law. This isn’t a matter of a failure of diplomacy ether. China and India are both in the middle of incredible economic growth spurts that require tremendous amounts of energy. Given how tight the world oil markets are, it’s hard to see what we could do to persuade either country to forgo purchasing Iranian oil. What possible incentive could we offer them to do that? Nothing that I can think of.

Here’s a chart from The New York Times showing where Iran’s oil was going as of January:

Japan, Turkey, and South Korea seem to be moving toward cutting back on their imports from Iran, as are the Europeans. However as long as China and India are out there buying Iranian oil, and likely buying more of it if other customers start buying less, then one wonders how much the Iranian economy will be hurt by sanctions, and whether that harm will have any impact on Iran’s nuclear ambitions.

So this leads to a question. How can a sanctions regime work if two of Iran’s biggest export customers aren’t going to participate in it? And, if it doesn’t work does that make a foolish and unnecessary war more likely?

FILED UNDER: Asia, Economics and Business, Middle East, US Politics, World Politics, , ,
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. Robert Levine says:

    Yes, it’s a hole in the sanctions regime. But the sanctions, considered as a whole, are still pretty brutal, and affect Iran’s ability to spend as much as its ability to earn.

  2. Perhaps but that leaves another question unanswered. Namely, what guarantee is there that Iran will react to the economic hardship that might result by becoming less confrontational?

    Over the last ten years, the Iranians have seen Iraq abandon its WMD program and get invaded. They have seen Libya abandon its WMD program and its regime toppled in a Civil War directly aided by Europe and the United States. And they have seen North Korea develop nuclear weapons, and their regime is likely to survive for the foreseeable future.

    What lesson do you suppose they might draw from that?

  3. Hey Norm says:

    India and China together only account for some 35% of Iran’s exports. As of March sanctions have already led to a dramatic reduction in exports…with the EU embargo in full effect it is hoped sales might…might…be down a total of 40%. If the sanctions continue to reduce Iran’s exports much below what they now export they will probably be forced to discount what they do sell…rather than have loaded tankers sitting…which they reportedly already have now.
    The idea is to squeeze. How much would your income have to drop before you began to feel the pain? How much before it was unsustainable? You don’t have to completely eliminate their exports. Just hurt them.

  4. Brummagem Joe says:

    How can a sanctions regime work if two of Iran’s biggest export customers aren’t going to participate in it?

    It can’t. And I suspect the admin probably realise this but are willing to give it their best shot in absence of any other alternative. Short of invading the country and removing the regime the fact is there is no practical means of preventing the Iranians from obtaining nuclear weapons if they are set upon it and they clearly are.

    And, if it doesn’t work does that make a foolish and unnecessary war more likely?

    Not in my opinion since the chances of the US either starting or getting directly involved in war with Iran while the Obama admin is in power are zero. They are somewhat greater if Romney was in office but by how much it’s hard to tell, probably not by much.

  5. Tsar Nicholas says:

    Sanctions are like cartels; never do they really work as intended. Someone inevitably will break ranks. Witness China and Iranian oil. All the more reason to settle our differences with Iran via the JDAM and bunker buster methodologies. Iran won’t be able to use its nuclear weapons as a prospective sword, a la North Korea, if Iran’s nuclear weapons program preemptively is squashed into atoms.

  6. Brummagem Joe says:

    @Hey Norm:

    Norm…oil is around $105 a barrel. They give them a $10 a barrel discount and Chinese/Indian consumption jumps to 70% of Iranian exports and at $95 a barrel the Iranians are still making out like bandits.

  7. Brummagem Joe says:

    @Tsar Nicholas:

    Sanctions are like cartels

    Actually Counsellor Nicko they are nothing like cartels which can exist and thrive for a very long time. In fact OPEC is a very good example of a cartel that has been very successful at managing the world price of oil for forty years.

  8. Hey Norm says:

    Chinese and Indian consumption is going to double overnight? Do they even have the infrastructure to handle that kind of increase if they wanted to?
    2.5M barrels @ $105 = $262.5M
    2.5M x .70 @ $95 = $166.25M
    In some neighborhoods $96.25M a day in lost revenue is real money.

  9. Tsar Nicholas says:

    @Brummagem Joe: Joe, OPEC didn’t do squat during the 1990’s, when oil mostly traded below $30 per barrel despite a rip-roaring global economy. Also, FYI, I don’t think OPEC “managed” oil from $25 up to $147 but then down to $35 and then back up to $106, all within a decade! You largely can thank Club Fed and first Chairman Al’s and then Uncle Ben’s monetary policies for that one.

    That all said, I presume from your silence that you agree with me on the ultimate issue: That given the toothlessness of sanctions we indeed should utilize the bombs away method to deal with Iran. I appreciate that. It’s good to see the left coming around to our way of thinking.

  10. Brummagem Joe says:

    @Tsar Nicholas:

    Joe, OPEC didn’t do squat during the 1990′s, when oil mostly traded below $30 per barrel despite a rip-roaring global economy.

    Well this might have something to do with the fact they only control about 40% of world output (although around 80% of reserves) so their power over price stability is far from absolute. The principal purpose of OPEC as with most cartels is to put a floor under prices and ensure a steady income which during the forty years they have been in existence they have been fairly succesful at achieving. As a petroleum trader I would have thought you knew this Nicko.

    I presume from your silence that you agree with me on the ultimate issue: That given the toothlessness of sanctions we indeed should utilize the bombs away method to deal with Iran. I appreciate that. It’s good to see the left coming around to our way of thinking.

    The world of OTB is familiar with your often bizarre assumptions and this one is as erroneous as the rest of them.

  11. Brummagem Joe says:

    @Hey Norm:

    Chinese and Indian consumption is going to double overnight?

    Er…Norm it’s substitutional.

    In some neighborhoods $96.25M a day in lost revenue is real money.

    Not in a siege economy where many of your other customers have stopped buying it isn’t. And in absolute terms $95 a barrel is a good price.

  12. Tsar Nicholas says:

    @Brummagem Joe: Then it’s settled: Your earlier comment that OPEC “has been very successful at managing the world price of oil for forty years,” was a tad bit of hyperbole, and it really didn’t negate my prior contention that sanctions are in fact akin to cartels, in the sense that people inevitably break ranks and thereby dilute the founding purposes thereof. Speaking of which, Joe, the founding purpose of the OPEC cartel, as opposed to more benign cartels, such as ag co-ops, was not to put a “floor” under prices, as you suggest. It was to increase the price of world oil above fair value and thereby to acheive a windfall for member states. OPEC is a nasty cartel, Joe. Nasty.

    (Incidentally, FYI, the company with which I am employed purchases head of pipeline and then resells refined petroleum products such as gasoline and diesel; we don’t trade derivatives as a company, although yours truly for 20 years on his own personal account has traded various derivatives, including oil.)

    Concerning the Iranian question, it’s quite disappointing on that front that you’re still in touch with your inner Chomsky. Just remember that although the Chamberlain approach to foreign policies makes one quite popular at cocktail parties in Tribeca, in media newsrooms, and in university classrooms, it often has had disastrous consequences, for which the negative ripple effects have endured for decades.

  13. Ben Wolf says:

    @Tsar Nicholas:

    Concerning the Iranian question, it’s quite disappointing on that front that you’re still in touch with your inner Chomsky. Just remember that although the Chamberlain approach to foreign policies makes one quite popular at cocktail parties in Tribeca, in media newsrooms, and in university classrooms, it often has had disastrous consequences, for which the negative ripple effects have endured for decades.

    You don’t actually read, do you? Sorry, but throwing out the random “Chomsky” and “Chamberlain” doesn’t frighten anyone here.

  14. Brummagem Joe says:

    @Tsar Nicholas:

    and it really didn’t negate my prior contention that sanctions are in fact akin to cartels, in the sense that people inevitably break ranks and thereby dilute the founding purposes thereof.

    Except that no has really broken ranks with OPEC in 40 years (although there are occasional rumors of illicit pumping) and the only reason Iran might be forced to is because they are being subjected to sanctions.

    It was to increase the price of world oil above fair value and thereby to acheive a windfall for member states.

    OPEC isn’t particularly benign but it’s goal like most cartels has basically been not to control prices (because with only 40% of the market this is not really possible although they did have more leverage back in the 70’s) but to put to a floor under them and it’s hard to deny it’s long term success.

    Just remember that although the Chamberlain approach to foreign policies makes one quite popular at cocktail parties in Tribeca,

    And mentions of Chamberlain in relation to today’s US foreign policy perform a similar function to mentions of the Greek economy in relation to the US economy……they reveal their authors to be rather simple minded prats.

  15. Rob in CT says:

    Sanctions don’t have a very good tract record, IMO. South Africa is really the best example that comes to mind of sanctions working, and I really think there was a strong element of peer pressure there (the SA government saw itself as part of “The West” and The West shunned them) that cannot be duplicated in many instances (including Iran).

    If the choice is between sanctions (stick) with negotiations (carrot) on the one hand and “bombs away” on the other, of course I prefer sanctions. And those really appear to be the only acceptable options in Washington. A cautious Obama backing into war but looking for a way to avoid it or the “Bomb-bomb-bomb, bomb-bomb Iran” GOP.

    My position – that a nuclear Iran is containable if not desirable, is entirely outside the box.

  16. An Interested Party says:

    Just remember that although the Chamberlain approach to foreign policies makes one quite popular at cocktail parties in Tribeca…

    The Iraq Debacle proved once and for all the idiocy of Chamberlain references….try something else, as that line no longer works…

  17. Brummagem Joe says:

    @Rob in CT:

    My position – that a nuclear Iran is containable if not desirable, is entirely outside the box.

    I don’t think it outside the box. It’s the most likely outcome and one we’ve been living with for over 60 years from the Soviet Union to North Korea.

  18. Tsar Nicholas says:

    @Brummagem Joe: Joe, you’re like the loopy ying to my imperialistic yang. That said, however, don’t underestimate the extent to which the Chamberlain reference might be apropos. I see full well it strikes a nerve with you. That’s good. It should. The Iranians are not necessarily rational actors. These are religious nutbags. Don’t you remember the 444 days in 1979-1980? These people are f’n insane, Chief.

    The Soviets were thugs, but they were rational actors. They fought us by proxy. When push came to shove, however, they backed down. Kennedy told them no missiles in Cuba and they stepped off. Rational actors.

    The North Koreans make it a point to act out crazy, but in most respects they’re crazy like foxes. At the end of the day all the North Koreans really want is to keep counterfeiting our money and for the South not to know just how much of an empty shell they really are.

    The Iranians, on the other hand, are different animals altogether. Again, they’re religion crazy, Joe, not merely communist crazy. On this point I’ll leave you with the following: If the Iranians decide to go to Allah in glory by lobbing a nuke at Tel Aviv it’ll be far too late for liberals on the Internet to say things like: “Damn, that’s a shame.”

  19. Brummagem Joe says:

    @Tsar Nicholas:

    I see full well it strikes a nerve with you.

    Yeah…it’s conclusive evidence you’re a big time prat Nicko like the rest of this rather childish effusion. I particularly like your assertion that the North Koreans are more rational than the Iranians.

  20. Tsar Nicholas says:

    @Brummagem Joe: Regarding the North Korean vs. Iranian dichotomy:

    Have the North Koreans ever taken the occupants of a U.S. embassy hostage and then held said occupants for well over a year? Um, no. The Iranians did, however. The guy currently in charge over there was part of that mob. Have the North Koreans ever sent armed men across the DMZ to shoot at or to blow up 2ID personnel? Well, Joe, the Iranians fought U.S. troops directly in Iraq, in addition to fighting them via proxy. Have the North Koreans ever declared that Japan is a “Satan” and should be wiped off the map of the world? You know Iranian sermons, Joe, regarding the U.S. (“the Great Satan”) and Israel (“the Little Satan”). Are the North Koreans a religious state, Joe? The Iranians, however, are the epitome of a religious state.

    Then let’s discuss relative geopolitical significance. Are the North Koreans sitting on a mountain of oil or at the doorway to the most important gulf and collection of waterways in the entire world? Mmm, nope.

    Again, Joe, this is striking a nerve with you because it should. If the Iranians nuke Israel there will be various college professors and college students here in America who’ll wet themselves with glee, but at that point it’ll be too late for thinking liberals (yeah, mostly that’s oxymoronic, I know) to say things like: “Man, that sucks.” If the Iranians get in touch with their inner Saddam and start bullying their neighbors or worse if they use nukes to become a world oil baron (and BTW you know Persians hate Arabs and vice-versa), it’ll be too late for trust-funded liberals in New Caanan, Ct., to say things like: “Geez, it stinks that the little people have to pay $7.00 per gallon for gas.”

    Sanctions don’t work because people inevitably break ranks. Diplomacy won’t work because the Iranians are batshit crazy. Doing nothing won’t work because if the Iranians start lobbing nukes it’ll be too late to say we’re sorry about it.

    Joe, this issue needs to be resolved via bombs and missiles. Deep down you know that to be the case. It simply hurts to admit it, though. You won’t be one of the cool kids anymore.

  21. @Tsar Nicholas:

    Since you seem so eager for a war, why don’t you go fight in one?

  22. Brummagem Joe says:

    @Tsar Nicholas:

    It simply hurts to admit it, though. You won’t be one of the cool kids anymore.

    You rather obviously are still a kid…….or have the mental age of one.

  23. An Interested Party says:

    I see full well it strikes a nerve with you.

    Connected to his funny bone, no doubt…

    These are religious nutbags.

    Uh huh…and Kim Jong-il was a nutbag, and we didn’t take military action against North Korea, and Saddam Hussein was a nutbag, and we invaded Iraq with disastrous results…you will pardon some of us for wanting to get off the nutbag merry-go-round…

    Since you seem so eager for a war, why don’t you go fight in one?

    Isn’t it interesting that in the past 10 years, the people who have shown the strongest desire to start wars never fought in any themselves…

  24. Tsar Nicholas says:

    @Doug Mataconis: You’re not really going to trot out that strawman, are you? Along similar lines: Only people who’ve served in the military can argue for cutting defense spending, right? Only doctors can advocate for healthcare reforms. Only cops can advocate for or against law enforcement reforms. Only people who’ve been elected to public offices can advocate for or against governmental reforms. Only victims of crime can advocate for or against criminal law and sentencing reforms. Only potheads can advocate for or against medical marijuana reforms. Only gay people can advocate for or against gay marriage. Only people with kids in school can advocate for or against school vouchers. Only people who haven’t served in the military can argue for or against conscientous objector status. If you oppose military action then go and join the peace corps. Do I need to keep going?

    Honestly, you’ve got to be kidding, Mataconis. You can’t possibly be at that level of loopiness or that utterly bereft of a cogent argument on this issue.

  25. Rob in CT says:

    Lots of people in positions of power are at least somewhat “nutty.” Including some of our own from time to time. I see no reason to believe the Iranian leadership is particularly crazy. They only war they’ve gotten into was one that Saddam started. They use proxies (much like the Soviets and we did in the Cold War) against Israel. The hostage situation was resolved w/o war. In fact, all of that reads to me like the acts of rational people. They’re not our friends, but they are also not suicidal. They’re not going to nuke Israel. They will probably continue to fund their anti-Isreal proxies, and they will continue to use Israel as a propoganda punching bag to try and keep their own people from giving them the boot.

    As for the question Doug asked, I take it from your response that you’re not going to sign up for Operation Persian Liberation. Color me shocked. And no, of course it is not required that an advocate for a particular policy actually be directly involved. But it helps, particularly when said policy is a war (a “preemptive” war, aka a war of choice) that would be fought by our already stressed all-volunteer army. Keyboard warriors like you are less convincing than you were 10 years ago, with good reason.

  26. matt says:

    @Tsar Nicholas: Diamond cartel…A near worthless rock has been “prized” for decades now thanks to them..

  27. matt says:

    @Tsar Nicholas:

    These are religious nutbags. Don’t you remember the 444 days in 1979-1980? These people are f’n insane, Chief.

    Oh you mean when Iran was undergoing a revolution in an attempt to throw out the violent dictator that we had been propping up? This same dictator that had been murdering and torturing Iranians for decades thanks to the USA? That whole event is quite rational if you look at it from an Iranian perspective. The hostage crises was basically an attempt to give a giant middle finger to the USA and it’s President. Carter being President at the time for several years was the figurehead of the USA in the eyes of the Iranians. That’s why when Reagan was elected the Iranians let the hostages go. Iran wanted to release the hostages long before but refused to give Carter who had supported the Shah any sort of victory. Also on the plus side by releasing the hostages to Reagan the Iranians earned a friend who then illegally provided Iran with high tech weapon systems. Overall the hostages crises was a series of huge rational wins for Iran.

    The Iranians, on the other hand, are different animals altogether. Again, they’re religion crazy, Joe, not merely communist crazy. On this point I’ll leave you with the following: If the Iranians decide to go to Allah in glory by lobbing a nuke at Tel Aviv it’ll be far too late for liberals on the Internet to say things like: “Damn, that’s a shame.”

    Iran has been a rational actor in the middle east for the last 30 years. They fight their wars via proxy just as the Soviets did. Ahmadinejad despite all his talk the dude has utterly no real power in Iran. Ahmadinejad’s job is to run his mouth to distract and appease the Iranian conservatives by keeping them focused on Israel and such instead of the very real hardships they face in country. That’s why Ahmadinejad is almost always spouting off crazy shit like various Republicans do here. The goals are the same. Ahmadinejad’s future isn’t even secure right now which is why he’s been keeping a low profile compared to normal. Meanwhile the real leadership is the supreme council which is currently undergoing a power struggle of sorts. Look how we treat North Korea and you can see a very strong rational reason for why Iran would want nuclear weapons asap.

    Besides if Iran decided to drop a nuke on Israel they know damned well we’d turn their entire country into a parking lot.

  28. Rob in CT says:

    @matt:

    Well said, sir.

  29. DRS says:

    You’d never know that Israel has a lot of nuclear weapons of its own and could easily retaliate against an Iranian attack – which is still quite a ways into the future despite the fever dreams of people like TN. Israel doesn’t need our protection; they’re quite well protected on their own.

    And if they’re not, they’re a failure as a country because self-preservation is duty #1 for any nation. (And in that case we should cut off the foreign aid to them because if they’re still so weak, they’re a lost cause anyway.)

  30. matt says:

    @DRS: Oh Israel has been quite coy about their nuclear weapons. It’s pretty much a common assumption that Israel has quite a few nuclear bombs ready to go at this very moment.

  31. Brummagem Joe says:

    @matt:

    It’s pretty much a common assumption that Israel has quite a few nuclear bombs ready to go at this very moment.

    An estimated 200 to be precise.