China, Iran’s Biggest Oil Customer, Gets Last-Minute Sanctions Exemption From Obama Administration

June 29, 2012 - 4:57 AM
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Secretary of State Hillary Clinton addresses a joint press conference with her Latvian counterpart, Edgars Rinkevics, in Riga on Thursday, June 28, 2012. Clinton said China shares U.S. “goals of preventing Iran from acquiring a nuclear weapon.” (Photo: State Department)

(CNSNews.com) – In an announcement largely overshadowed by the Supreme Court ruling on Obamacare, Secretary of State Hillary Clinton said Thursday the administration was exempting China from imminent sanctions relating to Iran’s oil trade -- on the grounds, she said, that it had significantly reduced imports of Iranian oil.

China’s imports of Iranian oil did decline substantially between January and May this year, compared with the same period last year, although the drop was attributed, at least in part, to a contract dispute between China’s state-controlled Sinopec and Iran’s National Iranian Oil Co.

That dispute was resolved towards the end of March this year, and Chinese customs data released last week showed that China’s imports of Iranian crude rose again by 34.5 percent between April and May.

The political risk entailed in the decision was evident in critical Republican reaction.

“The administration likes to pat itself on the back for supposedly being strong on Iran sanctions,” House Foreign Affairs Committee chairman Rep. Ileana Ros-Lehtinen (R-Fla.) said in a statement.

“But actions speak louder than words, and today the administration has granted a free pass to Iran’s biggest enabler, China, which purchases more Iranian crude than any other country,” she added.

Ros-Lehtinen said Congress would have to take the lead in strengthening sanctions against Iran.

Mark Dubowitz, executive director of the Foundation for Defense of Democracies and an expert on Iranian energy sanctions, said late Thursday that China’s imports of Iranian oil dropped  approximately 25 to 30 percent from January to May 2012 compared with the same period in 2011:

“If the administration is looking only at the first six months of the year, and ignores the fact that the Chinese reduction was a result of a pricing dispute, the administration could technically justify the granting of an exemption,” he told CNSNews.com.

“With Chinese imports likely to rise in June and July, the administration will need to insist on Chinese compliance for the remainder of the year or face political embarrassment.”

China alone accounted for some 22 percent of Iran’s total oil exports in the first half of 2011.

The decision to exempt Iran’s biggest oil customer came on the deadline for countries to stop buying Iranian oil, or face U.S. sanctions on their financial institutions that conduct transactions with Iran’s central bank for the sale or purchase of petroleum and related products.

Imposed under the National Defense Authorization Act (NDAA), signed into law late last year, the sanctions are aimed at pressurizing Tehran to end activities which Western governments suspect are designed to acquire a nuclear weapons capability,

The NDAA makes provision for exemptions – for a potentially renewable period of 180 days – in the case of countries that have reduced their purchases of Iranian oil “significantly,” and Clinton said that now applied to China as well as to Singapore.

They bring to 20 the total number of countries granted waivers by the administration since March, including top customers China, Japan, India, South Korea and Italy.

“Their cumulative actions are a clear demonstration to Iran’s government that Iran’s continued violation of its international nuclear obligations carries an enormous economic cost,” Clinton said in Thursday’s statement.

She cited International Energy Agency figures showing that  Iran’s crude oil exports have dropped to roughly 1.5 million barrels per day from 2.5 million bpd last year – amounting to almost $8 billion in lost revenues every quarter.

China has consistently rejected unilateral sanctions – that is, any that are not mandated by the U.N. Security Council on which it has a veto – characterizing them as an affront to the targeted country’s sovereignty.

Chinese foreign ministry spokesman Hong Lei just a week ago said China’s buying of Iranian oil was “fully reasonable and legitimate” and based on China’s economic needs.

Yet hours before she issued the notice Thursday, Clinton suggested that China’s position on sanctions was not totally rigid.

“China and Singapore both share our goals of preventing Iran from acquiring a nuclear weapon, and they appreciate that international sanctions and the pressure that these sanctions have brought to bear on the Iranian economy have been a key aspect of our dual-track policy over the years,” she said during a visit to Latvia.

“Both countries have announced steps that they have taken already in their own national interest to move on this important matter, and we’re continuing to discuss and gather additional data on the implications of those steps.”

‘Strategic calculus’

Dubowitz linked the decision to exempt China to the administration’s desire not to risk losing unity among the so-called P5+1 group – permanent Security Council members the U.S., Britain, France, Russia and China plus Germany – which is leading diplomatic efforts to resolve the nuclear standoff.

“While the administration wants to maintain P5+1 unity, and probably doesn’t want to get into a major diplomatic fight with Beijing by sanctioning state-owned Chinese banks, Congress will insist on aggressive enforcement if Beijing doesn’t play ball,” he said.

Dubowitz recommended that in the next round, the targeted reduction in Iranian oil purchasers should be more than doubled, at 40 percent.

“Oil markets are much more liquid and can manage a more aggressive reduction in Iranian oil sales as long as the Saudis maintain current production,” he explained.

“Iranian nuclear physics is beating western economic pressure and the Iranian regime doesn't yet fear U.S. military power,” Dubowitz concluded. “The administration has very little time to change that strategic calculus.”

The 20 countries now exempt from sanctions are Belgium, Britain, China, the Czech Republic, France, Germany, Greece, India, Malaysia, Italy, Japan, the Netherlands, Poland, Singapore, South Africa, South Korea, Spain, Sri Lanka, Taiwan and Turkey.

July 1 sees the beginning of a European Union embargo on Iranian crude oil, including a ban on E.U. insurance firms providing coverage for tankers carrying Iranian oil.

The majority of the world’s tankers are covered by insurance groups based in London, and so would be affected by the E.U. ban.

“When the European Union oil embargo goes into effect July 1, Iran’s leaders will understand even more fully the urgency of the choice they face and the unity of the international community,” Clinton said in her statement.