June 29, 2012 | Quote

US Clears China From Iran Oil Sanctions

The U.S. exempted China from penalties for doing business with Tehran as the latest set of U.S. sanctions targeting Iran's oil exports took effect on Thursday.

The State Department, which had determined that China had significantly reduced its purchases of Iranian crude, had previously exempted 19 other countries, all traditional purchasers of Iranian crude. That left China, the biggest buyer of Iranian oil, potentially shut out of doing business with the U.S.

The Obama administration determined that China met the requirements because its purchases of Iranian crude fell about 25% in the first five months of the year. The exemption lasts for six months.

China's reduction in oil imports took place in the first few months of 2012 because of a pricing dispute between Beijing and Tehran, rather than compliance with U.S. sanctions. In May, Chinese imports of Iranian oil jumped 39% from April, to more than 500,000 barrels a day—roughly the same level of imports as last year.

Beijing has opposed the latest round of U.S. sanctions, which ban companies that deal with Iran's central bank from doing business in the U.S. Chinese officials said this month that purchases of Iranian oil are “legitimate.”

Obama administration officials said they didn't “want to speculate” on the reasons for the first-half decline, but said “it's clearly there.” They added that for 2012 as a whole, Chinese imports of Iranian oil will be at a lower level than in 2011.

Secretary of State Hillary Clinton said the reductions of purchases of Iranian oil by countries such as Japan, South Korea and Spain “are a clear demonstration to Iran's government that Iran's continued violation of its international nuclear obligations carries an enormous economic cost.”

The Obama administration estimates that Iran is now exporting about one million barrels a day less than it did last year, costing Tehran about $8 billion per quarter. The U.S. sanctions, part of a bill signed into law late last year, are designed to ratchet up economic pressure on Iran to persuade it to take steps to guarantee its nuclear program is for civilian purposes, as it contends.

A separate oil embargo by the European Union will go into effect on Sunday. Since the embargo was announced earlier this year, European purchasers of Iranian crude have found alternative suppliers. Additionally, some aspects of the EU embargo—such as prohibiting insurance for tankers carrying Iranian oil—have convinced non-European countries such as South Korea to halt imports of Iranian oil.

Some House Republicans were upset that China was granted a U.S. exemption. “Today the administration has granted a free pass to Iran's biggest enabler, China, which purchases more Iranian crude than any other country,” said Rep. Ileana Ros-Lehtinen of Florida, chairman of the House Foreign Affairs Committee.

A decision not to grant an exemption to China would have risked a diplomatic and economic showdown with an important trading partner, a country Washington is trying to persuade to play a more constructive role in other areas, such as the Syrian conflict and North Korea's nuclear program.

Granting the temporary exemption, which indicates that China's price dispute with Tehran counts as compliance, increases the pressure on the administration to redouble efforts to get China on board.

“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,” said Mark Dubowitz, the executive director of the Foundation for the Defense of Democracies.

He said the U.S. needs to press countries that have received exemptions to make even deeper cuts in purchases of Iranian oil to increase the pressure on Tehran. “Iranian nuclear physics is beating Western economic pressure and the Iranian regime doesn't yet fear U.S. military power. The administration has very little time to change that strategic calculus,” he said.

Read the full article here.


Iran Iran Sanctions