Sanctions Open Iran to Russian, Chinese Firms

Shayan Ghajar

As Western nations wait to see if sanctions are having the desired effects on Iran’s economy and foreign policy, India’s Petroleum Secretary S. Sundareshan announced that recent U.S. sanctions would hamper state-controlled Indian firms’ attempts to invest in Iranian energy projects.

Sanctions, thus far, have complicated the economic dealings of many U.S. allies or friendly nations, even some of those which voted against Iran in the U.N. Security Council. Many nations in Asia and elsewhere are beginning efforts to circumvent sanctions to invest in Iran’s energy sector–especially three of the four members of BRIC, namely India, China, and Russia.

Mr. Sundareshan told the Wall Stree Journal that India has much to gain with investing in Iran, and much to lose should it fail: “There are unexplored frontiers in gas, which provide immense opportunities for [India]. We would certainly like to utilize these opportunities without sanctions.” India’s Foreign Minister has also complained about American sanctions publicly, saying they would endanger India’s “energy security and our attempts to meet the development needs of our people.”

India relies on Iran for about 14% of its crude oil imports, which would not be affected by sanctions, according to the WSJ. However, India also has plans to link itself to Iran via a pipeline through Pakistan. Discussions on pricing and construction will resume soon, the two nations say. Sanctions regarding the pipeline do not seem to concern any of the nations involved, despite the billions of dollars involved in such a project. India’s ever-expanding economy requires increasing energy imports to sustain itself, and Iran, with the world’s second largest natural gas reserves and geographical proximity to India, is the nation’s best option. While sanctions have given Indian companies pause in committing to investments, they have not affected India’s multi-billion dollar future dealings with Iran’s energy sector, as India seems more worried about its energy security than potential friction with the United States over Iran.

China, too, may undercut Western efforts at economically alienating Iran. China only agreed to U.N. sanctions, apparently, when language restricting deals with Iran’s energy sector were excised. Consequently, China has no legal obligations to avoid large-scale investments or cooperation in Iran’s energy industry. Coupled with new restrictions on Western companies resulting from American, European, and a multitude of unilateral sanctions from nations such as Australia and Canada, Iran’s market is invitingly open to Chinese business free of Western competition. The L.A. Times quotes an anonymous American diplomat as saying China “has given no commitment not to take up the slack” when these sanctions-wary companies back out of Iran. Even non-Western nations aligned with the United States and Europe on Iran, such as Japan, have seen the vacuums left by their corporate pullouts filled by Chinese firms.

China may utilize other methods to engage in lucrative business deals with Iran, according to the article, such as laundering petroleum exports to Iran by rerouting them through other nations in the Persian Gulf. At the same time, many Chinese firms have no need to be circumspect in their deals with Iran, as they do no business whatsoever in the United States and would not be subject to American sanctions. Chinese trade with Iran, Tehran estimates, will reach $50 billion within the next few years, a process accelerated, no doubt, by the lack of Western competition.

China’s conditional support for U.N. sanctions indicates their awareness of the economic advantages Iran’s isolation would provide Beijing.

Russia, too, is showing signs of undermining American sanctions efforts. According to the New York Times, Russia’s Energy Minister announced a plan of broad cooperation with Iran’s energy industry. Russia has been vocally opposed to unilateral sanctions beyond the scope of the Security Council’s restrictions on economic involvement in Iran, with its latest invitation to Russian companies to invest in Iran’s oil industry overtly flouting the Obama administration’s recent sanctions bill. Russia has spoken of forming bi-national banks and energy conglomerates with Iran, though the timetable for such projects has yet to be established.

The Times article cites Russia’s opposition to any measures increasing Iran’s internal political turmoil by affecting the population economically as one of its reasons for ignoring American sanctions. If true, Russia would be intentionally shoring up the Iranian government economically to help it withstand the domestic threat posed by the Green Movement–a serious breach with American and E.U. foreign policy efforts.

Iran itself is engaging in a variety of strategies to evade the obstacles posed by recent sanctions. The Wall Street Journal reports that a bank in the European Union, EIH, based in Hamburg, acts as a go-between for the Iranian government in Europe. The bank has done over a billion dollars of business with Iranian companies involved in defense contracts ranging from conventional military purchases to ballistic missile testing programs. The bank evades E.U. sanctions by virtue of its non-inclusion on the list of blacklisted companies.

Iran also uses less conventional methods to evade sanctions. According to the BBC, the Islamic Republic of Iran’s shipping line has registered ships with the Isle of Man, a British dependency, to skirt around potential searches and seizures of Iranian vessels. The ships, under the Isle of Man’s flag, would not be subject to U.N. restrictions on Iranian trade and shipping.

Sanctions, it seems, are making Iran’s economic transactions inconvenient but by no means impossible. While Iran may need to pay higher prices to its BRIC supporters for energy imports, it is clear that sanctions have not driven businesses away from Iran. On the contrary, nations that supported limited sanctions may have done so precisely because it would open greater markets for them in Iran’s energy sector by driving away competitors.

http://www.insideiran.org/critical-comments/sanctions-open-iran-to-russian-chinese-firms/