Statement by two Trump officials
A recent South China Morning Post article reports: “Two Trump administration officials said on Friday that neither a wind-down period nor a short-term waiver on China’s oil purchases from Iran were being contemplated after Washington surprised Iran’s customers on Monday by demanding they halt the purchases by May 1 or face sanctions.”
China is Iran’s largest customer
China is by far the largest importer of Iranian oil and would have perhaps the most difficulty replacing Iranian oil by oil from other sources. However, India also is a large buyer of Iranian oil. It remains to be seen whether either country decides to comply with the demands of the US. The US is already in a trade dispute with China with each imposing tariffs on the other. This is one more threat by the US against China. The US comments are likely to send oil prices higher something US president Trump says he is against.
The implication of the US comments is that any country that fails to comply with the US demands will be cut off from the world’s banking system at the behest of the US. Cutting off China could create huge ripple effects in the world economy as China is a huge economic power.
US bets that China will give in to US demands
The Trump administration says it made it clear to China that there would be no further waivers granted subsequent to those given in November. The anonymous official said: “They’ve known about it, so to my knowledge that’s not being contemplated.” The official said the State Dept. should be asked about wind-down periods but the Department would not respond immediately.
An official added: “We understand they don’t like this. But at same time they tend to act pragmatically and they are going to take what the best most reliable deal is.”
The US is banking on the huge negative consequences for China to force it to stop buying Iranian oil. Under the nuclear treaty with Iran of which the Chinese are still a party the country is under no obligation to stop purchasing oil from Iran. The US ban is an extra-territorial extension of its own laws. China may feel it is most important to keep trading with Iran to show its good faith in the treaty. They also need Iranian oil for their economy.
The US may be setting itself up for a fall
If China and perhaps other countries fail to heed the US demands the US is going to be put in a position where it needs to take drastic actions against China and any other country that will not comply. The result could be a huge disruption of international commerce if China and others are cut off from global finance. It could spell the beginning of the end for US use global finance as a weapon. If there is one thing that global business hates it is market disruption and uncertainty.
There will be renewed attempts to create trading mechanisms outside the US-dominated system and more moves away from the US dollar as the accepted currency for global trading especially in oil. It is the US that needs to show some pragmatism if it wants to avoid weakening its ability to use its financial dominance as a weapon.
