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International Relations

US boycott of Iran risks being godsend for China and Russia

Both nations prioritize oil and gas interests over cooperation

Tehran braces for so-called snapback sanctions triggered by Washington's withdrawal from the 2015 nuclear accord.   © Reuters

WASHINGTON/DUBAI -- China and Russia have indicated no plans to cooperate with U.S.-led efforts to reimpose economic sanctions on Iran, with both positioned to pursue trade and enhance their influence in the Middle Eastern country.

So-called snapback sanctions, set to activate Tuesday, were installed by U.S. President Donald Trump upon withdrawing from the Iran nuclear accord in May. These measures, which are designed to pressure the Islamic state to enter into a new deal, prohibit Iran's purchases of U.S. dollars as well as impact trading in metals, coal and other commodities. Additional sanctions are due to roll out later.

Iran's use of oil money to support terrorist activities in surrounding countries justifies the renewed sanctions, senior U.S. officials said Monday. The officials said they will review possible exceptions to the sanctions on a "case-by-case basis" but "are not looking to grant exemptions or waivers."

American officials have visited over 20 nations in their quest for support in halting business with Iran, a senior official said. Japan and South Korea will cooperate with the sanctions, and European companies are exiting Iran.

But Beijing and Moscow have yet to signal willingness to cooperate on the sanctions. Both countries intend to extend their influence in Iran. Chinese and Russian corporations receive backing from their respective governments, allowing them to take on more risks than European businesses.

China is expected to continue procuring Iranian crude oil. Those transactions are facilitated partly by the accounts the Central Bank of Iran opened at Bank of Kunlun, a banking unit controlled by China National Petroleum Corp., The Wall Street Journal reported, citing sources.

Financial institutions that run afoul of U.S. sanctions risk being embargoed from dollar transactions, which are indispensable for international business operations. But the Bank of Kunlun rarely deals in the dollar, which minimizes its exposure to sanctions fallout. The Chinese bank uses the yuan and the euro to settle payments.

Observers expect China to increase yuan-denominated oil trading with Iran. The Shanghai market began crude futures trading denominated in the currency in March.

Russia reportedly is investing up to $50 billion into Iran's oil and gas sector through state-run energy companies such as Gazprom. By touting its status as Iran's backer, Russia seeks to expand its influence in the Middle East. Senior energy officials from both sides met late last month to discuss details of the economic cooperation.

Patrick Pouyanne, CEO of French oil and gas multinational Total, views the U.S. sanctions with a critical eye.

"What would be not good, neither for the U.S. nor for Europe ... is that at the end if only Russia and China can make business with Iran," he said during an event sponsored by the Center for Strategic and International Studies in May.

The French company controls interests to develop natural gas projects in Iran. But without an exemption from the U.S., Total's interests are expected to be sold to a Chinese business.

Washington has about 90 days until early November to persuade China and Russia to cooperate on the sanctions until the bans apply to Iranian oil itself. But the struggle for hegemony surrounding the Middle East likely will make compromise difficult.

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