Chinese oil giant CNPC may be latest to bow to US sanctions on Iran

Simone McCarthy

A Chinese oil giant appears to be the latest company to bow to US sanctions on Iran, with Tehran saying that the state-owned China National Petroleum Corp (CNPC) was no longer part of a US$5 billion deal to develop a gas field in the country.

The withdrawal – not confirmed by CNPC but noted by Iranian Minister of Petroleum Bijan Zangeneh in official media on Sunday – comes as the United States has been seeking to cut off investment and cash flowing into Iran’s energy sector, part of an economic pressure campaign that China has criticised and resisted.

The Chinese oil firm’s move to pull out of the natural gas field project also comes as the US and China are due to hold another round of trade talks later this week, and experts say it shows Beijing – long a stalwart economic partner of Iran – is feeling the pressure from Washington.

“It’s partly surprising in a sense, because when times are really bad for Iran, with regards to the international community and the US in particular, China has jumped in with a vengeance and been extending its presence in Iran and specifically in Iran’s oil and gas sector,” said Kevjn Lim, a doctoral researcher with the political science, government and international affairs school at Tel Aviv University.

But it appears that despite rhetoric from Beijing against “US unilateral sanctions and long-arm jurisdiction”, Chinese companies are looking more carefully at their engagement in Iran, while China may be trying to show the US that it could be willing to cooperate in some areas.

Iran’s Minister of Petroleum, Bijan Zangeneh, said China National Petroleum Corp was “no longer in the project”. Photo: EPA

“China seeks to show the US that they can play both ways – [it is saying] ‘We can continue to disrespect your unilateral, non-internationally binding sanctions’, but on the other hand, Beijing is showing, ‘if you will agree to play by WTO rules and trade fairly then we can show you we are willing to be flexible and concede some [business with Iran]’,” said Lim, referring to the Geneva-based World Trade Organisation.

China was the remaining foreign partner in the 2017 deal, which would inject money into a major development phase of the South Pars gas field – part of a sprawling Persian Gulf repository which stretches into neighbouring Qatar and is considered to be the world’s largest gas field by reserves.

Obviously these US sanctions are working, in the sense that Chinese companies are being very cautious. It’s certainly having an impact on China

James Dorsey, National University of Singapore’s Middle East Institute

French partner Total, the majority stakeholder, pulled out of the development deal in August last year as the US was in the process of reimposing sanctions on Iran, including those on foreign engagement in its energy sector, following the US withdrawal from the 2015 Iran nuclear pact.

China was at one point poised to take up the 50.1 per cent project stake abandoned by the French company, a move “likely to give a significant boost to Iran-China trade”, the Tehran Times reported in November, citing Zangeneh.

The CNPC move comes as a handful of Chinese companies involved in China’s continued, but reduced, imports of Iranian crude oil have been slapped with US sanctions in recent months.

CNPC could also have cause for concern when it comes to sanctions, as it has a four-year-old US-based subsidiary that has made “significant financial investment” in the US, according to the company’s website. CNPC did not respond to a request for comment on Monday, which was a national holiday in China.

Late last month, four Chinese shipping firms, two parent companies, including shipping giant Cosco, as well as five executives were sanctioned by the US State Department for transporting oil out of Iran.

“The sanctions on Cosco were sending a message to Beijing,” said James Dorsey, a senior fellow at the S. Rajaratnam School of International Studies at Nanyang Technological University in Singapore and the National University of Singapore’s Middle East Institute.

“And obviously these US sanctions are working, in the sense that Chinese companies are being very cautious. It’s certainly having an impact on China,” he said.

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Project costs, from the “scale of investment required” and “the market and price risk for liquid natural gas”, were other factors that could have made CNPC wary of the deal, according to Philip Andrews-Speed, senior principal fellow at the National University of Singapore’s Energy Studies Institute.

“This is a big loss for Iran, both from the point of view of resource development and politically,” he said.

But analysts agreed the move was unlikely to have a significant long-term impact on ties between China and Iran.

“Long-term, Iran represents too much for China to let go,” said Dorsey, noting Iran’s location, technical and industrial training, and history – including a relationship that goes back centuries.

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