On May 2nd, the United States’ waiver period that granted eight nations to continue importing Iranian oil without penalty has ended. The countries who granted extensions that ended are China, India, Turkey, Greece, Italy, Japan, South Korea and Taiwan. As of today, only Italy, Taiwan and Greece have halted their purchases of Iranian produced oil. The United States now faces the dilemma of either granting further extensions to the waiver thus backing down from their threats, or risk creating further global tension by sanctioning the countries that continue to do business with Iran.
Iran’s largest oil consumer, China, has stated that they do not intend to reduce their imports to the US. Last year alone, Iranian production made up roughly 6% or 585,400 bpd of China’s total imports. Although China has alternative oil suppliers in the United States and Saudi Arabia, Beijing views their business with Tehran as lawful and reasonable. Bjarne Schieldrop, chief commodities analyst at SEB has said, “We think that China can’t and won’t back down this time and we could easily see an increase of Chinese oil imports from Iran up towards maybe 1 million bpd.”
If China chooses to not comply with the United States’ desire to cut Iran oil purchases to zero, the Trump administration may have to consider blocking Chinese banks from the US financial system. This latest development between the world’s two biggest economies would have negative global ramifications for finance and business felt across all industries.