China To Extract Gas in Iran as French Company Bends Under Threat of US Sanctions

While the EU has invoked obscure legislation dating to 1996 which would compel European companies to maintain business contracts with Iran in spite of the threat of US sanctions and while the EU has already began executing its transactions with Iran in Euros rather than Dollars, behind the tough rhetoric and internal legal manoeuvres, there are already emerging signs that Europe will succumb to US pressure regarding the JCPOA (Iran nuclear deal).

The French energy giant Total had signed a deal with Tehran to extract gas in the South Pars Field but later pulled out over the risk of facing sanctions from the US. According to sources in Tehran as cited by Sputnik as well as reports from Caixin news in China, the China National Petroleum Corporation (CNPC) is already looking to fill this void by signing a new contract with Iran for South Pars extraction.

According to Sputnik,

“Total and CNPC have been jointly been working on the South Pars field since 2017 and had been planning to invest $4.8 billion over 20 years, until the French gas and oil giant recently announced that it will have to withdraw from the project due to possible US sanctions. Total currently owns a 50.1% stake, while the CNPC owns 30%. The Iran’s Petropars holds the remaining share”.

The bowing out of Total and the almost certain replacement of Total’s former shares in the deal by a company owned by Beijing is a clear sign that the EU remains de-facto intimidated by the threat of sanctions from the US. Trump administration officials have made it all too clear that in spite of the EU being a close ally of the US, Washington will not hesitate to invoke third party sanctions against European states and corporations who continue to work with Iran.

By contrast, China due to its economic strength, geo-economic diversity and clear position as an independent superpower that has already eclipsed the US in many respects, simply cannot be bullied by the US Treasury Department – something Beijing made clear when it refused to be bullied into a position of economic submission when Trump announced US tariffs on Chinese goods.

In this sense, while Trump’s bluff against China has largely been called by Beijing, when it come to the EU standing up to Trump’s threats of both sanctions in respect of Iran and tariffs in respect of the EU to US trade deficit, there is a high likelihood that Brussels might blink first and give into the US. This is especially the case when it comes to trying to preserve the JCPOA.

However much European leaders and businesses want to preserve their lucrative existing deals with Iran while promoting future deals, the fact is that the US is a far bigger trading partner with the EU than Iran. While the US is also a bigger trading partner with China vis-a-vis Iran, China’s economic, geopoltical, military and soon to be monetary strength gives Beijing forms of serious leverage against the US which the EU simply does not have.

There is of course a clear solution to Europe’s conundrum in respect of developing its own means of leveraging a clearly hostile United States: Open European markets to China!

During the run-up to Trump’s withdrawal from the JCPOA, it is almost certain that visits from the French President and German Chancellor involved discussions about both the JCPOA and even more importantly from Washington’s perspective, about the EU/US trade deficit. Had the Europeans been able to work with Trump on allowing more US goods into the EU or otherwise volentarily cutting back exports into the US, there may have been a slim chance that Trump would have shifted his position on the JCPOA.

Because Europe maintained a firm line on trade, clearly Trump went with his instincts and the preferred route of his close partners in the “Israeli” regime and withdrew from the JCPOA. Now Europe is faced with the dilemma of maintaining its healthy and growing economic ties with Iran as well as staking a claim for geopolitical independence from the US and risking sanctions from Washington, or otherwise quietly capitulating and allowing the JCPOA to die.

But what European leaders have not yet grasped is that if a bloc that has for decades been so inexorably tied with the US seeks to now broader its geopolitical portfolio, it must rapidly engage in expanded economic ties with China and also Russia.

While more EU officials have been speaking with their Chinese counterparts about loosening trade restrictions, but thus far there has been little to show for these discussions. In reality, China and the EU are ideal trading partners. As Chinese purchasing power increases and with China already being the world’s biggest single domestic market, Chinese consumers are hungry for European luxury goods that in many cases are becoming too expensive for Europeans to afford. Just as European wages stagnate while prices continue to increase, Chinese goods which are on the whole far more affordable than their EU, Japanese or US equivalents, would be desirable to European consumers who are looking for better values on necessarily items.

In this sense, a deal to open up Chinese markets to European goods while opening European markets to Chinese goods, could potentially be a very substantial win-win for both sides. Crucially, if the EU wants to gain its coveted political independence from the US – something which typically happens whenever a brash Republican is in the White House, the only way for Brussels to put its money where its mouth is, is to use China as a means of leveraging Donald Trump’s threats in what could be a protracted trade war with the protectionist White House.

If the EU remains at odds with the world’s most dynamic economy, it will have little to show for its policy independence which is necessarily contingent upon a more diverse set of trading partners. An EU-China economic partnership could give Europe the leverage it needs to then give Iran the necessary guarantees of economic sustenance in a post-US JCPOA. China and Russia are clearly ready to up the stakes in terms of economic cooperation with Iran, but Europe remains compromised in this respect.

Because the JCPOA was supposed to act as an economic bridge for Iran into western economies that had typically followed the US path of sanctions and suspicion, without European participation, a post-US JCPOA would likely fail and be replaced by intensified Russo-Chinese cooperation with Iran, a stronger Iran-Turkey partnership next door and a pan-western sanctions war against Iran. This is the case because if the EU remains overly reliant on US markets which under Trump are becoming increasingly hostile to European imports even before taking the  trans-Atlantic JCPOA row into account, Brussels may have no choice but to capitulate to US threats of sanctions if European businesses continue to work with Iran, for the very reason that the EU would have no means of leveraging these US threats without a Chinese trading partnership as a means of balancing the EU’s relationship with Washington.

While many European leaders remain suspicious of China for the most simplistic reasons imaginable, the reality is that Europe cannot have its cake and eat it too. The EU must decide if it wants to be a truly independent economic bloc or whether it wants to perpetually be a vast market living in the shadows of the United Sates. Without China, Europe will be little more than a more over-regulated version of America that prices itself out of its own ideal markets.

Of course such a move would also require a rapid mending of fences with Russia. Thus far, the EU’s policy of hostile sanctions and political provocations against Russia has been virtually identical to the US. With Washington out of the JCPOA and with the EU seemingly intent on preserving the agreement, Brussels will have to not only work to open its trading doors with China, but will have to work to de-escalate tensions with Russia. A first step in such a process would necessarily involve dropping sanctions.

If the EU thinks that it can provoke the US over the JCPOA while continuing to provoke JCPOA supporting Russia while failing to meaningfully engage with China, then Donald Trump rather than Donald Tusk will likely have the last laugh.

Comments are closed.