The Houthis, supported by Iran, are putting more pressure on ships as they attack the Bab al-Mandab islands at the edge of the Arabian Peninsula, which is causing significant disruption to international trade. All eyes are on China, which is portraying itself as the negotiator of the Middle East. It is anticipated that Iran will be under stress to control its surrogate in Yemen.
According to some, Beijing may have a lot of influence over Tehran because it is Iran’s largest trading partner, accounts for a fourth of Egyptian industry, and is one of the few nations to continue purchasing Iranian fuel despite American restrictions.
Prior to the Red Sea issue, a third of global maritime industry, and 40 % of trade between Europe and Asia passed through the Bab al-Mandab Islands. Foreign trade has suffered a strike, despite the crisis leaving Chinese shipping unaffected. Company representatives in Shanghai complained that the Cape of Good Hope is required to divert goods from Europe, which would add costs and day.
However, due to the difficulty in discerning send possession, with most boats registered in the Bahamas, Bermuda, Panama and various places, it is only a matter of time before a Chinese-owned fleet or a ship carrying Foreign sailors is hit.
With a lot to gain and little to acquire, China has repeatedly attempted to put an end to the issue. Iranian officials claimed that if the Houthis do n’t repress and Chinese interests are endangered, Sino-Iranian trade will suffer.
But, Beijing’s instructions to Tehran fall on deaf ears, and the Houthis continue to wreak havoc in the Bab al-Mandab Strait.
the difficulty in controlling the “dark ships”
Tehran ignores Beijing’s reminder because it is meaningless.
Much of Iranian oil is sold to private Chinese “teapot” refineries – referred to as such because of their small scale compared with the large refineries owned by state-owned enterprises ( SOEs ).
Teapots account for 90 % of Iran’s total oil exports, despite their modest status. Chinese SOEs stopped purchasing Iranian oil out of fear of American extraterritorial jurisdiction in 2018, after the US withdrew from the Joint Comprehensive Plan of Action (JCPOA ) and launched the “maximum pressure campaign” against Iran. But, vases are undeterred.
There are several causes of this:
Second, the reimposition of sanctions against Iran came at the same time as the start of the Sino-American business conflict. In the same year, management of Shandong Dongming Petrochemical Group – the state’s largest mug – stated that, as China imposed tariffs on American fuel in a display of tit-for-tat, the business was ending order of British oil, which would be replaced by Iranian oil instead.
Next, “high risk means higher profit.” Iranian crude was once 13 times less expensive than the regular price on the market.
Third, some of the smaller vases do not do business with any other nation beside Iran, and they pay Iran in renminbi instead of US cash, thus granting them immunity from British extrajudicial control. Chinese SOEs, which do not benefit from this breadth, are unable to afford to do business with Iran lest they run the risk of losing their investments in other parts of the world.
Beijing would have much easier times deciding to stop purchasing Iranian oil if state-owned refineries had been doing so. Teapots working with Iran to smuggle Iranian oil into China make it difficult for Beijing to carry out regulation – not to mention that Beijing is reluctant to exert too much pressure on Tehran, fearing it would damage Sino-Iranian relations.
Iran discovered that fighting asymmetric warfare is the only way it can overcome the difference in weight class when it is squared off against the vastly superior American-Israeli alliance. Thus, urging Tehran to establish its position as the” axis of resistance” would effectively disarm Iran. It would cast doubt in Tehran on whether Beijing is really as neutral as it claims.
Teapots ‘ purchase of Iranian oil is difficult to regulate. Iranian oil is carried by an Iranian ship that enters the Persian Gulf or travels to the Strait of Malacca, where it turns its automatic identification system off and lowers its national flag. This allows the Iranian ship to stop broadcasting its location and identity.
Under the cover of darkness, Iranian ships can literally and figuratively hide in the dark and help Iran obfuscate the source of its oil while Omani, Malaysian, or Indonesian ships are waiting at the predetermined destination.
These nations knowingly ignore the world for a few reasons:
- Being a middleman in this field is a lucrative business.
- htey are sympathetic to Iran, a neighboring Muslim nation.
- They are unsatisfied with American extraterritorial authority.
The US claims that Al Habsi used a$ 16 million loan from American financial institutions to buy an oil tanker later known as M/T Oman Pride. The ship used ship-to-ship transfer, which obfuscated the oil’s origin with the aid of deceptive documents, to transfer Iranian oil to third-party ships.
The oil was then sold to Chinese refineries. US dollars were used to pay the Iranians. Before being transferred to an Iranian front company, the money was washed through several shell companies. Over$ 100 million worth of Iranian oil was sold this way before the US caught wind of it.
Iranian-based organization United Against Nuclear Iran reported earlier this year that a ship transferred Iranian oil from another ship off Kharg Island, Iran, to a ship-to-ship transfer before sending it to Sohar, Oman.
The author is aware that this is not an isolated case because she has lived in Oman for a long time and has connections to the country’s oil industry. Hundreds of millions of US dollars ‘ worth of Iranian oil, passed off as Omani oil, have been shipped to Chinese refineries in Shandong province, as well as to Liaoning and Shanghai in recent years.
Oman has a reputation for acting as a mediator between hostile powers in the region and those with significant presence there, including Iran and Saudi Arabia and Iran and the US, despite never declaring itself to be neutral.
Oman can act in this way because it is on the positive side of all nations. In order to avoid bringing down the wrath of either Iran or the US, Oman resorted to feigning ignorance of its citizens conducting illicit trade with Iran, whether on a large or small scale.
An Omani enclave south of the Strait of Hormuz is known as Musandam Governorate. Because of its isolation, Muscat frequently overlooks the governorate when it comes to economic development.
In order to stave off poverty, the local populace resorts to smuggling. Smugglers traverse the strait with speedboats, or” shooties” as they are known locally, carrying everything from clothing to electronics.
A 2011 report from Mehr News Agency revealed that Iran receives approximately$ 5 billion worth of goods annually. A member of the Royal Omani Police’s Coast Guard, quoted on the condition of anonymity, said they are told by decisionmakers to turn a blind eye to the smuggling.
Iranian oil disguised as Malaysian oil surpasses Malaysia’s own crude oil production, so much so that it positions it as the fourth-largest oil exporter to China, behind Russia, Saudi Arabia, and Iraq. US Treasury Department representatives arrived in Kuala Lumpur in May of this year to talk with Malaysian counterparts about how to stop Iran from evading sanctions.
Malaysian Communication Minister Fahmi Fadzil responded that while Malaysia is willing to comply with UN sanctions, Malaysia will not follow in the footsteps of the United States ‘ unilaterally imposed sanctions.
Iranian oil is mistaken for Omani, Malaysian, and Indonesian oil, among other names after entering China.
China’s empty promise
Officials at the Iranian embassy in China have repeatedly complained to this author that despite Tehran’s having signed onto the Belt and Road Initiative and, in 2o21, the China-Iran 25-year Cooperation Program, Chinese investment in Iran has been minimal.
China has only made a small portion of the$ 400 billion pledged. The National Development and Reform Commission ( NDRC ), the Ministry of Foreign Affairs, and other departments have received numerous complaints from Iranian embassy officials without success.
Indeed, whereas China last year received$ 64.3 billion worth of imports from Saudi Arabia, and$ 5.24 billion worth from Israel, China imported only$ 4.6 billion worth. Although it is undoubtedly true that China has severely underinvested in Iran, many of its imports from Iran are still unaccounted for.
Following Washington’s withdrawal from JCPOA, China canceled one of the two investment agreements that China had signed with Iran in the previous ten years. There are several reasons for China’s weak record of investing in Iran:
First, in response to President Akbar Hashemi Rafsanjani’s encouragement, Iran’s Islamic Revolutionary Guard Corps ( IRGC ) began to” contribute to the country’s reconstruction” in the wake of the Iran-Iraq War.
Since that time, IRGC has built a business empire. Both President Mohammad Khatami and President Hassan Rouhani tried to stop the IRGC’s encroachment on key economic sectors to no avail. Currently, there are IRGC-affiliated businesses operating in every economic sector, from construction to telecommunication.
This led to widespread corruption, crony capitalism, and nepotism. Foreign investors are expected to bribe government officials for their services, and may have their licenses revoked or lose their contracts, only for them to be awarded to IRGC affiliated companies.
Chinese businesses have frequently complained that foreign investors are being prejudiced by Iran’s business environment. Numerous Chinese companies have chosen to remain anonymous, and their intention is to avoid doing business with Iran as a result of the corrupt business environment.
It is unlikely that the situation will improve anytime soon. The IRGC, which is Iran’s most elite military unit, has a monopoly over Iranian export and import, only answering to the supreme leader and enraging over 80 % of the country’s economy along with the Quds Force. Any politician would have to pause before proposing reform because the IRGC has effectively taken over as the “kingmaker” in Iranian politics.
Second, the study of national character – the belief people belonging to a nation are predisposed to behave in a certain way, a concept that has been debunked as stereotype and largely abandoned in Western academia, remains popular in China. It is crucial to General Secretary Xi Jinping’s plan to achieve” the great rejuvenation of the Chinese nation.”
For instance, a statement made by Southern Daily, the official newspaper of the Communist Party of China’s Guangdong Province, compares Chinese national character to that of the West, saying that” cultures of the orient are introverted, while cultures of the occident are extroverted” ( p. 2 ).
According to Chinese scholars, Iranian’s national character is grounded in contradiction. Iran lost to colonialism and imperialism while the successes of the subsequent Persian Empire gave its heirs, the Iranians, a sense of national pride. In recent years, Iran’s isolation from the international community gave them the mentality of victimhood. Thus, Iranians are both proud and insecure.
Iranians ‘ contradictory national character demonstrates that, despite suffering from a myriad of exogenous and endogenous issues, Iran still refuses to compromise, according to Chinese scholars. This is an alien idea in a nation like Iran, which frequently overlooks long-term interests in favor of short-term interests.
Recently, under orders from Tehran, Iranian companies manually hiked up the price of oil sold to China. Iranian oil was sold to China in previous years for$ 10, which was 13 less than the Brent Crude benchmark. The discount is currently only$ 4.50 to$ 6.50.
A representative from a teapot doing business in Shandong province complained that” the new price is too high” and said the Chinese “have been working day and night to lower the price, but Iranians have been very tough, and there is little room for negotiation“.
Iranians were unable to comprehend that Russia is not sanctioned in the same way that Iran is, according to a representative from another teapot, saying that” Iran wants China to purchase Iranian oil at the same price as Russia does, which is$ 1 less than the market average.”
In other words, Iran does not comprehend that Chinese refineries will only accept the risk of purchasing Iranian oil if the price is affordably low. Iran’s Energy Press News Agency even goes so far as to describe the decision to raise the price of oil as a “wise move“.
Third, Chinese goods have a bad reputation in Iran because of it. You get what you pay for, the idiom goes. There are both high-quality, expensive goods, and low-quality, cheap goods made in China.
However, rising inflation and declining income in recent years have made Iranians increasingly unable to purchase expensive, high-quality goods. In Iran, as a result, Chinese goods have come to be associated with poor quality.
Chinese companies complain that they have to contend with Iranian skepticism of China’s high-quality, expensive goods. The Iranian people view them as being excessively expensive. Iranians also turn their backs on cheap, low-quality Chinese goods, only purchasing them when they are absolutely necessary.
With few sticks and even fewer carrots in the toolkit, there is very little Beijing can do. Tehran, which has endured decades of sanctions, is unlikely to buckle under Chinese pressure, even if Beijing puts more pressure on Tehran. The phrase “neither east nor west” from the revolutionary era still applies today.
Iran’s” Look to the East” policy does not mean replacing American hegemony with Chinese hegemony. Should Beijing ever choose to put too much pressure on Tehran, it could quickly backfire because Beijing has so little to offer.
Yang Xiaotong works as an assistant researcher for the Beijing-based think tank SIGNAL Group. This article is republished with permission. The original can be read here.