Russia, China tighten ties with Iran

Russia and China moved Thursday to extend their economic influence in Iran, while Europeans are finding it harder to ignore efforts by Washington to isolate Tehran economically.

In one of the most concrete moves yet against renewed US efforts to choke off Iran economically, a Russian-led trade bloc signed an interim trade deal with Iran and signalled plans to negotiate a free trade zone.

Meanwhile, Iran's oil minister said that Chinese state-owned oil company CNPC was ready to replace Total on a major gas field project in Iran if the French energy giant pulls out.

The fate of Total's participation in the gas project demonstrates the difficulty the European Union faces in resisting Washington's move as European firms stand to lose much more from busting US sanctions.

Earlier this month US President Donald Trump's controversially pulled Washington out of an international deal with Iran that placed limits on its nuclear programme in return for easing economic sanctions.

China, Russia and EU members Britain, France and Germany were also signatories of the 2015 pact, opposed Washington's abandonment of the deal which Iran had respected.

But companies around the world now face a difficult choice as Washington has previously slapped huge fines on firms which bust US sanctions.

This week the EU launched work on a plan to keep the nuclear deal alive and French President Emmanuel Macron said Thursday that one reason is "so that our businesses can remain" in Iran.

However Total has indicated it will go forward with the investment only if it wins an exemption from Washington on the sanctions.

Other European firms are likely to make a similar calculation that the US market is worth much more to them than Iran.

Danish shipping giant Maersk Tankers said Thursday it would cease its activities in Iran, while German insurer Allianz has also announced it plans to wind down its business deals there.

- Less to lose -

Meanwhile Russia, one of the strongest defenders of the Iran nuclear deal, tightened its trade ties with Tehran.

In the Kazakh capital Astana, the Russia-led Eurasian Economic Union trade bloc signed an interim trade deal with Iran that lowers tariffs on hundreds of goods.

The bloc that also comprises Armenia, Belarus, Kazakhstan and Kyrgyzstan, also plans to begin three years of talks with Iran that aim to create a free trade zone.

Russian firms have less to lose from bucking US sanctions. Many major Russian companies are already operating under tightening US sanctions over Moscow's seizure of Crimea and its role in the Ukraine crisis.

Russian companies also traded with Iran when US sanctions were in place before the deal.

"They are used to working within legal and economic constraints," Igor Delanoe, an analyst at the Franco-Russian Observatory group, said recently.

"The US has systematically forced Iran to turn more towards Russia and China."

- Resistance to comply -

Beijing also signalled that it intends to continue trading with Iran.

"Under the prerequisite of not violating its international obligations, the Chinese side will continue to carry out normal and transparent practical cooperation with Iran," said foreign ministry spokesman Geng Shuang.

He added that "the Chinese government always opposes the unilateral sanctions and the so-called long-arm jurisdiction that any country takes according to its domestic laws."

The US says its sanctions apply to any transactions that are conducted in dollars, which are used in most international transactions, in particular in trading of crude oil.

But China has for years been working to increase trade using its currency and in March a yuan-denominated oil contract was launched in Shanghai.

"With trade skirmishes between the US and China and all kinds of political issues, I see resistance from Chinese crude buyers to comply" with US sanctions, said Victor Shum, vice president of the Energy group at IHS Markit, on CNBC TV.

Chinese companies were involved in at least $33 billion of infrastructure projects in China as of June last year, with Chinese government-linked institutions providing much of the financing using euros and yuan to avoid US sanctions.

burs-rl/oc/ser

MARKIT

IHS Global Insight

ALLIANZ

A.P. MOELLER-MAERSK

TOTAL

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