On August 31, the leaders of China, Russia and India met in Bishkek for the annual summit of the Shanghai Cooperation Organization. Iranian President Masoud Pezeshkian was also in attendance. The final declaration of the summit issued on September 1 called for the creation of a new development bank, which in Russian President Vladimir Putin’s words would have “maximum independence from the financial systems of the states which weaponize economic tools in order to obtain unilateral advantages in international affairs” The summit was held just a week after the United States announced the latest package of sanctions against Iran, which instead of isolation, enjoyed a warm welcome in Bishkek.
As the SCO gathering demonstrated, Washington is already facing major difficulties in ensuring international compliance with its sanctions. Perhaps its biggest challenger is China. Beijing is once again standing by Iran – not out of moral or ideological motivations, but because it can and because it is in its interest.
By purchasing 90 percent of Iranian oil exports, China has single-handedly kept the Iranian economy afloat – all while evading the US sanctions through a sophisticated network of “dark fleets” (ships used to obfuscate the Iranian origin of their cargo) and “teapot” refineries (private refineries so dubbed for their relatively modest size). In response to Washington’s “with us or against us” ultimatum on the sanctions, the Chinese foreign ministry spokesperson said that “China will do everything necessary to firmly safeguard its rights and interests”. Having fought several trade wars with the US to a standstill, China has developed a high tolerance for US-inflicted economic pain – and an equally low tolerance for being pushed around.
For Beijing, foreign interference in bilateral trade relations with a third country is not acceptable. More importantly, it views Washington’s threat as toothless – and for good reason. China is well insulated from the US’ Iran-related secondary sanctions.
Chinese banks and companies that do business with Iran often do so exclusively, settling transactions in renminbi or through barter – making them effectively immune to US extraterritorial jurisdiction. Meanwhile, the handful of Chinese companies that still settle transactions in US dollars are hidden beneath layers of shell companies that can be discarded at little to no cost. This forces Washington into an endless game of regulatory whack-a-mole, in which each entity successfully eliminated is quickly replaced by another.
Washington could, of course, sanction major Chinese banks and companies that have no ties with Iran – using them as a bargaining chip to pressure Beijing to rein in those that do. Doing so, however, would invite Beijing to retaliate in kind. With the US economy already strained by the war with Iran and the midterms just around the corner, picking a fight with China is the last thing the US needs.
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