Chinese businessman Sheng Kuan Li didn't worry about sanctions when he decided in 2010 to invest US$200 million in a steel mill in Iran. The facility started producing ingots and billet within months of the lifting of punitive measures against the Islamic republic as part of 2015 international nuclear agreement with Iran.

With no operations in the United States, Li was not concerned about being targeted by the U.S. Treasury. Moreover, he circumvented financial restrictions on Iran by funding his investment through what he called a "private transfer," a money swap that was based on trust and avoided regular banking channels.

In doing so, Li was following standard Chinese practice of evading the sanctions regime by using alternative routes or establishing alternative institutions that were in effect immune.


Credit: Reuters / TPG

A gas flare on an oil production platform is seen alongside an Iranian flag in the Gulf July 25, 2005.

To be able to continue to purchase Iranian oil while sanctions were in place, China, for example, established the Bank of Kunlun to handle Chinese payments.

The Chinese experience in circumventing the earlier sanctions will come in handy with Beijing rejecting U.S. President Donald Trump's renewed effort to isolate Iran and force it to make further concessions on its nuclear and ballistic missiles programs.

Chinese foreign ministry spokesman Geng Shuang said in response to Trump's announcement that the PRC was committed to the 2015 deal and would “maintain communication with all parties and continue to protect and execute the agreement fully."

China's likely willingness to circumvent U.S. sanctions is one factor that will influence Iran's decision on whether it will stick to the agreement. Iran's decision depends on the readiness and ability of the other signatories - Britain, France, Germany and Russia – to also stand up to the United States.

China's likely willingness to circumvent U.S. sanctions is one factor that will influence Iran's decision on whether it will stick to the agreement.

China's experience in circumventing sanctions could come in handy as Europe, that like China has rejected Trump's move and vowed to ignore the sanctions, weighs ways of putting its money where its mouth is by attempting to shield European companies from potential U.S. punitive action. One possibility would be to use alternative Chinese financial networks.

Nonetheless, this time round, rejecting and violating U.S. sanctions may prove a trickier undertaking for all concerned. Last time round, China and the other signatories were part of an international consensus that aimed to force Iran to accept restrictions on its nuclear program even if they at times circumvented the sanctions.

China and other signatories, in the wake of the re-imposition of U.S. sanctions, are likely to be operating in a far more confrontational environment in which the subtext of Trump's decision, taken alongside the positions of Saudi Arabia and Israel, could be viewed as a prelude to the seeking of regime change in Tehran.

In the utmost consequence, China's concerted effort to remain aloof of the Middle East's multiple conflicts could be severely compromised if it were forced to take sides in a conflict between Iran, a country with which China feels that it has much in common and that it in the past has helped develop its ballistic and nuclear programs, and Saudi Arabia, a more recently found friend that is economically important to the People's Republic.

To be sure, greater Saudi assertiveness does not mean that the kingdom does not have to tread carefully in potentially seeking to penalize China and others for their potential refusal to go along with Trump's confronting of Iran.

Saudi Arabia desperately needs foreign investment to implement Prince Mohammed's Vision 2030, a far-reaching plan for social and economic reform that aims to diversify the kingdom's conservative society and oil-dependent economy and turn it into a 21st century, knowledge-based state.

China, moreover, is one of Saudi Arabia's foremost oil export markets. While the Saudi military remains focused on U.S. and European arms purchases, China, at a time that a military confrontation with Iran is not beyond the realm of the possible, is a source of weaponry the United States has been so far unwilling to sell to the kingdom.


Credit: Reuters / TPG

An MQ-9 Reaper remotely piloted drone aircraft performs aerial maneuvers over Creech Air Force Base, Nevada, in 2015.

With the United States refusing to share its most advanced drone technology, China agreed last year to open its first overseas defense production facility in Saudi Arabia. State-owned China Aerospace Science and Technology Corporation (CASC) will manufacture its CH-4 Caihong, or Rainbow drone as well as associated equipment in Saudi Arabia. The CH-4 is comparable to the U.S. armed MQ-9 Reaper drone.

The stakes in the battle to save the Iranian nuclear deal in the wake of Trump's decision go far beyond a belief that the agreement is serving its purpose in curbing potential Iranian nuclear ambitions and economic opportunity.

Leveraging its experience, an effort by China together with Russia and Europe that keeps the Iranian nuclear deal in place and thwarts U.S. sanctions would deliver one of the heaviest body blows to U.S. credibility and perceptions of U.S. power since Trump came to office in January of last year.

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Editor: David Green