By ordering its companies to disregard US sanctions, China has for the first time moved from a war of words to action. Foreign policy experts have swung into action to analyse and interpret its meaning, significance and, of course, implications. In one of its several moves against other countries in the context of its military action against Iran, the US threatened sanctions against financial institutions if they do not refrain from engaging with refineries that import Iranian oil.
The obvious target is China's so-called teapot refineries — relatively small, independent units — as the country imports nearly 90% of Iranian crude. The US wants to put the squeeze on Iran where it hurts; it could hurt its financial muscle by cutting off oil import revenues to the tune of $170 million a day.
Unlike in the past when China limited its opposition to sanctions to a political rhetoric level, through the invocation of a 2021 law that empowers imposing countermeasures against companies that comply with US sanctions, it has not only given it legal sanction but also leveraged it in building a narrative of legitimacy.
What could not be missed is the timing of the Chinese move. US President Donald Trump is scheduled to meet Chinese supremo Xi Jinping in the coming week in Beijing. In typical Chinese style, it is a perfect blend of assertion and willingness to negotiate to find a workable arrangement keeping in mind broader objectives: holding the line in terms of strategic autonomy while making space for pragmatic deals with regard to sustaining bilateral trade relations and tariff reduction. China is adept at exploiting Trump’s penchant for transactional gains, which he could brag about for global and domestic audiences.
The Iran conflict offers both an opportunity and a daunting challenge to China. It cannot sacrifice Iran, which has been a close and trusted partner, but it would not hesitate to use it in a limited way to gain an edge in negotiations. The US, on the other hand, wants China to use its clout with Iran to nudge the latter towards reopening the Strait of Hormuz and a degree of de-escalation that would help the Trump administration get a breather to gather its wits after some unpredictable setbacks.
In this round of diplomatic manoeuvring, Trump is perceived to be having a relatively weaker hand following the goof-ups in Iran, while China is aware of the advantage it enjoys and would like to seize the rare opportunity to extract maximum gains. Beyond the US-Iran conflict, China can continue to leverage its mammoth manufacturing base, its sway, if not a near chokehold, over global supply chains, and its market and technology dominance. In contrast, the US under Trump has been a bull in a China shop—almost wrecking the relationship with key allies, eroding its soft power and moral standing, while hurtling towards polarisation and plummeting popularity in domestic politics.
It is widely believed that Trump is unlikely to change his highly unpredictable and whimsical style, or his personalised, transactional approach, any time soon. There is literally no one among his team who could bell the cat. However, political compulsions relating to the November mid-term elections could force Trump’s hand to take a step back, at least for now.