French-led pushback against Iran sanctions may help India

Paris is emerging as the leader of a European push-back against President Donald Trump’s resumption of sanctions against Iran with Minister for Economy and Finance Bruno Le Maire and Minister for Europe and Foreign Affairs Jean-Yves Le Drian on Tuesday meeting with French companies doing business in the country.

The French-led effort could aid New Delhi, which is concerned the sanctions will not only hurt crude oil imports from Iran but also undermine the fledgeling Chabahar port project.

Indian government sources said they were closely watching the French lead, but were also wary of taking sides in a potential showdown between the United States and Europe.

“We ask the United States to ensure that sanctions do not apply to French and European companies that trade with Iran or invest there”, the French foreign ministry spokesperson said. “France is acting to protect its companies”.

France’s push-back came even as reports suggested state-owned giant China National Petrochemical Corporation was willing to take over Paris-headquartered Total’s stake in Phase 11 of the South Pars oilfield, the world’s largest.

CNPS currently holds a 30 per cent stake of the Phase 11 deal, to Total’s 50.1 per cent, with the rest being owned by a subsidiary of Iran’s national oil company, PetroPars.

Last week, Le Maire had told French radio he had asked United States Treasury Secretary Steven Mnuchin for temporary or permanent exemptions for French companies operating in Iran, which include PSA, drug giant Sanofi and food group Danone among those affected — in addition to Renault and oil major Total.

India, government sources told The Business Standard, is yet to seek any specific exemptions from sanctions, though one senior official said some preliminary discussions had taken place.

President Trump’s National Security Advisor, John Bolton, had said last week that United States sanctions on European companies that maintain business dealings with Iran were “possible”.

France’s effort has the backing of Germany, whose exports to Iran exceeded $3.5 billion last year.  In addition, the Hamburg-based Europaeisch-Iranische Handelsbank handed over $10 billion in transactions involving  Iran. 

The only major economic power that appears to be falling in line with President Trump’s efforts is Japan, whose second-largest energy importer, Inpex, said last week that it may be forced to drop its bid for the South Azadegan oilfield—reputed to be among the world’s largest, with an estimated 33.2 billion barrels.

Inpex was forced to relinquish its 10% stake in the Azadegan oilfield in 2010, after the United States imposed sanctions.

Key to the fate of the sanctions will be the conduct of China—Iran’s largest trading partner.  “Chinese companies had near $2.3 billion of direct investment in Iran from 2014 till 2018, while the amount of investments [they made] was $110 million from 1996 till 2014”, Iranian deputy minister Mohammad Khazaie told an investment conference held in Tehran early this year.

The state-owned investment arm China International Trust Investment Corporation recently established a $10 billion credit line for Iran, while the China Development Bank is considering $15 billion more. Trade with China has more than doubled since 2006, to $28 billion.

Iran has handed out several high-profile contracts to Chinese firms, including the expansion of the Tehran Metro, and the construction of high-speed railway lines to the eastern city of Mashhad and the Gulf port of Bushehr,

“Lots of Chinese companies have zero exposure to the United States, and state-owned ones find relatively easy to set up special-purpose vehicles to bypass sanctions and other regulations”, an Indian diplomat noted.

Beijing proved adroit in dodging sanctions imposed in 2010, using both informal mechanisms and special banking channels. Kunlun Bank, a subsidiary of the China National Petrochemicals Corporation, was sanctioned by the United States in 2012 along with Iraq’s Elaf Islamic Bank, for handling transactions involving blacklisted banks in Iran.  

“Bank of Kunlun has provided hundreds of millions of dollars worth of financial services to these designated banks, including holding accounts, making transfers, and paying their letters of credit”, the United States Treasury Department said.  

However, Kunlun Bank continued to engage in transactions with Iran, with Beijing picking the bank to shield others in the country from sanctions.

In language similar to this week’s French statement, a Chinese foreign ministry spokesperson said the People’s Republic was committed to the deal and would “maintain communication with all parties and continue to protect and execute the agreement fully”.