‘We’ve said that we will sanction any sanctionable behavior and we mean it”, Mike Pompeo said in Florida on Monday, explaining new action against Chinese energy firm Zhuhai Zhengrong.
Long story short, the company transports Iranian crude, which isn’t something the US is particularly enamored with considering Trump’s entire “maximum pressure” campaign revolves around choking off the theocracy’s oil revenue.
Here are Pomepo’s remarks, delivered in a speech:
As part of that maximum pressure campaign, I am announcing that the United States is imposing sanctions on the Chinese entity Zhuhai Zhenrong and its chief executive Youmin Li. They violated US law by accepting crude oil. We’ve said all along that any sanction will indeed be enforced. We can’t tolerate more money going to ayatollahs, putting American soldiers, sailors, airmen, marines, putting their lives at risk. It’s too important.
Beijing-based Zhuhai Zhengrong (a subsidiary of the Macau-based, state-run Nam Kwong Group) specializes in purchasing Iranian product, and, as Reuters notes, the company “was previously sanctioned in 2012 by the Obama administration over its dealings with Iran”.
Of course, China is a major buyer of Iranian oil. As BofA’s Francisco Blanch wrote in June while documenting an “uber-bearish” case for crude (not the bank’s base case, by the way), Iran “has historically been China’s number 3 supplier, so recent curtailments in Iran oil imports to comply with US sanctions suggest that China is still serious about getting a trade deal done”.
At various intervals, Beijing has pushed back on US demands that everyone on the planet cease importing Iranian oil. Indeed, China recently ramped up imports after initially reducing them.
Back in April, Trump took the market by surprise, when the administration announced it would not extend waivers granted in November, a sign the US intended to turn the screws on Tehran in earnest. Things have obviously escalated since then.
While Beijing may be loath to irk Trump at a time when trade discussions have barely resumed following the handshake deal struck in Osaka, it’s worth noting that millions of barrels of Iranian oil are sitting in bonded storage at Chinese ports, just waiting to be tapped by refiners.
“This supply doesn’t cross local customs or show up in the nation’s import data, and isn’t necessarily in breach of sanctions”, Bloomberg wrote Monday, in a great article detailing the situation. The crude in question is technically still owned by Tehran and is classified as “in transit”. Speaking of “in transit”, the same article says millions of additional barrels are likely headed for Chinese bonded storage.
It still isn’t clear how the Trump administration intends to classify that oil, but one assumes it will be seen as violating the spirit of the sanctions if not the letter of the “law”.
BofA’s Blanch warned last month that a rekindling of trade tensions could mean China simply refuses to comply with US demands regarding Iranian product. Any additional escalations in the trade war could also deep-six demand for crude by weighing further on the outlook for global growth. If slumping demand were to collide with the large scale purchase of Iranian crude by Chinese refiners, oil prices could plunge, Blanch suggested.
Pompeo told The Wall Street Journal on Monday that Zhuhai Zhenrong and its executives knew they were violating US sanctions.
Apparently, they didn’t care.