The Next U.S. Clash With China Will Be All About Iran’s Oil

As if they needed it, U.S.-China relations face a new flashpoint on Nov. 4, when Washington’s new sanctions on Iran take full effect with the stated objective of cutting Tehran’s oil exports to zero, from a current 1.7 million barrels a day. China, which buys about one-quarter of Iran’s crude, is shaping up as the center of global resistance to this unilateral action. “I don’t expect China to acquiesce to Washington’s demands, given the worsening relations between the two nations,” says Stephen Brennock, oil analyst at top global broker PVM Oil Associates.

That looks like a setup for the mother of all trade disputes. Both sides have incentives to give ground quietly—China as a salve to already stressed U.S. relations, Washington to avoid an oil price shock. But the looming deadline does add more uncertainty to an emerging markets outlook that was fragile enough without it.

All of Iran’s big oil customers oppose its being blackballed again. But Europe’s hands are likely tied because its oil trade is dominated by big private companies that need to protect their interests in the U.S. and dollar-denominated financial transactions. China is in a better position to evade, says Peter Harrell, who worked on Iran sanctions for Barack Obama’s State Department and is now a fellow at the Center for a New American Security.

“They have tons of midtier and smaller refiners who are not directly exposed to the U.S.,” he says. Beijing also has a bit of experience buying crude in its own currency, having established “petro-yuan” contracts earlier this year.

Read the full article and more at Barron's.