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Playing US sanctions: China walks a fine line in Iran

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Chinese businessman Sheng Kuan Li didn’t worry about sanctions when he decided in 2010 to invest $200 million in a steel mill in Iran that 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, Mr. Li was not concerned about being targeted by the US Treasury. Mr. Li, moreover, 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, Mr. Li was following standard Chinese practice of evading the sanctions regime by using alternative routes or establishing alternative institutions that were in effect immune.

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 US President Donald J. Trump’s renewed effort to isolate Iran and force it to make further concessions on its nuclear and ballistic missiles programs as well as the Islamic republic’s regional role in the Middle East by walking away from the 2015 agreement and reintroducing punitive economic measures.

Chinese foreign ministry spokesman Geng Shuang said in response to Mr. Trump’s announcement that 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.”

China’s likely willingness to circumvent US 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 experience in circumventing sanctions could come in handy as Europe, that like China has rejected Mr. 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 US punitive action. One possibility would be to use alternative Chinese financial networks.

Nonetheless, this time round, rejecting and violating US sanctions may prove for China as well as the other signatories to be a trickier undertaking. Last time round, China and the other signatories were part of an international consensus that aimed to force Iran to accept restrictions on Iran’s nuclear program even if they at times circumvented the sanctions.

China and other signatories are in the wake of the re-imposition of US sanctions likely to be operating in a far more confrontational environment in which the subtext of Mr. Trump’s decision as well the positions of Saudi Arabia and Israel appears to be a policy that seeks to achieve regime change in Tehran.

Saudi Arabia as well as the United Arab Emirates have suggested in recent months in their 11-month old economic and diplomatic boycott of Qatar that they are willing to quietly sanction those who fail to support them.

There is little reason to doubt that they would do the same in their confrontation with Iran with Saudi Crown Prince Mohammed bin Salman describing the dispute with Qatar as “trivial’ in comparison to the kingdom’s existential battle with Iran.

Saudi Arabia demonstrated its greater assertiveness by forcing major multi-national financial institutions to choose sides in the Gulf spat. In response to Saudi pressure, JP Morgan and HSBC last month walked away from participating in a $12 billion bond sale.

Earlier, Doha Bank, Qatar’s fifth-biggest lender, was forced to reduce the size of a two-year, $575 million bank loan that it had raised in December 2015 to $400 million, when it sought a one-year extension of the facility because Chinese, Hong Kong and Japanese banks opted not to participate.

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 Mr. 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 focussed on US 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.

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 US armed MQ-9 Reaper drone.

The stakes in the battle to save the Iranian nuclear deal in the wake of Mr. Trump’s decision go however far beyond a belief that the nuclear deal 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 US sanctions would deliver one of the heaviest body blows to US credibility and perceptions of US power since Mr. Trump came to office in January of last year.

Said a Middle Eastern diplomat: “A successful countering of US sanctions would demonstrate beyond doubt limits to America’s ability to impose its will. That would have wide-reaching consequences, not in the least question marks in Saudi Arabia and Israel on the degree to which they can risk continuing putting most of their eggs in Washington’s basket.”

Dr. James M. Dorsey is a senior fellow at the S. Rajaratnam School of International Studies, co-director of the University of Würzburg’s Institute for Fan Culture, and the author of The Turbulent World of Middle East Soccer blog, a book with the same title, Comparative Political Transitions between Southeast Asia and the Middle East and North Africa, co-authored with Dr. Teresita Cruz-Del Rosario and three forthcoming books, Shifting Sands, Essays on Sports and Politics in the Middle East and North Africaas well as Creating Frankenstein: The Saudi Export of Ultra-conservatism and China and the Middle East: Venturing into the Maelstrom.

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Middle East

China and the Middle East: Heading into Choppy Waters

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China could be entering choppy Middle Eastern waters. Multiple crises and conflicts will likely shape its relations with the region’s major powers, including Saudi Arabia, Iran, and Turkey.

The laundry list of pitfalls for China includes the fallout of the Ukraine war, strained US relations with Saudi Arabia and the United Arab Emirates, Turkish opposition to Finnish and Swedish NATO membership, the threat of a renewed Turkish anti-Kurdish incursion into northern Syria, and the fate of the Joint Comprehensive Plan of Action (JCPOA), the 2015 international agreement that curbed Iran’s nuclear program.

Drowning out the noise, one thing that becomes evident is that neither the Gulf states nor Turkey have any intention of fundamentally altering their security relationships with the United States, even if the dynamics in the cases of Saudi Arabia, the UAE, and Turkey are very different.

Saudi Arabia recognizes that there is no alternative to the US security umbrella, whatever doubts the kingdom may have about the United States’ commitment to its security. With next month’s visit to Saudi Arabia by President Joe Biden, the question is not how US-Saudi differences will be papered over but at what price and who will pay the bill.

Meanwhile, China has made clear that it is not willing and not yet able to replace the United States. It has also made clear that for China to engage in regional security, Middle Eastern states would first have to get a grip on their disputes so that conflicts don’t spin out of control. Moves to lower the tensions between Turkey, Saudi Arabia, the UAE, and Egypt by focusing on economics are a step in that direction. Still, they remain fragile, with no issue that sparked the differences being resolved.

A potential failure of negotiations in Vienna to revive the Iran nuclear deal could upset the apple cart. It would likely push Israel, the UAE, Bahrain, and Saudi Arabia to tighten their security cooperation but could threaten rapprochement with Turkey. It could also heighten tensions in Syria, Lebanon, Yemen, and Iraq, where Iran supports a variety of political actors and militias. None of this is good news for China, which like other major players in the Middle East, prefers to remain focused on economics.

The dynamics with Turkey and Iran are of a different order. China may gleefully watch Turkish obstruction in NATO, but as much as Turkey seeks to forge an independent path, it does not want to break its umbilical cord with the West anchored in its membership in NATO.

NATO needs Turkey even if its center of gravity, for now, has moved to Eastern Europe. By the same token, Turkey needs NATO, even if it is in a better position to defend itself than the Gulf states are. Ultimately, horse-trading will resolve NATO’s most immediate problems because of Turkish objections to Swedish and Finnish NATO membership.

Turkey’s threatened anti-Kurdish incursion into northern Syria would constitute an escalation that no party, including China, wants. Not because it underwrites Turkish opposition to Swedish and Finnish NATO membership but because with Syrian Kurds seeking support from the regime of President Bashar al-Assad, Turkish and Iranian-backed forces could find themselves on opposite sides.

Finally, Iran. Despite the hot air over Iran’s 25-year US$400 million deal with China, relations between Tehran and Beijing are unlikely to fully blossom as long as Iran is subject to US sanctions. A failure to revive the nuclear agreement guarantees that sanctions will remain. China has made clear that it is willing to push the envelope in violating or circumventing sanctions but not to the degree that would make Iran one more major friction point in the already fraught US-China relationship.

In a world in which bifurcation has been accelerated by the Ukraine war and the Middle East threatened by potentially heightened tensions in the absence of a nuclear agreement, Gulf states may find that increasingly the principle of ‘you are with us or against us’ becomes the norm. The Gulf states hedged their bets in the initial months of the Ukraine war, but their ability to do so may be coming to an end.

Already Saudi Arabia and the UAE are starting to concede on the issue of oil production, while Qatar is engaging with Europe on gas. Bifurcation would not rupture relations with China but would likely restrain technological cooperation and contain Gulf hedging strategies, including notions of granting China military facilities.

Over and beyond the immediate geopolitical and security issues, there are multiple other potentially problematic issues and powder kegs.

A prominent Saudi-owned newspaper, Asharq Al-Awsat, recently took issue with an increasingly aggressive tone in Chinese diplomacy. “China isn’t doing itself any favours … Chinese officials seem determined to undermine their own case for global leadership … Somehow Chinese officials don’t seem to recognize that their belligerence is just as off-putting…as Western paternalism is,” the newspaper said in an editorial.

China’s balancing act, particularly between Saud Arabia and Iran, could become more fraught. A failure to revive the nuclear agreement will complicate already difficult Saudi Iranian talks aimed at dialling down tensions. It could also fuel a nuclear, missiles, and drone arms race accelerated by a more aggressive US-backed Israeli strategy in confronting Iran by striking at targets in the Islamic republic rather than with US backing in, for example, Syria.

While Chinese willingness to sell arms may get a boost, China could find that both Saudi Arabia and Iran become more demanding in their expectations from Beijing, particularly if tensions escalate.

A joker in the pack is China’s repression of Turkic Muslims in its north-western province of Xinjiang. A majority of the Muslim world has looked the other way, with a few, like Saudi Arabia, openly endorsing the crackdown.

The interest in doing so goes beyond Muslim-majority states not wanting to risk their relations with a China that responds harshly and aggressively to public criticism. Moreover, the crackdown in Xinjiang and Muslim acquiescence legitimises a shared opposition to any political expression of Islam.

The problem for Muslim-majority states, particularly those in the Middle East, is that the era in which the United States and others could get away with the application of double standards and apparent hypocrisy in adhering to values may be drawing to a close.

China and, for that matter, Russia is happy to benefit from the global South’s reluctance to join condemnation of the invasion of Ukraine and sanctions against Russia because the West refuses to apply the principle universally, for example, in the case of Israel or multiple infractions of international and human rights law elsewhere.

However, China and Middle Eastern states sit in similar glasshouses. Irrespective of how one judges recent controversial statements made by spokespeople of India’s ruling BJP party regarding the Prophet Mohammed and Muslim worship, criticism by Muslim states rings hollow as long as they do not also stand up to the repression of Muslims in Xinjiang.

For some in the Middle East, a reckoning could come sooner and later.

Turkey is one state where the issue of the Uighurs in China is not simply a far-from-my-bed show. Uighurs play into domestic politics in a country home to the largest Uighur exile community that has long supported the rights of its Turkic brethren in China and still boasts strong strands of pan-Turkism.

These are all elements that could come to the fore when Turkey goes to the polls next year as it celebrates the 100th anniversary of the birth of the Turkish republic.

The question is not whether China will encounter choppy waters in the Middle East but when and where.

Author’s note: This article is based on the author’s remarks at the 4th Roundtable on China in West Asia – Stepping into a Vacuum? organised by the Ananta Aspen Center on 14 June 2022 and was first published by the Middle East Institute in Washington DC.

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Middle East

Recognising Israel: Any Asian volunteers?

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The question for Saudi Arabia and Pakistan is not whether either country will recognise Israel but when and who will go first.

For the past two years, Saudi Arabia was believed to want a Muslim state in Asia, home to the world’s three most populous Muslim majority countries, to recognise Israel first. Asian recognition would give the kingdom, home to Islam’s two holiest cities, Mecca and Medina, a welcome fig leaf.

Numbers, as expressed by population size, were one reason. Compared to Saudi Arabia’s 35 million people, Pakistan has a population of 221 million, Indonesia 274 million, and Bangladesh 165 million.

That was one reason Saudi Arabia preferred an Asian state to take the lead in following the United Arab Emirates, Bahrain, Morocco, and Sudan, who recognised Israel in the least two years.

Likely more important was the expectation that potential mass protest against a move toward Israel was more likely to erupt in Asia, where the margin for expressing dissent is greater than in much of the Middle East. Such protests, it was thought, would distract attention from the Custodian of the Holy Cities taking similar steps.

Saudi Arabia has signaled for some time that it would like to formalize its expanding informal relations with Israel but needs a cover to do so. The kingdom has emphasized this in recent weeks as it sought Israeli acquiescence in the transfer by Egypt to Saudi Arabia of sovereignty over two islands at the top of the Red Sea and prepared for a possible visit by US President Joe Biden.

The visit is designed to improve relations strained since Mr. Biden came to office over Saudi doubts about US security commitments, US demands that the kingdom increase oil production in a bid to reduce prices and limit Russian energy exports, Saudi acquisition of Chinese missiles, and the 2018 killing of journalist Jamal Khashoggi.

In advance of a visit, Saudi Arabia has not rejected a US proposal for a regional Middle Eastern air defence system that would include the kingdom and Israel.

Mujtahid, an anonymous tweeter who has repeatedly provided insights into the secretive workings of the House of Saud in recent years, reported that Saudi Arabia and Israel had created a “situation room” on the 14th floor of an Istanbul office building to advance the establishment of diplomatic relations. He said Saudi Crown Prince Mohammed bin Salman’s close aide, Saud al-Qahtani, headed the Saudi side.

Despite rampant speculation, Mr. Bin Salman is unlikely to see Mr. Biden’s visit as a capstone for recognition of Israel. More likely, he will continue to insist on a fig leaf in the form of progress in resolving the Israeli-Palestinian conflict or a major Asian Muslim-majority state going next.

Much of the attention focused in the almost two years since the UAE-led quartet forged relations with Israel focused on Indonesia. Not only because Indonesia is the world’s most populous Muslim majority state and its foremost Muslim democracy but also because it is home to the world’s most moderate mass Muslim civil society movement, Nahdlatul Ulama.

Heads of Nahdlatul Ulama have visited Israel and met Israeli leaders multiple times in the past two decades, even though Indonesia and Israel have no diplomatic relations. The movement also has close ties to various American Jewish groups.

Similarly, the absence of formal relations between Israel and Indonesia has not prevented Israeli diplomats, scholars, and journalists from maintaining contact with Indonesian counterparts and travelling to the archipelago nation or Indonesian pilgrims from touring the Jewish state. Nevertheless, Indonesia has rebuffed both the Trump and the Biden administration’s requests to move towards recognition.

Indonesia’s refusal may not come as a surprise. However, suggestions that Pakistan, despite its close ties to Saudi Arabia, may strike a deal with Israel come out of left field. Religious ultra-conservatism is woven into the fabric of society and at least some state institutions. Moreover, anti-Semitism is rampant in Pakistan.

Nonetheless, a recent visit to Israel by a delegation of Pakistani activists seeking to promote people-to-people contacts has sparked anger and debate in Pakistan. The group, which met with Israeli President Isaac Herzog, included American and British Pakistanis, prominent Pakistani journalist Ahmed Qureshi, and Fischel BenKhald, a Pakistani Jew.

Without at least an overt nudge from powerful quarters, no Pakistani journalist could make this public trip to Israel and return safely, reflecting how attitudes pertaining to Israel have evolved in the world’s only Muslim nuclear power,” said London-based Pakistani journalist Hamza Azhar Salam.

That did not stop Pakistani state television from firing Mr. Qureishi.

“The good news is, we today have the first, robust and rich nationwide debate in Pakistan on establishing diplomatic ties with Israel. This is hug,” Mr. Qureishi said.

Many Pakistanis, led by ousted prime minister Imran Khan, saw the visit to Israel as part of an effort by Pakistan’s powerful military to forge closer ties to the Jewish state – a move Mr. Khan appears to have considered when he was in office.

His aide, Zulfi Bukhari, reportedly visited Israel for a meeting with then head of the Mossad, Yossi Cohen. Mr. Bukhari has denied travelling to Israel.

The visit by the Pakistani activists came two years after two Pakistani academics called in an op-ed in Israel’s Haaretz newspaper for Pakistani-Israeli cooperation in resolving the South Asian state’s water stress and upgrading its agriculture sector.

Similarly, Pakistani political analyst Saad Hafiz recently argued that Pakistan’s recognition of Israel would earn it the support of the Biden administration and the Israeli lobby in Washington for continued International Monetary Fund (IMF) aid for his country’s battered economy. Mr. Hafiz also reiterated that Pakistan could benefit from Israeli water conservation technology.

“The US leadership, Congress, and the powerful pro-Israel lobby could support the resumption of financial assistance to Pakistan as an incentive if it agrees to normalize ties with Israel, “ Mr. Saad said.

Pakistanis and Israeli have links in other ways. For example, many Pakistanis offer their services on Fiverr, an Israeli marketplace for freelance professionals.

Degrees of Saudi cooperation with Israel and Pakistani feelers contrasted starkly with legislation passed in the last two weeks by the Iraqi parliament criminalizing contact with Israel and by the Houthi government in Yemen that outlawed contact not only with Israel but also with Jews.

Pakistan is unlikely to follow Iraq or the Houthis. Even so, “it is unlikely that Pakistan’s fragile coalition government has the credibility and time to take the politically risky decision to open dialogue with Israel, especially with (Imran) Khan snipping at its heels,” Mr. Saad said. “Yet, bold decisions are needed for Pakistan to compete in a changing world.”

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The West Gives Ukraine What It Denied to Libya

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migrants refugees
photo: IOM/Amanda Nero

Since the start of the Ukrainian conflict more than 6 million refugees have left Ukraine in search of a better life in Europe. Most of them faced no considerable problems in crossing the border and eventually find what they were looking for thanks to the lenient approach taken by the government of European nations. Welcoming Ukrainians with open arms comes in sharp contrast with the experience of refugees from Africa or Middle East, who also run from chaos and war. What is the reason behind this discrimination? Is it the double standards of the West or simply a disastrous concatenation of circumstances?

The downfall of longtime Libyan leader Muammar Qaddafi in 2011 caused an exodus of around 2 million Libyans. Most of them migrated to Tunisia and only 300,000 chose to try their luck in EU, predominantly Italy and Malta. Unlike the Ukrainians, Arabs did not receive such a warm welcome. On the contrary UN allocated more than $700 million to deter Libyans from crossing the Mediterranean. The funds went on costal guard training and improvement of border control. In practice this means seizing vessels with refugees in the open sea and sending the people who paid smugglers exorbitant amounts of money back to poverty and suffering. The West is acting as if it’s trying to avoid Africans and Arabs like a plague while 6 million Ukrainians were accepted with ease and even given special treatment in certain countries like Poland.

Instead of taking in the Libyan refugees the EU could have committed to rebuild infrastructure and improve the living standards in Libya. At one point in time it seemed that this strategy would be implemented: according to Financial Tracking Service from 2011 until 2022 Tripoli received $1.2 billion worth of aid. It is quite a large number, which rounds up to $109 million per year. However, it’s not sufficient from a stand point of a country. For example in 2021 Egypt has dedicated around $3 billion for low-income housing while having 27.9% poverty rate. At the same time Libya has 53% poverty rate, which means $109 million per year could probably provide housing for less than 0.2% of those in need. As for Ukraine, FTS recorded $1.8 billion in foreign aid since 24 February 2022 – more than Libya received in 11 years.

It is not only about the refugees and funding but about the causes and solutions of the crisis. In Libya thousands of innocent lives were taken, thousands of homes and crucial infrastructure objects annihilated in the wake of the military operation conducted by NATO with no one brought to responsibility. Now, the news about war crimes and casualties in Ukraine can be heard in any part of the globe. Evidently when military force is used to establish “democracy” far away from the homeland, lost Arab lives is an acceptable sacrifice in a white man’s eyes.

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