China appears poised to fill the gap in Iran left by French automakers who closed their Iranian operations before the reimposition of U.S. sanctions on Tehran.
The Chinese move could open yet another dispute between Washington and Beijing, adding to the acrimony between the two, which are locked in an escalating trade dispute.
European automakers
French automaker Renault, which had an eight percent share of the Iranian automotive market, the 12th largest in the World, announced last month that it would join more than 100 international companies that have pulled out of Iran to comply with U.S. sanctions, reimposed beginning Tuesday, despite the fact Renault has no operations in the United States.
Peugeot announced its departure in June, it had a 34 percent market share in Iran, selling about 500,000 cars a year.
German automaker Daimler has also announced it has “suspended [its] activities in Iran, which were anyway very limited, until further notice according to applicable sanctions.”
President Trump’s decision in May to withdraw from the 2015 nuclear deal, signed by his predecessor Barack Obama, in which Tehran agreed to nuclear curbs in return for sanctions relief, has paved the way for the restoration of unilateral American economic penalties on Iran beginning Tuesday.
The U.S. sanctions come in two phases, the next phase kicks in on November 4. While ratcheting up pressure on Tehran, the sanctions are worsening rifts with European allies and other world powers.
First phase sanctions
The first phase of U.S. sanctions prohibit any transactions with Iran involving dollar bank notes, gold, precious metals, aluminum, steel, commercial passenger aircraft, shipping and Iranian seaports. The Trump administration blames Iran for fomenting instability in the Middle East and encouraging terrorism.
In a statement, Monday Trump repeated his description of the 2015 nuclear deal as a “horrible, one sided” agreement. He said the Iranian government “faces a choice: Either change its threatening, destabilizing behavior and reintegrate with the global economy, or continue down a path of economic isolation.”
“For Renault to explicitly express their desire to comply with U.S. law, even though they do not have any existing American operations, suggests that even the prospect of future U.S. business is far more enticing than anything they currently have in Iran,” said David Ibsen of United Against Nuclear Iran, an advocacy group chaired by former U.S. Senator Joe Lieberman.
Renault has said it will increase operations in Africa to try to offset what it loses by exiting Iran.
State-owned and private auto companies currently assembling or importing Chinese models have a nearly 10 percent share of the Iranian market, which analysts say will likely expand rapidly in the wake of the French departure. Chinese enterprises currently command a 50 percent share of auto parts imported into Iran.
China’s strategy
China has made no formal announcement of an intention to expand its auto trade in Iran. But the al-Monitor news site reported Iran Khodro, the country’s largest car manufacturer and assembler of foreign cars, recently told its salesmen to promote to customers China’s H30 Cross, made by Dongfeng Fengshen, as a replacement for Renault’s Tondar 90.
Other Chinese car manufacturers present in Iran include Chery and Brilliance, whose H330, assembled in Iran by Saipa, is among the top 10 best-selling cars in the country.
China’s ambassador to Tehran, Pang Sen, met Monday with influential lawmaker Alaeddin Boroujerd and reiterated Beijing’s opposition to U.S. sanctions on Iran. According to the Tehran Times, the Chinese envoy said closer cooperation between Tehran and Beijing would help neutralize the impact of the sanctions.
Expected impact
In a briefing for reporters Monday in Washington, senior U.S. administration officials didn’t directly address China’s auto trade with Iran, but asked specifically about China, they said they remained confident U.S. diplomatic and economic pressure on Beijing would have an impact and already had, they suggested, considering the dire economic plight Iran has found itself in since the reimposition of sanctions was announced.
“If the sanctions were not going to be effective, I don’t think you would have seen the trajectory of Iran’s economy over the last 90 days. I mean, it would have been the opposite, if China were going to rescue them,” said one of the officials, who undertook the briefing on the conditions of anonymity.
But China has rebuffed President Trump’s efforts to persuade Beijing to cut Iranian oil imports, Bloomberg reported four days ago. But U.S. officials said the Chinese had agreed not to increase purchases of Iranian crude, although last month China lifted monthly oil imports from the country by 26 percent. China is the world’s top crude oil buyer and Iran’s biggest customer.