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China stands to gain in Iran after US quits nuclear deal

AFP  |  Beijing 

The US decision to reimpose sanctions on could scare off European investors but oil-thirsty may step into the void and ramp up business links with the country.

China, which is already Iran's top trade partner and one of its biggest buyers of crude, has signalled that it intends to keep working with the Islamic regime despite the US move.

is a signatory of the 2015 nuclear deal that had eased sanctions on Tehran, but quit the accord earlier this month and said would reinstate punitive measures.

"By driving away American, European and Japanese companies, the sanctions could increase opportunities for Chinese businesses," Hu Xingdou, an at the Institute of Technology, told AFP.

The deal has been highly profitable for the Asian giant. Chinese businesses involved in Iranian developments are worth at least $33 billion as of June 2017 according to -- part of the country's ambitious Belt and Road global infrastructure initiative.

In September, provided a $10 billion credit line to five Iranian banks financing water, and transport projects, and in March the two countries inked a $700 million deal allowing to build a train line that links the to the rest of Iran's

now has its sights on the expansion of a major Iranian gas field, with state-owned company set to replace Total if the French behemoth withdraws from the project over US sanctions.

Trump's move to reimpose sanctions will affect all firms that operate in US dollars or do business on American soil, hitting European companies especially hard. But the lure of fresh hydrocarbons could prove irresistible for China, the world's largest importer.

Iran is currently China's fifth top supplier, with more than a quarter of its output going to Beijing. Bolstered by the flow of black gold, Chinese-Iranian trade leaped by 20 percent in 2017 to $37 billion.

European companies could be hit hard by US sanctions.

Total started the huge $4.8-billion project known as South Pars 11 in July 2017, two years after the nuclear deal between and Western powers prompted the return of many businesses to Iran.

But the French company said Wednesday that unless it is exempt from US sanctions, it would "not be in a position to continue" the project, leaving the door open for to take its place.

Iranian has said that if Total pulls out, its share of the project -- slightly over half -- will be handed to the Chinese firm.

China "needs the oil", Victor Shum, vice of group at IHS Markit, told CNBC.

"With trade skirmishes between the US and China and all kinds of political issues, I see the resistance from Chinese crude buyers to comply" with US sanctions, he said.

The price of Iranian oil is likely to fall as its pool of buyers shrinks, Shum said, making it "more attractive" to the Chinese.

And with targeting transactions made in dollars, the yuan could be used to skirt around the new rules.

"In 2012-2013, Iran opened accounts in local currencies in buying countries that it then used to finance imports," said in a note.

"If China, India, and do not impose sanctions on the Central Bank of Iran, these countries would be unlikely to stop taking Iranian oil," he added. Chinese made clear last week that Beijing would keep doing business with Tehran: "We will continue with our normal and transparent practical cooperation with Iran on the basis of not violating our international obligations.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Fri, May 18 2018. 17:00 IST