Trump's delusional Iran oil gambit is decades too late
Trump is using everything he's got to wage economic war on Iran. His problem is that 'everything he's got' is not nearly enough, as the virtual monopoly power once wielded by the US has long since evaporated.
Last week, a senior state department official announced the US' intention to cut Iranian oil exports "to zero" by November 4 this year, by threatening to impose sanctions on any company still trading beyond that date.
Hitherto, experts had predicted US sanctions would see a reduction of around 500,000 barrels per day (bpd) by the end of the year – barely one-fifth of the country's current export of 2.4 million bpd. Even the sanctions that preceded the 2015 nuclear deal – which, unlike today's unilateral effort, were supported by a broad alliance of world powers, including Russia and China – only succeeded in removing half of Iran's oil from the market.
This determination to destroy Iran by any means necessary has, of course, been the Trump administration's signature foreign policy since day one, with almost every member of his team harboring a long-held and well documented vendetta against the Islamic Republic. What is new with Trump, however, is not this determination as such – let's not forget that Iran has been on the official Pentagon hit list since at least 2001 – as the means used to pursue it. As I argued in 2014, the nuclear deal was not, on the part of the West, a genuine rapprochement so much as a long term program of Western infiltration, based on the 'Libya model', aimed at building a pro-imperialist fifth column within the Iranian state in order to prepare the ground for 'regime change' in the future. The Trump team, of course, has no patience for the long game, and simply wants to cut to the chase. The reason for this obsession with destroying Iran – shared by all factions of the Western ruling class, despite their differences over means – is obvious: Iran's very existence as an independent state threatens imperial control of the region – which in turns underpins both US military power and the global role of the dollar. And as South-South cooperation continues to develop, this threat grows every day, whilst the means to diminish it are reduced by the same measure.
At the same time, the US military encirclement of China – begun in earnest as Obama's 'pivot to Asia', but, like so much else, undergoing major escalation under Trump – is intimately linked to a policy of cutting off China from its suppliers. In this sense, a policy of 'isolating' Iran is aimed at isolating China also, as China is the largest market for Iranian crude.
Trump's policy, however, is likely to get few buyers. Pepe Escobar has explained the likely response to Trump's plans from each of Iran's top customers: "India will buy Iranian oil with rupees. China also will be totally impervious to the Trump administration's command. Sinopec, for instance, badly needs Iranian oil for new refineries in assorted Chinese provinces, and won't stop buying. Turkish Economy Minister Nihat Zeybekci has been blunt: "The decisions taken by the United States on this issue are not binding for us." He added that: "We recognize no other [country's] interests other than our own." Iran is Turkey's number-one oil supplier, accounting for almost 50 percent of total imports. Russia won't back down from its intention to invest $50 billion in Iran's energy infrastructure. And Iraq won't abandon strategic energy cooperation with Iran. Supply chains rule; Baghdad sends oil from Kirkuk to a refinery in Kermanshah in Iran, and gets refined Iranian oil for southern Iraq."
Trump's attempts to persuade the rest of the world to cut off its nose to spite its face, then, are likely to fall on deaf ears. It is in this light that Trump's igniting of a global trade war must be seen.
At midnight on July 5, US tariffs on $34billion worth of Chinese imports went into effect, at a rate of 25 percent. Trump told reporters that tariffs on a further $16 billion worth were likely to follow in two weeks, fulfilling a pledge made in April to slap tariffs on 1300 products totaling $50 billion annually. The final total, however, he added, could eventually reach $550 billion – a figure noted by Industry Week, that is actually bigger than the entire annual volume of Chinese exports to the US. These China-specific tariffs follow tariffs on steel (25 percent) and aluminum (10 percent) imports imposed on the EU, Mexico, and Canada four days earlier.
According to Fox Business, Canada stands to lose around $2 billion per year as a result of these tariffs, with Brazil, Russia, China, and South Korea each set to lose at least $500 million annually.
But this may be precisely the point: not only to 'bring jobs back to the US', but also to create new forms of leverage to be used against rivals and allies (and is there really a distinction between the two anyway these days?) alike. So far, of course, Trump has famously refused to offer waivers to his allies. But with Trump, nothing is forever – everything is leverage, to be played and bartered as seen fit. Could it be, then, that waivers may yet be offered to countries who manage to wean themselves off Iranian oil by the November deadline? And even if not, the very willingness to use trade as a weapon so openly and brazenly is a reminder that there may be further punishments on the way for those who do not toe the line on the strangulation of Iran. After all, as Louis Kuijs, chief economist at Oxford Economics, has pointed out, this 'new era' has only just begun: "Clearly the first salvos have been exchanged," he said, "and in that sense, the trade war has started. There is no obvious end to this."
Nevertheless, Trump's bark may yet be well worse than his bite. For one thing, the counter-measures employed by the Chinese – a reciprocal 25 percent tariff on $50billion of US goods – will hit the US hard. One product subject to the new tariff, for example, is soybeans. China is the biggest market for all soybeans grown in the US. Grant Kimberley, a soybean farmer with the Iowa Soybean Association, estimates that this tariff alone could lead to a 70 percent drop in exports.
But even apart from the Chinese counter-measures, the US-imposed tariffs themselves are likely to hurt the US as much as China. A report on NPR suggests that "for now, the blows are threatening to land hardest on non-Chinese companies like New Jersey-based Snow Joe/Sun Joe", which - like so many other US companies, relies on Chinese imports for crucial parts of its supply chain.
For China, however, the impact is likely to be – in the words of Ethan Harris, head of economic research at Bank of America Merrill Lynch – "quite small." James Boughton, a senior fellow at the Centre for International Governance Innovation in Waterloo, Ontario, explained that: "The dynamic is different from anything we've seen. China has an ability to ride out this kind of pressure, to weather the storm, that a lot of countries didn't have in the past."
So the idea that trade war will somehow pressure China (and others) to dump Iran seems ultimately fanciful. The process of 'delinking' has already come too far. China is Iran's biggest trading partner, and – with Chinese tariffs on US oil looming – is more likely to increase Iranian oil imports to replace that no longer coming from the US rather than vice versa. Iran already sells its oil to China in yuan, rather than US dollars, meaning that the entire US-controlled financial system is completely circumvented for the countries' bilateral trade, and therefore outside the control of US-imposed financial sanctions. Looking forward, Iran is set to play a crucial role in the development of China's mega Belt and Road Initiative, with a high speed railway planned to provide sea access to landlocked central Asia. And with French oil giant Total's planned investment in the massive South Pars oil field in jeopardy, the contract is likely to now go to a Chinese company.
Currently, less than 20 percent of Chinese exports go to the US, with almost half going elsewhere in Asia. According to the CIA's world factbook, Chinese exports in total represent just under 20 percent of GDP. If we do the math, then – 20 percent of 20 percent – it turns out that just four percent of Chinese GDP comes from exports to the US. Significant, but hardly the economic gun to the head that Trump seems to believe.
The days when loss of market access to the US meant oblivion for countries like China are long gone. The future now lies in South-South cooperation precisely along the lines of the multibillion Belt and Road Initiative. The US government understands that, and their attempts to simultaneously sabotage both China and Iran are last-ditch attempts to prevent the inevitable – further delinking, and a global economy in which the US is becoming increasingly peripheral. But in truth – this effort is already too late.
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The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.
