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Reuters's report on March 5 that a major Chinese ship insurer – China P&I Club – has decided to "halt indemnity coverage for tankers carrying Iranian oil" has led to an euphoria amongst western policymakers who seem to view it as the clearest sign of the Chinese government's changing stance on the enforcement of western-led sanction regimes against Iran.
To be sure, P&I's decision does imply that both ship owners and Iran's chief crude oil customers – namely, China, India, Japan, and South Korea – are now going to find it even more difficult to continue importing from Iran, especially that many saw the P&I Club as a reliable alternative to European/western insurers. Put this into the context of Beijing's constant refusal to reduce its oil import from its third petroleum supplier, and it then becomes clear why many in the West are delighted by the news.
Nevertheless, any attempt to paint the P&I's decision as an indication of the 'Chinese government's contribution' to the western governments efforts in depriving Iran of cash for its nuclear program is shortsighted at best.
Similar to other Chinese corporations, P&I has close links to the central government in Beijing, while its major Chinese clients/members include shipping firms like Sinotrans and COSCO Group which work hand in hand with China's state-owned energy companies, and are therefore linked to/owned by the CCP. As such, it makes more sense to see the P&I's decision as an attempt by Beijing to coerce Tehran into selling its oil at a discounted rate.
Aware of Iran's unprecedented isolation on the word stage, Beijing has been demanding discounts and better terms on Iranian crude since the imposition of western oil embargo on Iran. In other words, Chinese policymakers and strategists are of the opinion that sanctions against Iran have considerably strengthened their hand in negotiations with Iran's oil executives as buyers from other countries are either terminating or reducing their purchases of Iranian oil.
To this end, there have been a number of high profile meetings between Iranian and Chinese officials, but they have so far failed to agree on new payment terms as Iran refuses to sell its oil below the market level. In fact, there is a consensus amongst oil analysts that the recent sharp drop in oil trade between the two countries from 500,000 barrel per day to 280,000-300,000 barrel has more to do with this failure rather than Beijing's compliance with the US-led sanctions.
Determined, and indeed confident of its ability, to buy the Iranian oil at a lower price, it is thus more likely that the P&I recent decision to stop insuring tankers carrying Iranian oil received the Chinese government blessing. In this way, Beijing could very well be hoping to strengthen its oil companies negotiating position as they insist on better payment terms and discounted rates, thereby using western oil embargo on Iran and Tehran's apparent isolation to realize its strategic goal of "reshaping the global oil trade" in its own favor.
Today, Chinese state-owned oil companies can justify their calls for cheaper prices by drawing attention to the fact that they themselves have to cover the insurance cost, which stand at around $1 billion, and that Tehran must sell at a reduced price. Initially, Tehran could defuse such demand by bearing the insurance risk and transporting its crude using its national fleet. Yet, given the substantial financial burden embedded in such an undertaking as well as Iran's rather small fleet of 14 ships, Tehran is unlikely to be able to ignore the demand of one of its few remaining oil customers. This is not to mention that Tehran's refusal could cost it the Chinese support at the UNSC. And once Beijing starts acquiring cheap Iranian crude, its oil trading companies – specifically those that have no assets in the U.S. and Europe such as Zhuhai Zhenrong – can begin to purchase "larger than normal volumes", sell them at international market and make handsome profits.
All in all, China has been one of the, if not the, main beneficiaries of recent sanctions on Iran, and hence it has more political and economic interests in preserving the status-quo. By frustrating western efforts to sanction Iran, China can ensure Iran's international isolation which will, and already has, boost its efforts to expand its monopoly over Iran's oil and gas sector. Politically, Beijing sees an opportunity in Iran's standoff with the West to retard America's newly developed 'Pacific Century' strategy since its persistence leaves Washington with no option but to keep a heavy military presence in the Middle East. This, needless to say, gives China more space and time to consolidate its dominance in its near-abroad.
As a result, it is more prudent to see the P&I recent announcement in the grand scheme of Beijing's geopolitical calculations rather than a simple change of heart and a cooperative gesture. The main lesson for the Iranian government, on the other hand, is that it truly has no great power friend today; certainly not in China.
