China is taking advantage of waivers from Iran sanctions granted by the United States to pitch a $3 billion oil field development to Iran, even as European nations are halting their purchases of Iranian crude.
The Wall Street Journal reported on Thursday an offer from the China Petroleum & Chemical Corporation (also known as Sinopec) to the state-run National Iranian Oil Company to develop the Yadavaran oil field in western Iran. The proposal envisioned doubling the output of the field to 180,000 a day within six months.
Insiders reportedly described the deal as China driving a “hard bargain” with “stringent demands” because Iran’s position is so desperate. With European customers backing away from the Iranian market under U.S. sanctions, the Chinese believe Iran has little choice but accepting a deal that includes buying all-Chinese equipment for the oil field and squeezing immediate reimbursement for testing costs out of the Iranians. The Journal suggested Iran would never accept such a deal under less stressful circumstances.
Sinopec reportedly told the Iranians it was uniquely positioned to offer a development deal because China has been granted valuable waivers from U.S. sanctions. The Chinese company also argued that since it already has a contract for operations in the Yadavaran field, the $3 billion development plan would be considered an extension of the existing arrangement, so it would not run afoul of U.S. bans on new development.
Other large customers for Iranian oil who received sanctions waivers – such as Taiwan, Italy, and Greece – have canceled their purchases because they believe other aspects of the sanctions regime made doing business with Iran too difficult, particularly restrictions on shipping and banking.
The waivers granted to China and seven other major consumers of Iranian oil are due to expire in May. The U.S. government will probably extend some of the waivers but allow others to expire. The expirations probably will not interfere with China’s plans for the Yadavaran field – in fact, Reuters reported on Friday that waivers for Italy, Greece, and Taiwan will likely be allowed to expire in order to “placate top buyers China and India and to decrease the chance of higher oil prices.”