Starting today (Thursday) all Chinese banks will suspend their dealings with Iran in response to the second round of US sanctions against the Islamic Republic due to take effect on November 4.
The last remaining conduit, Bank of Kunlun, which had been set up to process Iran payments and is itself under US sanctions, is also expected to follow suit.
Majid Reza Hariri, deputy president of Iran-China Chamber of Commerce and Industries told the Financial Tribune that Bank of Kunlun had notified Chinese exporters to conclude any unfinished business that they have with Iran before Nov. 1 because the bank would no longer "guarantee" such payments could be conducted after the aforementioned date.
"However this does not mean that banking relations between Iran and China have ended because China is waiting to see how the special payment mechanism that the EU is supposed to unveil will unfold," Hariri said.
We could say that China wants to redefine its [banking] relations with Iran and hence the current hiatus
Unlike the previous set of sanctions, which were imposed by the EU and the UN Security Council, this time around the US has acted unilaterally and therefore the Chinese have made their future ties with Iran dependant on European plans just like we ourselves are awaiting for, he added.
"We could say that China wants to redefine its [banking] relations with Iran and hence the current hiatus."
Days before the new US restrictions, all eyes are on a trade set up which is being devised by Europe to help Iran evade the US financial system. Although the details of the Special Purpose Vehicle, as it has come to be known, have yet to be released several Iranian and European officials have commented on the mechanism and how it may function.
In latest comments by a senior official regarding the matter, Foreign Minister Mohammad Javad Zarif said this week the EU's "anti-sanctions mechanism" has become operational. But he added that because of the US sabotage, it may take a while before the mechanism can fully work.
The Financial Times recently reported that the EU is struggling to find a member state to host the financial channel - known as the special purpose vehicle – to shield trade with Iran from American wrath.
The US move is part of economic war on Tehran after President Donald Trump pulled out of the 2015 multilateral Iran nuclear accord in May.
EU countries led by France, Germany and the UK — signatories to the nuclear deal — want trade with Iran to continue in defiance of Washington.
Federica Mogherini, the EU’s foreign policy chief, has said the SPV could be in place “before November "legally but other sources have announced that it will not be operational until early next year.
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According to Hariri, Chinese banks had stopped offering services to Iranian clients in 2010-11 at the time of the previous sanctions but Bank of Kunlun continued to work with Iran.
But in May 2017, another challenge reared its head and targeted Iranian expats and student. "Chinese lenders denied service to Iranians on the pretext that they are complying with anti-money laundering rules set forth by the Financial Action Task Force."
FATF announced earlier this month that Iran had until February to complete reforms that would bring it into line with global norms or face consequences.
The Paris-based Financial Action Task Force said after a meeting of its members that it was disappointed that Tehran had failed to act on most of its action but still gave Iran another four months to finalize the relevant laws.
Noting that all countries uphold national interest in deciding foreign policy, Hariri referred to repeated statements from Chinese officials that they would not abide by unilateral US measures and would keep their trade channels open with Iran.
China is Iran's number one oil customer and traditionally has been its first trading partner. However that changed for the first time during the 7-month trade figure up to October 22 with Iraq gaining the top spot.
