, 20 tweets, 9 min read Read on Twitter
1. The conventional wisdom has been that #China's strategic trade + energy interests would see it defy US secondary sanctions on #Iran. Our new @BourseBazaar report, drawing on recent China-Iran trade data, suggests that the conventional wisdom is wrong.
2. The years when #Iran was under multilateral sanctions were boom years for China-Iran trade. China openly flouted US sanctions by purchasing historic volumes of Iranian oil while exporting a wide range of goods, winning marketshare as European traders pulled back.
3. At the heart of this trade was Bank of Kunlun, a subsidiary of state oil giant CNPC. Kunlun was the "bad bank" designated by the Chinese government to facilitate payments for trade with Iran. The bank thrived as it carried billions of dollars of trade on its ledgers.
4. The US Treasury designated Bank of Kunlun for flouting US sanctions, but political cover from the Chinese government saw that Kunlun, and the state enterprises the bank supported, continue to trade with #Iran, displacing the EU as the anchor of Iran's industrial supply chain.
5. When Trump announced the US withdrawal from the #JCPOA, the expectation had been that Kunlun would once again serve as #Iran's sanctions lifeline. But as @MotamediMaziar has reported for @BourseBazaar, the bank has made an abrupt change in policy.
6. In October, Kunlun suddenly stopped processing Iran transactions. In November, China received an oil waiver from the US. By January, Kunlun announced it would resume Iran payments, but only for *humanitarian trade* as required by the oil waiver. State policy was shifting.
7. To date, no alternative banking channel has been nominated by the Chinese state, leaving Iranian companies and their Chinese suppliers in an unprecedented lurch. The impact on China-Iran trade has been immediate.
8. Chinese exports to #Iran, mostly comprised of critical machinery and manufacturing inputs on which Iran's factories depend have collapsed nearly 70% in two months:

-October: $1.18b
-November $638m
-December: $391m

Data from the General Customs Administration of China.
9. The falling exports in December are all the more remarkable because imports rebounded as China began to make use of its oil waiver. #Iran was earning more money in China, but able to spend less of it, which points to the disruptions at Kunlun.
10. The collapse in trade has been so sharp that October was the first month in years where EU28 exports to #Iran exceeded Chinese exports.
11. There are several reasons why China may be abandoning its policy of defying US sanctions in order to trade with #Iran:

-The China-US trade war
-The new, more global profile for Chinese enterprises
-The desire to see Europe take the lead on sanctions pushback
12. Whatever the primary reason, Iranian industrialists are becoming increasingly concerned. A lack of manufacturing inputs will lead to lower production, downtime at factories, and eventually mass layoffs.
13. These supply chain shocks are already being felt in #Iran's auto sector, one of the most important employers in the country. As @KhosroKalbasi has reported for @BourseBazaar, industry leaders see at least 100k jobs at risk.
14. These interruptions are going to hit industries already reeling due to the currency devaluation in the first half of 2018, which saw the price index for industrial machinery double. Shortages will be driven not just by rising prices but also by supply constraints.
15. Anecdotally, one Iranian firm diversified away from producing European vehicles in the previous sanctions period and began producing CKD kits from a Chinese state automaker. Today, that company can neither produce its European nor Chinese vehicles as sanctions bite.
16. Given the above, the theory advanced by many in the Iranian political establishment that a "turn to the East" would deepen #Iran's economic resiliency in the face of Western sanctions is under a serious challenge.
17. There remains hope among some in #Iran that the Chinese government will soon come around and instruct a new bank to take up the Iran trade for the sake of the huge economic returns to be made. But I am skeptical that it will be so easy or inevitable.
18. To be clear, two months of trade data does not make a trend. But this is a space to watch closely. The emerging China-Iran trade dynamic not only demonstrates the huge power of unilateral/financialized/weaponized US sanctions, but it may be the chief risk to the JCPOA.
19. It's understandable if China is wary of the threat of US secondary sanctions to its companies in a globalized world. But while Europe is developing tools like the #SPV to sustain trade, China has notably made no similar effort, however experimental.

Iran will soon notice.
20. tl;dr If the nuclear deal collapses due to extraordinary economic pressures in Iran, China may be to blame.

Download the full report here:
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