Since talks were last held, China has signed a multi-decade oil-supply deal with Iran and will pay for the crude in yuan, bypassing the established petrodollar system. With a foreign policy aimed at maintaining the US as the global hegemon, this really won’t play well with Washington hawks. It’s a serious step forward in the new Cold War.
Under a 25-year deal that was agreed in August, China will buy oil, gas and petrochemicals from Iran at a discount of about 12pc. In return for a cheap, guaranteed oil supply, China will inject a staggering $280bn (£224bn) in Iran’s investment-starved oil industry, which has been hit hard by US sanctions and has serious infrastructure issues.
China has allocated a further $120bn to shore up the country’s transport infrastructure and will also deploy up to 5,000 Chinese security personnel in the country to protect its assets, as well as guarding shipments of oil on tankers between Iran and the Chinese mainland.
Significantly, payment for the crude will be in yuan. This will allow China to bypass the dollar denominated international financial system. Iran has been trying to get countries to pay for its oil in currencies other than the dollar for many years, so Beijing must know this move will be controversial in Washington – and that’s why it has taken some time for details of the deal to leak out.