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China and Iran Develop Workaround to Thwart U.S. Financial Sanctions.

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Russia is not the only country engaged in financial warfare with the United States. China and Iran are also in the thick of it.

The China-Iran linkage is critical to both countries. China is the second largest economy in the world and the fastest growing major emerging market. China has a voracious appetite for energy, but has little oil of its own.

China’s reliance on burning coal has polluted and blackened their air and injured the health of millions of Chinese. China’s solution is to import oil. Iran is one of the largest oil exporters in the world and is the major supplier to China.

The problem is that oil is priced in dollars and dollars flow through the U.S. banking system. Trump’s Iran sanctions make it impossible for China to pay Iran in dollars. Trump’s prohibitions also penalize oil tanker owners who ship Iranian oil.

As this article explains, the China-Iran solution is to use Iran-owned tankers to move the oil. This solves the transportation problem, but it leaves open the issue of how China pays for the oil without using dollars.

Euros and physical gold are both options, but those payment channels present logistical and legal problems of their own. Iran will keep shipping and China will keep buying, but Trump is tightening the noose and making this essential trade more difficult.

In the end, China cannot get all the oil it needs and the price of oil is being propped up by this costly two-way trade. As with all sanctions, tariffs and boycotts, this is one more drag on global growth.

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