SSNHZ Samsung Electronics Company Ltd (PK)

By Benoit Faucon and Sune Engel Rasmussen 

Asian companies that had provided a lifeline to Iran after the U.S. reimposed sanctions last year are pulling back, hurting the hobbled Iranian economy and leaving the Islamic Republic with less incentive to stay committed to a multination nuclear deal, Western diplomats say.

The companies are reacting to the Trump administration's moves this month to squeeze Iran's oil exports and impose a terror designation on its paramilitary force. Among Asian businesses rethinking their dealings with Iran are banks, oil companies and technology giants including Huawei Technologies Co., Lenovo Group, LG Electronics Inc. and Samsung Electronics Co.

Many deals between Iran and Chinese companies "are now dead in the water, " said an adviser to a Chinese oil company in Iran. "No one wants to take the risk of going out of business."

Last year, the Trump administration pulled out of the 2015 agreement that lifted sanctions on Iran in exchange for tightened control on its nuclear program.

Tehran pinned its hopes on China and other Asian nations when European companies began withdrawing from its economy ahead of the U.S.'s reinstatement of sanctions last fall. During the earlier sanctions period before the nuclear agreement's approval, China overtook Europe as Iran's chief supplier of industrial equipment.

But this week, Iran's main means of payment -- the direct exchange of oil for goods and services -- came under abrupt threat when the U.S. State Department said it would end waivers for all buyers of Iranian oil.

The move means any company importing oil from Iran after the current round of waivers expires on May 2 could be blocked from the American banking system.

Until now, Washington had allowed eight jurisdictions, including China, India and South Korea, to purchase Iranian oil as long as they committed to reducing their imports.

The Trump administration's tightening of the ban came two weeks after Washington raised the risks for companies doing business with Iran by designating the Islamic Revolutionary Guard Corps a terrorist organization. The Guard Corps plays a significant role in Iran's economy, including its energy industry.

The reaction from buyers of Iranian oil has been mixed. India has said it would likely abide by the U.S. rules but China's foreign ministry has taken a defiant tone, saying Beijing "consistently opposes U.S. unilateral sanctions."

Experts expect that China will continue to buy some Iranian oil, but many Chinese businesses are limiting their exposure to the country. Bank of Kunlun Co., a key conduit for Sino-Iranian trade, told clients on Monday that it will stop all transfers with Iran beginning May 1, said Mostafa Pakzad, a Tehran-based consultant who helps companies carry payments in and out of Iran.

The bank, owned by state-run China National Petroleum Corp., had already interrupted such dealings last year but had restarted trade of humanitarian goods in the hope they could be exchanged for Iran oil.

Monthly Chinese exports to Iran stood at $629 million in March, down from a monthly average of $1.6 billion from 2014 to early 2018, according to China's General Administration of Customs.

The prospect of reduced oil imports from Iran -- along with rising U.S. pressure -- has led to a more concerted scaleback from China in recent weeks.

Late last month, Pang Sen, the Chinese ambassador to Iran, and other diplomats met with Iranian business people in Tehran, including consumer electronics distributors. The message, according to Iranian business people briefed on the gatherings: China has no plan to increase its exposure to Iran.

China Foreign Ministry spokesman Geng Shuang said he wasn't aware of the ambassador's conversations but said "the normal cooperation between China and Iran must be respected and protected."

Multibillion-dollar projects in oil and gas fields and railways granted to Chinese state-run giants are now under threat, according to Iranian business executives and the Chinese oil-company adviser.

Also in March, Huawei, the world's second-largest smartphone maker, laid off most of its 250 staff in Iran, according to businessmen in Tehran. And Beijing-based Lenovo, the world's largest computer manufacturer, banned its Dubai-based distributors from selling to Iran after a warning from the U.S. Treasury Department, these people said.

A Lenovo spokeswoman said the company has a firm policy of complying with export regulations but declined to comment further. A Treasury spokesman declined to comment.

Huawei has come under heavy pressure from Washington -- which alleges the company violated international banking sanctions on Iran -- and the dispute has turned into a major point of contention between the Trump administration and Beijing.

South Korean consumer-electronics giants Samsung and LG already have reduced exposure to Iran and are consulting with government officials in Seoul to determine whether they must withdraw from the nation entirely following the end of U.S. oil waivers, according to business people in Tehran who work with the companies.

Iran had been financing purchases from both companies with funds generated from the sale of oil and crude-based products.

A Samsung spokesman said he couldn't immediately comment. Huawei and LG didn't respond to requests for comment.

European officials say Beijing has appeared willing to slow trade with Iran in return for concessions from Washington in the continuing trade fight between the U.S. and China. Beijing has been locked in a dispute with the Trump administration over bilateral commercial tariffs and intellectual property.

"The Chinese are very committed" to the Iranian nuclear deal in principle, said one senior European diplomat. "But their overarching objective is of course their relationship on trade with the U.S."

--Shan Li, Kersten Zhang and Dominique Fong in Beijing and Laurence Norman in Belgium contributed to this article.

Write to Benoit Faucon at benoit.faucon@wsj.com, Sune Engel Rasmussen at sune.rasmussen@wsj.com and Laurence Norman at laurence.norman@wsj.com

(END) Dow Jones Newswires

April 24, 2019 15:41 ET (19:41 GMT)

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