Trump Reaps The Whirlwind With China/Iran Mega Deal

Authored by Tom Luongo via Gold, Goats, ‘n Guns blog,

For more than three years I’ve tried to explain that President Trump’s foreign policy was having the exact opposite effect of its intended purpose.

Trump, under the advice of people like John Bolton, Secretary of State Mike Pompeo, Israeli Prime Minister Benjamin Netanyahu and Saudi Crown Prince Mohammed bin Salman (MBS) has pursued a maximum pressure campaign against Iran in the hopes of the regime either crumbling or suing for peace.

Trump was warned by both Chinese Premier Xi Jinping and Russian President Vladimir Putin that Iran would ‘rather eat dirt’ than submit to him on nuclear weapons, support for Hezbollah, Iraq and President Bashar al-Assad in Syria.

In effect, Trump and Pompeo have argued for Iran to give up its sovereignty to appease the fears of Netanyahu in Israel, and they have steadfastly told Bibi and The Donald to go pound sand.

Every six months or so, depending on the state of domestic affairs, tensions with Iran ratchet up another notch. Over the past couple of weeks a series of explosions at key Iranian military facilities occurred with fingerprints of Israel striking deep into Iran to cripple strategic targets.

Trump, distracted by the domestic insurrection against him, has left foreign policy strictly to Pompeo who is avidly pursuing a ‘have his cake and eat it too moment,’ trying to extend the weapons embargo against Iran at the United Nations while still claiming the unilateral right to leave the JCPOA without further consequences.

In a word, Russia, China and Europe are telling him, “No.”

And now we know why. China and Iran just inked a 25-year, game-changing strategic deal covering everything from oil sales, contract bids and massive upgrades to Iran’s anti-air capabilities as well as its domestic air force.

This deal was in the air over the weekend when Iranian Foriegn Minister Javad Zarif briefed Iranian lawmakers on the pending deal.

From Simon Watkins at Oilprice.com via Zerohedge who is arguing the deal was actually inked last year:

One of the secret elements of the deal signed last year is that China will invest US$280 billion in developing Iran’s oil, gas, and petrochemicals sectors. This amount will be front-loaded into the first five-year period of the new 25-year deal, and the understanding is that further amounts will be available in each subsequent five year period, provided that both parties agree. There will be another US$120 billion of investment, which again can be front-loaded into the first five-year period, for upgrading Iran’s transport and manufacturing infrastructure, and again subject to increase in each subsequent period should both parties agree. In exchange for this, to begin with, Chinese companies will be given the first option to bid on any new – or stalled or uncompleted – oil, gas, and petrochemicals projects in Iran. China will also be able to buy any and all oil, gas, and petchems products at a minimum guaranteed discount of 12 per cent to the six-month rolling mean average price of comparable benchmark products, plus another 6 to 8 per cent of that metric for risk-adjusted compensation. Additionally, China will be granted the right to delay payment for up to two years and, significantly, it will be able to pay in soft currencies that it has accrued from doing business in Africa and the Former Soviet Union states.

You can almost hear MBS’ sobs from here. Because there is no way the Saudis can compete with this. This is a strategic move by Iran to ensure that

1. Iran has guaranteed oil exports despite U.S. sanctions

2. The Iranian economy de-dollarizes faster

3. Iran and Iraq, by extension, integrate into China’s One Belt, One Road project.

4. Saudi Arabia’s position as the leader of the Arab oil-producing world is destroyed.

5. Iran’s ability to withstand U.S. sanctions pressure rises dramatically

This also dovetails with China’s eschewing Saudi oil for Russian Urals grade. At the same time China is working on putting a buyer’s group together to further marginalize Saudi oil pricing policy of setting tenders on a monthly basis.

Moreover, China wants its oil futures contract in Shanghai more dominant in the global market. That contract is a key piece to deepening Yuan liquidity.

Shifting the oil trade where it can trade in real time versus would be a boon to the market. Most of the Arab states set their tender prices at the beginning of the month and they don’t change.

Now let’s tie this into what’s happening in Hong Kong, where President Trump is threatening the Hong Kong Dollar’s peg to the U.S. dollar to try and cause China economic pain.

But China wants this to happen. It obviously doesn’t want Hong Kong to continue being the source of China’s international liquidity which is also retarding the internationalization of the yuan as a trade settlement currency.

I’ve been steadfast in my belief that China is ready to let Hong Kong go as a financial center. It is getting prepared to move its financial center to Shanghai, where its oil and gold futures contracts trade, the latter also convertible into gold.

The folly of all of this bluff and bluster is that Trump never wanted a war with Iran as the dramatic events from last year made clear. He simply wanted to force everyone to the bargaining table and renegotiate the JCPOA on Israel’s terms.

But the means and manner in which he went about this was both deeply insulting and demeaning.

Proud people like Iranians don’t respond to those kinds of cheap, gangster-like tactics and Trump has found out the hard way that treating international politics like negotiating a real estate deal doesn’t work.

There’s always someone else willing to come in and find their comparative advantage. So, this deal with China was always on the table, lurking in the background.

Israel pushed Trump to ditch the JCPOA to escalate the situation to their advantage. It gives Netanyahu every justification to send his air force around bombing targets in not just Syria, but now Iraq and Iran, increasing the likelihood of bringing Russia and China deeper into the region to defend its ally.

Every argument made to me over the past four years on this point has downplayed the idea that Russia and China would not come to Iran’s aid.

And yet it has steadily occurred.

All Trump did was help China get better terms on this deal with Iran than it would have gotten had he not gone full bull in an open-air marketplace.

Now that this deal has leaked out into the world we can see why Mike Pompeo is so desperately trying to re-impose the weapons embargo against Iran per the snap-back provisions of the JCPOA.

Because part of this deal is for China and Russia to sell Iran massive upgrades to both their anti-air defenses, namely Russian S-400’s, and to its air force.

Again from Watkins at Oilprice:

OilPrice.com understands from the Iranian sources that the bombers to be deployed will be China-modified versions of the long-range Russian Tupolev Tu-22M3s, with a manufacturing specification range of 6,800 kilometres (2,410 km with a  typical weapons load), and the fighters will be the all-weather supersonic medium-range fighter bomber/strike Sukhoi Su-34, plus the newer single-seat stealth attack Sukhoi-57. It is apposite to note that in August 2016, Russia used the Hamedan airbase to launch attacks on targets in Syria using both Tupolev-22M3 long-range bombers and Sukhoi-34 strike fighters. At the same time, Chinese and Russian military vessels will be able to use newly-created dual-use facilities at Iran’s key ports at Chabahar, Bandar-e-Bushehr, and Bandar Abbas, constructed by Chinese companies.

Moreover, Iran’s military will further integrate Russian Electronic Warfare (EW) protocols into its structures. Remember Russia treats EW as a vital and integral part of its military capabilities. It isn’t an add-on or adjunct to core military operations.

EW is integrated into Russian military operations down to the squad level.

The bottom line is that this deal cements the Russian/Chinese/Iranian axis as an unbreakable thing. For nearly four years Trump’s team has pushed him to try and break this alliance up, but did so with tactics which only pushed them closer together.

All stick and no carrot after decades of the same treatment while showing no capability of abiding by any deal struck was never a recipe for driving a wedge between these people.

So, we’re left with the following situation which, actually, is quite dangerous. The U.S.’s position in Iraq is ultimately tenuous, like it is in Syria. Iran will now be flush with Chinese money to rebuild not only its oil and gas export business but better support its allies in Lebanon, Syria and Yemen.

Those same men pushed Trump to the brink of war in the end are still in his ear. And they are pushing a scorched earth policy of economic privation effecting social and political unrest.

But all that does is create the opportunity for China to step out from behind the curtain and into the spotlight.

And for the sin on not going to war with Iran he’s being roasted by neoconservatives at home who have openly now joined forces with the Democrats to campaign against him.

If he wants to stay in power he may have to appease them one last time, as his anti-China, anti-EU campaign strategy comes to a head in October when the arms embargo against Iran expires.

In article after article I patiently explained how and why Trump and the U.S. had no real leverage over Iran short of bombing the country back to the stone age. That would never happen on Trump’s watch because Iran’s leadership would never do anything so overt as to invite that response.

Even the attack on the U.S. bases in Iraq in January in response to Trump’s miscalculated assassination of General Qassem Soleimani was measured, precise and, officially, without U.S. casualties. If there was ever a moment for the Iranians to make a strategic mistake that invited Trump’s wrath, it was that.

And once his bluff was called there, that was the end of Energy Dominance and the entire strategy of isolating Iran.

At the same time those strikes demonstrated an ability to deliver blows far ahead of anything Trump had been briefed on by his advisers.

And the consequences would be catastrophic, especially for not only Saudi Arabia, which got a small taste of what could come their way, but also Israel.

Back then we were all worried about what would happen if Iran attacked oil tankers in the Persian Gulf sending oil to $200 per barrel. The financial derivative meltdown and subsequent supply chain disruptions would have been existential.

Today we’re living through what happens when the opposite occurs and oil plunges to $18 per barrel, thanks to Vladimir Putin finally telling both OPEC+ and the U.S., “No.”

The outcome is pretty much the same, a meltdown of Western markets financialized to the point of self-destruction which has now plunged both the U.S. and Europe into political chaos.

Into that vacuum China and Russia can now move openly into central Asia, and impose their will over the future of the region without having to fight anything more dangerous than skirmishes.

China secures its future energy needs and the supply lines for cross-continental trade. It establishes itself as the new power broker in the region alongside Russia who supplies the military prowess and a broke and battered U.S. can only fight rearguard actions while its allies there sink further into irrelevancy.

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