U.S. sanctions don't clearly prohibit China from selling to Iran short-range cruise missiles that might threaten Persian Gulf oil supplies, the U.S.-China Economic and Security Review Commission concludes in a draft annual report, Bloomberg reported.
"China's provision of anti-ship cruise missiles to Iran could allow Iran to target, among other things, oil tankers transiting the Strait of Hormuz" on Iran's south shore, the draft report reads.
China, Iran's largest arms supplier, has sold $312 million in weapons to Iran since 2006, mostly short-range anti-ship cruise missiles, according to the document.
An extended closure of the strait would remove about a quarter of the world's oil from the market, it says.
The commission recommends that Congress consider clarifying and expanding sanctions to ensure that shorter-range missile sales are a violation of U.S. law.
The sales don't violate the Iran, North Korea and Syria Nonproliferation Act of 2006, which seeks to prevent the transfer of longer-range missiles, the report said.
Other U.S. sanctions laws, such as the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010, prohibit sales of "advanced conventional weapons" - an "ambiguous" term that may or may not include short-range cruise missiles, the commision's report said.
The primary missiles in Iran's mobile arsenal are the C801 and C802, first imported from China in 1995, according to a 2009 report on Iran's naval forces by the U.S. Office of Naval Intelligence.
Using those missiles, the report said, "Iran can target any point within the Strait of Hormuz and much of the Persian Gulf and Gulf of Oman."
Since Russia began curbing its arms sales to Iran in 2008, China has become Iran's largest arms supplier, the U.S.-China commission said.
The commission also singled out China as "one of the few countries still willing to sell Iran refined petroleum products," citing a Congressional Research Service report that China was providing about half of Iran's gasoline imports as of 2010.
"While the fear of U.S. sanctions has caused many businesses to limit or cease operations in Iran, Chinese firms have seen these sanctions as an opportunity for expansion," the commission's draft report says.
It said the U.S. government has failed to sanction any Chinese state-owned oil companies for selling gasoline to Iran, and called on Congress to investigate whether sanctions should be imposed.
Five state-owned Chinese companies shipped gasoline to Iran in 2010, the commission said. ChinaOil, a subsidiary of China National Petroleum Corp., shipped 600,000 barrels of gasoline to Iran that are valued at $55 million, the report said.