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Guest
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Frederick Stakelbeck, Jr.
Frederick
Stakelbeck, Jr. is a freelance writer based in Philadelphia
 The
Growing Tehran-Beijing Axis
China fueling Middle-East tension...
[Frederick
Stakelbeck, Jr.] 2/24/05
With the
world’s attention focused on Iran’s continued development
of nuclear weapons and support for the insurgency in Iraq,
what has gone largely unnoticed is that the country is also
in the midst of an extreme economic transformation. After years
of economic isolation, Iran has once again become a magnet
for foreign investment, specifically, in the lucrative oil
and liquefied natural gas (LNG) sectors. And no country has
taken advantage of these renewed economic opportunities more
than China.
China and
Iran have been cultivating an increasingly close relationship
in recent months, one borne from China’s need for energy
to run its growing economy and Iran’s need for consumer
goods to satisfy its young, West-leaning population. Ali Akbar
Salehi, Iran’s former representative to the International
Atomic Energy Agency (IAEA) recently confirmed this, saying, “We
[Iran and China] complement each other. The Chinese have the
industry and the Iranians have the energy resources.”
The budding
relationship that is developing between these two brutal regimes
has received a great amount of international attention as of
late, particularly in the wake of their signing of mega oil
and LNG energy deals in October. Tellingly, Iran has already
stated that it would prefer to have China replace Japan as
the number one importer of Iranian oil. Fifty-one percent of
China’s crude oil imports already come from the Middle
East, and that figure is projected to jump to 70 percent by
2015.
Viewing China’s
increasing dependence on Middle East natural resources as a
national security issue, the Bush Administration has attempted
to prevent further energy deals between China and Iran, but
to no avail. Indeed, one official from Sinopec, China’s
second largest oil company, said last January that, “Sinopec
is paying no attention to the U.S. request and will do its
utmost to carry on its bidding for an exploitation project
in an Iranian oilfield.”
In late October,
a contract was signed by Sinopec and Iran for an estimated
$70 billion to $100 billion for the shipment of LNG to China.
As part of the deal, Sinopec also agreed to purchase 250 million
tons of LNG over thirty years and to develop the Yadavaran
oil field in southwest Iran.
Other energy
deals are in the pipeline. A $50 billion to $100 billion LNG
deal is currently being negotiated between China and Iran and
could be signed very soon, and a preliminary accord was recently
signed by the two countries calling for China to purchase 10
million tons of LNG a year. Moreover, China’s state oil
trader, Zhuhai Zhenrong Corp., has agreed to buy over 110 million
tons of LNG from Iran over a twenty-five year period for $20
billion. Iranian Petroleum Minister Bizhan Namdar Zanganeh,
speaking on the abundance of economic activity between the
two countries, noted, “Iran is a natural partner to fuel
China’s economy. We [Iran] have invited Chinese companies
to actively participate in our exploration and development
projects by promising them the greatest incentives.”
The energy
relationship between China and Iran has flourished, while Chinese
negotiations with Russia, the world’s largest LNG reserve
holder, have soured. As energy shortages take hold, China has
been increasingly frustrated by its fruitless energy partnership
with Russia in the construction of an $18 billion, 3,045-mile
pipeline from Siberia to China. The proposed oil pipeline would
not only address China’s need for energy, but also provide
a land-based alternative to seaports susceptible to an American
naval blockade. “This [failed oil and natural gas negotiations]
shows that China cannot have high hopes for Russia to solve
its energy needs” said He Jun, an analyst for the China-based
consulting firm, Anbound, in October.
For Iran,
exploration contracts for new oil fields; the optimization
of existing oil and gas fields through increased production
efficiencies; the development of new transportation conduits;
and increased investment in the refining and petrochemical
industries, have all become important parts of a well-conceived
strategic economic plan.
Tehran plans
to invest $50 billion in its energy sector over the next several
years. This level of investment is essential for economic growth,
since oil proceeds account for 40 to 50 percent of government
revenues. According to the Oil and Gas Journal, Iran is the
world’s second largest oil producer, with its 32 oil
fields containing approximately 125.8 bb of proven oil reserves,
or 10% of the world’s total. Only with sufficient foreign
investment will Iran meet self-imposed quotas of approximately
5 million bpd by 2024.
After years
of revolution, isolation and war, Iran continues to try to
remake its image to attract Western corporate investment. This
has been a difficult task, due to continued U.S. economic sanctions
first put in place as a result of the Iranian hostage crisis
of 1980. The primary obstacle to American investment in Iran
has been the Iran-Libya Sanctions Act (ILSA) of 1996, which
imposed sanctions on persons making certain investments designed
to enhance the ability of Iran or Libya to develop their petroleum
resources. In March 2003, President Bush extended the economic
sanctions imposed against Iran due to the country’s support
of international terrorism and attempts to acquire WMDs. The
Iranian response to the continued U.S. economic sanctions has
been dismissive. “Sanctions are not useful nowadays,
because we have many options in secondary markets, like China.” Hossein
Shariatmadari, a leading Iranian conservative theorist, told
Chinese business newspaper “The Standard” in November.
Well-intentioned
as they are in both principle and practice, economic sanctions,
coupled with geopolitical developments, have inadvertently
provided the Chinese and their state-sponsored energy conglomerates
with a unique economic opportunity. U.S. actions to halt further
oil and LNG contracts have been effectively circumvented by
China and Iran. Iran, seeking to foster additional energy partnerships,
has indicated its desire to join the Shanghai Cooperation Organization
(SCO), created in 1996 to promote the mutual interests of its
member countries. Originally dubbed the “Shanghai Five,” the
group now includes China, Russia, Tajikistan, Kazakhstan, Kyrgyzstan
and Uzbekistan. Iran’s acceptance into the group would
create an even more diverse and powerful alliance.
Unfortunately
for the United States, a large part of the foreign investment
in Iran’s energy infrastructure has come from the European
Union and Southeast Asia. Signaling a possible fissure in U.S.
efforts to further unite the world community against Iran’s
Islamic regime, while at the same time dissuading energy development,
France, Italy, Germany, Canada, Britain and Japan have all
signed development and exploration contracts with Iran. A $2
billion agreement signed between Japan’s INPEX and Iran
to develop the Azadegan field is especially troubling, given
the July 2004 release of a discussion paper prepared for Japan’s
Defense Agency warning that Japan’s competition with
China for oil could spark a Chinese attack on mainland Japan.
Closer energy
ties between China and Iran will reduce America’s leverage
to negotiate economic, military and nuclear nonproliferation
issues. At its core, the new alliance is a mutually beneficial
arrangement based upon the satisfaction of each country’s
needs. But perhaps more importantly, the alliance presents
a united front in the face of what is perceived as a common
threat posed by the U.S. Taken separately, China and Iran are
formidable regional powers. However, when taken together, they
become an unstoppable and influential force on many levels.
Indeed, recent
diplomatic statements made by China to the United Nations and
IAEA in defense of Iran’s nuclear program show that China
may be replacing Russia as a chief Iranian strategic ally.
Iran has a history of active negotiations with China to secure
nuclear technology, including the development of a 300-330
megawatt reactor and the sale of hundreds of tons of anhydrous
hydrogen fluoride (AHF), a chemical used to enrich uranium.
Furthermore,
the November 30 announcement by Iranian news agency Irna that
Iran and China have signed a “memorandum of understanding” designed
to increase cooperation in the areas of aerospace and satellite
technology only complicates an already delicate situation,
given that this shared technology could be used in the development
of Iran’s long-range missile program.
In addition,
China has replaced Russia as Iran’s leading conventional
arms supplier, providing Tehran in recent years with artillery
pieces, tanks, Seersucker surface missiles, anti-ship missiles,
Hudong fast attack craft, F-7 combat aircraft and rocket-propelled
mines. These purchases have upgraded Iran’s aging weapons
systems and replaced equipment lost as a result of the Iran-Iraq
War.
Perhaps all
of these agreements are designed merely to marginalize the
U.S. and improve the negotiating position of both China and
Iran -- no one knows for sure. But one thing is certain: an
increasing China–Iran alliance is enough to cause Bush
administration officials many sleepless nights in the months
and years to come. tOR
Frederick
Stakelbeck, Jr. is a freelance writer based in Philadelphia
This
piece first appeared at In
The National Interest
copyright
2005 In The National Interest
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