Sanctions Give China an Advantage in Iran

by , July 31, 2010

LONDON — The European Union’s new sanctions against Iran appear to open a new space for eager Chinese companies to expand their investments in a country viewed as a rogue player by much of the western world.

With China recently coming to light as Iran’s largest trade partner, some Chinese analysts predict a wealth of new geopolitical and business opportunities with Iran. But officialdom may still waver at the idea of Beijing seen as a "free-rider." 

An energy-thirsty China has signed agreements with Iran worth tens of billions of dollars to allow it privileged access to Iran’s oil and gas sector. Courting the partnership of Iran, which possesses the world’s fourth largest reserves of oil and second largest of gas, has been a long and arduous process, and Beijing would loathe to jeopardize it. 

In recently published memoirs China’s long-time ambassador to Tehran Hua Liming admitted that his diplomacy in Iran after China became an oil importer in the early 1990s had been entirely dictated by energy politics. Last year Iran accounted for 11 percent of China’s oil imports, ranking third among China’s main oil suppliers after Angola and Saudi Arabia. 

Spurred by its energy needs, China has undertaken a range of investment projects in Iran, gradually filling in the void left over by Western firms forced out by international sanctions. With more than 100 Chinese companies present in Iran, it has built Tehran’s subway, power stations, ferrous metals smelting factories and petrochemical plants. 

As bilateral trade reached 21.2 billion dollars in 2009, China surfaced as Iran’s most important trade partner. On paper the European Union still ranks as Iran’s largest trading partner, but if Chinese goods imported in Iran via the United Arab Emirates are considered, China has already overtaken the EU. 

This has led some to believe that Iran’s defiant attitude towards the west derives somewhat from a newfound confidence that China is now supplanting Tehran’s traditional trade partners. "Who can blame Iran for being so ferocious with China behind its back?" says an opinion piece on one of China’s largest Internet portals China.com. 

With international pressure on Iran to abandon its nuclear program mounting in the last few years, western companies began reducing their dealings with Tehran further, and Iran turned more to China for investment in its oil and gas sectors, says Dr. Harsh V. Pant, professor in the Department of Defense studies at King’s College, London. 

The new round of sanctions agreed by the European Union means that "China will remain Iran’s most significant major power supporter, and there will be little incentive for Tehran to negotiate in good faith," Dr. Pant tells IPS. 

The sanctions target the oil and gas industries — the backbone of Iran’s economy, as well as foreign trade and financial services. They ban new EU investments in the energy sector and the export to Iran of key equipment and technology for refining and for the exploration and production of natural gas. 

The EU foreign ministers announced the new restrictions a month after the U.S. imposed its own strengthened sanctions on Iran. Last month the UN Security Council passed a fourth round of international sanctions over Iran’s clandestine nuclear program China, a UN Security Council member, inconspicuously lent its support. 

"Even though China does not want to be seen as ganging up with the West and hopes to maintain a strategic partnership with Tehran, it does not want to complicate relations with Washington either," says Jonathan Holslag, research fellow with the Brussels Institute of Contemporary China studies. 

Holslag believes Beijing has given "subtle but clear signals that it wants Iran to cooperate with the UN." He points to Beijing’s decision to slow down investment in the Yadavaran oil field and delay the disbursement of loans. When Iranian President Mahmoud Ahmadinejad visited the Shanghai Expo, Chinese leaders reportedly refused to meet him. 

With China called upon to become a "responsible stakeholder" in the international system, Beijing has walked a fine line, trying to work in concert with the international community to force Tehran to abandon its nuclear weapons program, while preserving its vital interests in Iran. Beijing supports non-proliferation efforts as part of its broader campaign to gain a higher international profile. 

Attempting to water down previous UN sanctions has not only been for the purpose of protecting China’s energy supplies, argues Holslag. He believes the Chinese elite finds the sanctions counterproductive as they are "the grist for the mill of Iranian hardliners" and fuel "nuclear nationalism." 

On Sunday China’s top diplomat called for fresh nuclear talks and more diplomatic effort to resolve the standoff over Iran’s nuclear program "China continues on the path of negotiations" regarding Tehran’s nuclear energy program, foreign minister Yang Jiechi said in Vienna. 

A recent piece in the Chinese newspaper Global Times claimed that Beijing had secured tacit agreement from western powers that in any follow-on sanctions adopted by the U.S. and the European Union, China’s interests in Iranian energy and trade would be protected. 

But "the new EU sanctions mean that the Iranian energy sector will continue to face major constraints in reaching its full potential," says Dr. Pant. "And therefore China will find it difficult to exploit the sector fully." 

In his memoirs ex-ambassador Hua Liming recounts the difficulties China and Iran faced with securing the flow of Iranian high sulphur crude oil to China in mid-1990s. Although Iran now exports around 27 million metric tonnes of crude to China every year, the lack of knowhow and technology still impede the progress of several Chinese oil exploration and development projects in Iran.

(Inter Press Service)

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