China-Iran Tango Threatens US Leverage

BEIJING – Even as Iran pledges suspension of its uranium-enrichment program to avert United Nations sanctions, U.S.-led international efforts to curb Iran’s nuclear capabilities are being undermined by the emergence of an ever stronger partnership between China and the Middle-Eastern country.

This was clearly evident when Seyed Hossein Mussavian, Iran’s envoy to the International Atomic Energy Agency, visited the Chinese capital on the eve of an IAEA board meeting Thursday that is to review an investigation of suspect Iranian activities.

The United States contends that Iran is trying to develop nuclear weapons – an accusation that Tehran denies.

According to Mussavian, Chinese Foreign Ministry officials told him that Beijing wants to see Iran’s nuclear program handled by the Vienna-based IAEA.

"They are against referral of the Iranian issue to the Security Council," he told news agencies on Wednesday. Iran could face sanctions if the investigation is turned over to the UN.

China, which has long-standing ties with Iran, is searching for new energy reserves to drive its booming economy. But success of any UN action against Iran hinges on Beijing’s support, as it is one of five permanent members of the United Nations Security Council with veto-yielding power.

Iranian petroleum minister Bijan Zandaneh told China Business Weekly recently that Tehran wants China to replace Japan as the biggest importer of its oil and gas.

"Japan is our No. 1 energy importer due to historical reasons, but we would like to give preference to exports to China," Zanganeh commented during his visit to Beijing in late October.

On Nov. 6, Chinese Foreign Minister Li Zhaoxing, who has just crowned a year of negotiations between the two countries paid a rare visit to Tehran. In a meeting with Iranian President Mohammad Khatami, Li said Beijing would oppose U.S. efforts to refer Iran to the UN Security Council over its nuclear program.

The Chinese foreign minister also told Khatami he had discussed Iran’s nuclear issue with U.S. Secretary of State Colin Powell and British Foreign Secretary Jack Straw, and made it known to them that Iran was cooperating well with the IAEA.

According to Li, referring Iran to the Security Council would only make things more complicated.

While commercial contacts between Beijing and Tehran are at the core of the relationship, and are set to grow significantly, wider geopolitical elements are also coming into play.

Russia, India, and other states may be encouraged to break ranks on the nuclear issue if they see China profiting from a strategic relationship with Iran.

Japan, which is even more reliant than China on oil imports, might be unwilling to cede its share of Iran’s resources to Beijing and would likely resist U.S. pressure to punish Tehran for nuclear proliferation. There are indications that Tokyo might oppose Washington’s efforts to apply sanctions in a bid to force foreign companies to pull out of Iran’s oil fields.

China, which has become the world’s second largest oil importer over the past decade, currently gets 13.6 percent of its oil imports from Iran. Beijing has said it also wants to step up imports of Iran’s natural gas.

Trade between the two countries hit a record $4 billion U.S. dollars in 2003 – with Iran exporting crude worth $2.5 billion to China.

"As China’s booming economy has turned the country into one of the biggest oil consumers in the world, Iran – as OPEC’s second largest crude oil supplier [after Saudi Arabia] – can only be a natural partner for China," Zanganeh told China Business Weekly.

Iran has an estimated 26.6 trillion-cubic-meter gas reservoir, the second largest in the world.

One of China’s four major state oil companies, the Sinopec Group, is being invited to prepare a master plan for the development of the giant Yadavaran gas field. This means a comprehensive development, including exploration and drilling, petrochemical and gas industries, pipelines, and other services.

In return, Sinopec Group will buy 250 million tons of Iranian liquefied natural gas (LNG) over 25 years. The deal, outlined in an Oct. 28 memorandum of understanding between the two sides, is the largest Iran has signed since 1996.

The Yadavaran deal could well be worth between $70 to $100 billion and could help propel Sinopec into the ranks of the major oil players.

In the long-term, Beijing also hopes to secure a pipeline project in Iran taking oil 386 km (240 mi.) to the Caspian Sea, where it could link with another planned pipeline from Kazakhstan to China.

For its part, Tehran is turning to China to build motorways and underground railway lines in the Iranian capital. After completing the first stage of the Tehran Metro, China North Industries Corp. (NORINCO) – Beijing’s military-run industrial and trade conglomerate – will build a second line in a contract worth $836 million.

NORINCO beat Germany’s Siemens and South Korean bidders for the 19-km (12-mi.) link and will be the top contender to build four other planned lines, including a 30-km (19-mi.) track to the airport.

Iran’s increasing appetite for consumer goods is bound to provide huge opportunities for Chinese companies eager to expand overseas.

For example, China’s homegrown automaker’s initial foray overseas took them to Iran, where Chery Automobile Co. Ltd. opened its first overseas production plant in the country in February 2003. Today, the plant manufactures 30,000 Chery cars annually.

China and Iran are currently cooperating on 100-odd different projects, according to diplomats.

The economic ties between two of Asia’s oldest civilizations will have broad political implications for the United States.

Beijing’s inroads into Iran’s energy sector will hamper U.S. efforts to keep Tehran under pressure through the economic embargo imposed in April 1995 under then-President Bill Clinton and the subsequent Iran-Libya Sanctions Act in August 1996, which sanctions companies that invest $40 million or more annually in oil and gas projects in Iran or Libya.

U.S. officials are also concerned that some Chinese firms may be supplying missile technology and dual-use chemical-weapons-related production equipment. In the past, Washington has applied sanctions against 13 foreign companies that have sold dual-use equipment or technology to Iran, including offshoots of NORINCO.