As the curtains drew on the Shanghai Cooperation Organisation (SCO) Summit in Beijing in October 2009, Chinese Premier Wen Jiabao re-iterated his country’s desire to maintain high-level exchanges with Iran and enhance bilateral cooperation. Speaking on the sidelines of the SCO Summit following a meeting with visiting Iranian Vice President Reza Rahimi, Wen said, “Sino-Iran relationship has witnessed rapid development, as the two countries’ leaders have had frequent exchanges, and cooperation in trade and energy has widened and deepened.” Iran holds an ‘observer status’ in the SCO.
In what could be viewed as a significant pointer towards events in the coming future, Wen Jiabao’s statement came just two days after the US Congress voted in favour of new sanctions against the Iranian regime. Any anticipation regarding Beijing’s support towards efforts by the US and its allies to slap punitive sanctions on Iran over its nuclear programme might end up in disappointment as energy is becoming the focal point of China’s relations with the Islamic Republic of Iran. Providing 14 per cent of China’s demand for oil, Tehran is Beijing’s largest supplier and source of a staggering $7 billion worth of oil in 2009.
The ‘energy equation’ between Beijing and Tehran is believed to be the primary driver behind warming bilateral ties and the consequent Chinese stance on Iran’s nuclear programme. China is the world’s second largest oil consumer, whilst Iran holds the second largest crude-oil reserves globally. Notwithstanding that Iran possesses the world’s second largest proven oil reserves, it imports as much as 40 per cent of its gasoline, since it is deficient in domestic refining capacity. Tehran desires investment and technology to develop these reserves so as to make them globally competitive, for which, Beijing’s assistance could prove instrumental.
Earlier in September 2009, China National Petroleum Corp (CNPC) signed a contract with National Iranian Oil Company (NIOC) for the development of Iran’s South Azadegan oilfield. The Chinese company is expected to buy a 70 per cent share of the whole project, slated to produce 260,000 barrels of crude oil per day with development cost totalling $2.5 billion. Significantly, this field that runs along the Iraqi border, holds reserves estimated at approximately 42 billion barrels of oil—labelled as the world’s largest find in the past three decades. It should also be recalled that back in 2008, the CNPC signed a $1.76 billion deal with the NIOC to tap Iran’s North Azadegan oil field, which according to estimates will produce 75,000 barrels of oil a day by 2012.
The deals are embedded in buy-back terms, during which the CNPC will hand over the operation of the field to NIOC after its development stands complete and shall obtain payments from the oil production for a few years to cover its investment. If the US and its allies have sanctioned Iran over its nuclear programme on the one hand, China’s investment in Iran’s energy sector has notably increased on the other hand. Despite the sanctions already in place, two-way trade between China and Iran grew 35 per cent in 2008, to $ 27 billion. In addition, more than 100 Chinese state firms operate in Iran, principally serving infrastructure projects.
In March 2009, the two nations signed a $3.2 billion, three-year pact to develop the South Pars gas field beneath the Persian Gulf—an underwater cavity that might just be the world’s largest source of natural gas. According to an arrangement arrived upon in 2004, China agreed to buy oil and gas from Iran and further to develop Iran’s Yadavaran oil field. This was the starter to the present bilateral energy ties. Beijing’s Sinopec Corp is committed to develop the colossal Yadavaran oil field—a deal valued at $70 billion. The Yadavaran oil field is expected to produce 300,000 barrels of oil a day at full capacity. Additionally, according to China’s official Xinhua news agency, the two countries signed a Memorandum of Understanding committing Sinopec to buy 250 million tonnes of liquefied natural gas from Iran over 30 years.
In total, China has signed an estimated $120 billion worth of oil deals with Iran in the last five years to meet the requirements of its rapid growth pathway. As energy and trade links between Beijing and Tehran constitute the core of the relationship, wider geopolitical elements especially the incessantly contentious issue of Iran’s nuclear pursuit will always play the role of a crucial tester in the future. Tehran appears to be endeavoring to trade access to its abundant oil and natural gas reserves for shoring up diplomatic support vis-à-vis its uranium enrichment programme. China, with its ever-increasing craving for energy is willingly susceptible to these Iranian enticements—thus posing the all important question: whether Beijing will use its veto power as a permanent member of the UN Security Council to safeguard Iran from more sanctions or an invasion as a barter for more oil?
Iran in all likelihood will be an important issue to be taken up for discussion when President Barack Obama visits China in November 2009. Beijing appears to have been caught in a peculiar quandary—where it seeks to secure global energy partners to fulfill its ever-growing demand for energy, however at the same time requiring to balance the complicated relationship it shares with Washington, all along envisioning a more prominent role on the international stage.
(Disclaimer: The views expressed in this article are those of the author and do not represent the views either of the Editorial Committee or the Centre for Land Warfare Studies).