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News :: International
Oil demand draws China into Middle East politics
26 Nov 2007
Iran also gives China a new foothold in the energy-rich Gulf. China is cementing its influence through arms sales and trade, seeking to push itself ahead of Russia on both fronts. China could overtake Germany as the top exporter of goods to Iran as early as this year. Two-way trade between China and Iran was worth about $US16 billion in 2006. Most of it is in Iranian crude oil sales to China. Iran provided nearly 12 per cent of Chinese oil imports last year, a fraction more than Russia. They were the third and fourth-largest suppliers, respectively, after Angola and Saudi Arabia, each with about 17 per cent. China has also signed outline agreements with Iran to develop oil and gas fields into major export projects.
Monday, 12 November 2007
Michael Richardson

China and Russia are wary of backing US-led moves to tighten international sanctions on Iran. Although they, too, suspect that Iran is seeking nuclear weapons, they say that applying extra penalties now will simply harden Iran's refusal to negotiate. Their position against tougher United Nations sanctions could change later this month if the UN nuclear watchdog makes an adverse report on its talks with Iran.

But China, a big oil and gas importer, and Russia, a major energy exporter, appear to have their own divergent interests over Iran's nuclear program.

The tensions this program is generating with the United States have fanned concerns about military conflict in the Persian Gulf. This has helped drive oil prices to near record levels.

China should be worried. To fuel its turbocharged economic growth, China now imports about half the oil it consumes and nearly 50 per cent of this is from the Middle East.

Oil imports cost China more than $US60billion in 2006. After the strong price surge this year, the bill will be much higher in 2007. Instability in the Gulf threatens China's energy security.

Meanwhile, Russia profits mightily from ever-higher oil and gas prices. It is using petrodollar income to rebuild its economic and military strength and extend its influence in Asia. The increasing amounts of oil and gas that China wants to buy from Russia to ease dependence on the volatile Middle East will be based on global market prices.

Despite Russia's interest in keeping energy prices high and China's interest in seeing them fall, it is Russia rather than China that has been more active in restraining Iran's nuclear ambitions. Both countries have joined the other three permanent members of the United Nations Security Council the US, France and Britain in passing two resolutions since December calling on Iran to suspend uranium enrichment and other sensitive nuclear activities. China and Russia insist that no further international sanctions should be imposed at least until the UN watchdog, the International Atomic Energy Agency, reports later this month on whether it has been able to resolve outstanding questions about Iran's past nuclear behaviour.

In a recent meeting with Iranian leaders, Russian President Vladimir Putin reportedly proposed a "time-out" on further sanctions against Iran if it suspended uranium enrichment operations, which could be used to make fuel for nuclear reactors to generate electricity or fissile material for nuclear weapons. Iran insists its intent is peaceful. But Mr Putin refused to set a time for finishing Iran's first nuclear nuclear power reactor, which Russia is building. The delay is seen as leverage on Iran. Russia has also offered Iran access to a nuclear bank it has established in Russia to supply reactor fuel and other services to countries that agree not to enrich uranium.

Putin told a European Jewish Congress in Moscow not long ago that Russia and Israel were the two countries most threatened by a nuclear Iran. China, much further away from Iranian ballistic missiles, evidently sees Iran in a significantly different light. Iran in its confrontation with the US over the nuclear issue, Iraq and Afghanistan is weakening America and pinning it down in the Middle East. This gives China a freer hand to expand its influence in Asia and the Pacific.

Iran also gives China a new foothold in the energy-rich Gulf. China is cementing its influence through arms sales and trade, seeking to push itself ahead of Russia on both fronts. China could overtake Germany as the top exporter of goods to Iran as early as this year. Two-way trade between China and Iran was worth about $US16 billion in 2006. Most of it is in Iranian crude oil sales to China. Iran provided nearly 12 per cent of Chinese oil imports last year, a fraction more than Russia. They were the third and fourth-largest suppliers, respectively, after Angola and Saudi Arabia, each with about 17 per cent. China has also signed outline agreements with Iran to develop oil and gas fields into major export projects.

China may also see Iran as the best way into neighbouring Iraq after the US leaves. Iraq has the world's third-largest proven conventional oil reserves, after Saudi Arabia and Iran. In June, the Iraqi Government revived a contract signed by the Saddam Hussein administration allowing China's largest state-owned oil company to develop an oil field in Iraq. Last month, Iraq agreed to award $US1.1 billion ($A1.2 billion) in contracts to Iranian and Chinese firms to build several power plants to generate electricity in Iraq.

Chinese activity has not gone unnoticed in the US. Officials there accuse China of placing its economic interests ahead of the need to resolve a nuclear dispute that could rock the Middle East.

China's ties with the Shi'ite theocracy in Iran are also being watched closely by Saudi Arabia and other Sunni Arab regimes on the western side of the Gulf. They are worried about Iranian expansionism and possible nuclear blackmail.

China draws nearly half its oil imports from the Middle East. While Iran accounts for nearly 12 per cent, the rest comes from Arab producers in and close to the Gulf. As concerns rise over Iranian nuclear ambitions, China will need to draw on all its diplomatic skills to maintain this balancing act in energy supply.

Michael Richardson, a former Asia editor of the International Herald Tribune, is a security specialist at the Institute of South-East Asian Studies in Singapore.

http://canberra.yourguide.com.au/news/local/opinion/oil-demand-draws-chi

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