China's energy insecurity and
Iran's crisis By Kaveh L
Afrasiabi
British Prime Minister Tony
Blair has gone on record stating that the fear of
soaring energy prices should not deter the
international community from imposing
comprehensive sanctions on Iran over its nuclear
program.
That is easier said than done,
especially when looking at the dire economic and
non-economic consequences of the current Iranian
crisis for China, Iran's energy partner.
In fact, the China-Iran connection
transcends energy and covers a whole spectrum of
economic activities - dam-building, steel mills,
ship-building, transport and
dozens of other projects. At present, more than
100 Chinese firms are involved in Iran, also
cooperating to develop ports, jetties, airports in
six cities, mine-development projects and, of
course, oil and gas. Trade between the two
countries in 2005 hit a new record of US$9.5
billion, compared with $7.5 billion in 2004.
The world's media are nowadays awash with
news of China's energy dependency on Iran weighing
heavy on its policy considerations in light of the
possible showdown at the United Nations Security
Council next month over Iran's nuclear program and
suspicions that it might want to develop a nuclear
weapon - something Tehran vigorously denies.
China currently gets 13.6% of its oil
imports from Iran. Beijing is also in the process
of importing Iranian natural gas. China's plan is
to become a comprehensive participant in
exploration, drilling, petrochemicals, pipelines
and other upstream and downstream services related
to Iran's oil and gas industries (see China rocks the geopolitical
boat, November 6, 2004).
As the
Organization of Petroleum Exporting Countries'
second-largest oil supplier, with a unique
location straddling two main energy hubs, the
Caspian Sea and the Persian Gulf, invoking the
notion of an "energy Silk Road" to China, Iran is
a natural partner for China and its booming
economy's increasing appetite for foreign oil.
China's total energy consumption in 2004 was about
2.3 times that in 1980.
China's plans with
Iran are both short-term and long-term; the latter
includes a plan to secure a 386-kilometer pipeline
connecting Iranian oil with another pipeline from
Kazakhstan to China.
China's demand for a
stable Iranian - and Persian Gulf - supply of oil
and gas is critical for its rapidly growing
economy. As the world's second-largest oil
consumer in the world after the United States,
China has been a net oil importer since 2003; its
dependence on foreign oil reached 40% in 2004.
According to the Energy Information Agency, China
alone accounted for one-third of global oil-demand
growth during the period 2001-04. Still, its total
oil imports accounted only for 6.6% of the total
global oil trade in 2004.
According to
experts, China's growing hunger for oil has been
driven mainly by three factors: the increasing
demand for personal mobility and good transport; a
growing chemical industry that relies on petroleum
products as feedstock; and using diesel-fired
power generators as short-term solutions to
provide needed electricity on-site when there is a
national or regional electricity shortage.
In the United States, there is
considerable concern over a future US-China
collision over energy. Last December, Joseph
Lieberman, a high-ranking Democratic senator,
raised the specter of military conflict between
the two countries by stating: "We are heading
towards two-thirds [reliance of] each country on
... foreign oil. Let's recognize this problem
before it becomes an intense competition which can
actually lead to military conflict."
Last
year, because of strong objections by the US
Congress, China's $18 billion bid for a share of
the US energy pie, that is, its quest to procure
Unocal, the ninth-largest US oil company, was
frustrated. That episode has brought into sharp
focus the potential zero-sum energy game between
the US and China.
What worries China in
this game is its heavy reliance on foreign
intermediaries to transport most of its oil from
the Middle East (where China obtained 45% of its
imported oil in 2004) and Africa (which
contributed to 29% of China's oil imports) to its
ports, and its lack of navy capacity to protect
oil cargoes on the high sea and patrol the Malacca
Strait, through which four-fifths of its oil
imports pass.
To compensate for its
sources of energy security, China has engaged in a
spirited energy diversification,
production-sharing and other creative oil
contracts around the world, as well as beefing up
its military power projections by, among other
things, developing Gwadar Port in Pakistan's
Balochistan province at the mouth of the Persian
Gulf, some 400km from the Strait of Hormuz, at the
estimated cost of $1.16 billion.
Moreover,
recently China consented to Iran's accession to
the Shanghai Cooperation Organization as an
observer, thus adding to the geostrategic
dimension of its energy-led cooperation with Iran.
Simultaneously, China's cooperation with other
Persian Gulf countries - Kuwait, Qatar, the United
Arab Emirates and Saudi Arabia - has increased
dramatically recently. According to one China
watcher penning in a recent issue of the
Washington Quarterly, increased China-Saudi
cooperation could translate into a weakening of
the oil kingdom's US dependency.
Conspicuously absent in the various
commentaries on China and the Middle East is any
serious consideration of what is actually loudly
talked about in Tehran these days, that is,
China's potential to contribute to regional
security arrangements.
Implications of
the nuclear crisis for China Given China's
veto power in the Security Council, it has a major
determining role in influencing the shape and
outcome of the international "proto-crisis" over
Iran's nuclear program.
China's decision
to vote against Iran at the UN's International
Atomic Energy Agency (IAEA) meeting this month -
resulting in Iran's referral to the Security
Council - did not come as a big surprise to
Tehran, since for more than two years top Chinese
officials have been visiting Iran and in no
unmistakable tone conveying the message that China
would not sacrifice its huge trade interests with
the West, the US in particular, over Iran.
Branding itself as a "force for peace",
China has been working overtime to prevent the
situation from deteriorating to the point of UN
sanctions threatening the wellspring of its
imported energy.
In the light of Iran's
rejection of the IAEA move and threats of punitive
UN measures against it, China must calculate the
various unhappy scenarios involving serious
disruption in the Iranian oil supply, not to
mention the lesser threat of a more comprehensive
disruption in oil flows from the Persian Gulf as a
whole in a military scenario. It must factor those
risks into its present options of how to behave at
the Security Council when the matter arises next
month, after the IAEA has presented its latest
report on Iran to the UN.
Even a
medium-intensity crisis recycling the present
danger of escalation is harmful to China's
economic interests and investments in Iran and the
Persian Gulf, as it translates into higher energy
prices and costlier premiums on insurance for oil
and gas shipments to China. Fearing diplomatic
isolation and a backlash should it exercise its
veto in the face of a seemingly global consensus
on the threats of Iranian nuclear proliferation,
China might be willing to abstain at the Security
Council, but likely as a result of a substantive
quid pro quo with the US and Europe.
In turn, this raises the important
question of what the US and Europe can put on the
table that would possibly appease China. Certainly
not much on the energy front, at least not
directly. Indirectly, however, the US could push
for Chinese participation in Iraqi oil or,
similarly, a more meaningful China-Saudi
cooperation. Yet it is doubtful that China would
be content with such initiatives in the light of
continuing instability in Iraq impeding its oil
industry and the United States' own weariness of
undue Chinese closeness to Saudi Arabia.
Hence the US might turn to alternative
trade incentives, perhaps even an India-style
promise of civil nuclear cooperation, since China
is keen on a major push with several new nuclear
reactors. But the nub of the problem is that with
every move or initiative there are certain
flip-sides that may, in fact, trump the original
purpose - for example, how the India-US nuclear
agreement has been sold in the US Congress as a
sop toward deterring China. A similar deal with
China for the sake of garnering its vote against
Iran only complicates the United States' Asian and
subcontinent strategy.
Nor should we be
oblivious to the negative ramification on
US-Russia relations, given that the old power
competition between Moscow and Beijing has not
altogether disappeared, irrespective of their
recent joint military exercises and other
contacts.
Clearly, the US can sweeten the
pot with several related concessions, such as
selling state-of-the-art coal-gasification
material to China, leaning on Europe to ease some
of its restrictions on China trade. But again, the
million-dollar question is whether or not the sum
of such incentives suffices to bring China on
board for sanctions on Iran.
Perhaps not,
which is why US policy has quickly veered in the
military direction, as a timely prop in its
current bargaining with China and Russia over
Iran, the assumption being that these two Iran
allies will go for sanctions as a lesser evil
compared to outright military confrontation.
To their credit, both Moscow and Beijing
have recognized the perils to their interests by
the United States' scripted strategy against Iran,
simultaneously warning the US not to threaten
Iran. After all, Iran is not the poor, and
strategically unimportant, former Yugoslavia, and
the stakes are too high to let the US impose its
will unilaterally.
Nonetheless, the United
States' drive to deprive Iran of nuclear-weapons
potential is not easily reversible and,
henceforth, China's policymakers must include in
their calculations the worst-case scenario
imperiling their energy ties to Iran (at least for
a while).
Since China has scanty strategic
oil reserves of about 30 days, the "nightmare
scenario" itself is a powerful motivating force
for China to play crisis-prevention, and yet,
since it has limited influence on Iran and the
other players in this dangerous crisis, it must
also consider the option of sacrificing some of
its shared interests with the US for the sake of
safeguarding its cherished energy stakes in the
Middle East.
The latter form important
facets of China's long-term ambitions as a global
superpower. The real danger of deflating those
ambitions by a deft US policy that would deny
China one of its most important regional allies is
unmistakable.
Kaveh L Afrasiabi,
PhD, is the author of After Khomeini: New
Directions in Iran's Foreign Policy (Westview
Press) and co-author of "Negotiating Iran's
Nuclear Populism", The Brown Journal of World
Affairs, Volume XII, Issue 2, Summer 2005, with
Mustafa Kibaroglu.
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