Iranian oil poses Asian
dilemma By Sreeram Chaulia
The European Union's announcement of a ban
on importing Iranian oil has unleashed an economic
war that is bound to draw in Asia's booming
economies in spite of their reluctance to take
sides and enter into the muddle.
The
six-day sojourn through oil and gas-rich Arab
countries in the past week by China's Prime
Minister Wen Jiabao was clearly organized in this
context of rising tensions over fresh Western
sanctions against Iran and its consequences for
energy security in Asia.
On Monday, EU
foreign ministers decided to close off Iran's
second-biggest market for crude oil, responsible
for a fifth of oil
exports over Iran's
nuclear program, suspected in some quarters - and
denied by Iran - of being designed to create
nuclear weapons. The EU and the United States
are pushing major importers of Iranian oil such as
China, Japan, South Korea, India and Turkey to
join the economic embargo. Although China has
rebuffed Western entreaties to reduce oil imports
from Iran, the choice of Saudi Arabia, the United
Arab Emirates and Qatar as the only destinations
in Wen's Middle East itinerary told a tale of
precautionary diplomacy.
These three Arab
states are pro-Western, Sunni Arab suppliers of
oil and gas to Asia's growth engines, and they are
assaying the roles of Western accomplices in the
economic war by presenting themselves as
substitutes to energy products that Iran has been
providing.
While China publicly plays down
talk of forsaking Iranian oil and replacing it
with Arab alternatives, Wen repeatedly raised the
prospect of drastically increasing energy imports
from the anti-Iranian Arab regimes he just
visited.
Chinese communiques during Wen's
Middle East tour cited "complicated regional
trends" and shaky energy horizons due to
"geopolitical factors", codes for the growing
chorus in the West to compel Iran on its suspected
nuclear weapons development.
Counter-threats from Tehran to shut down
the Strait of Hormuz, through which much of Asia's
oil imports flow, and the ever-present danger that
Israel might unilaterally attack Iran, have
creased brows in Beijing as they coincide with
China's slowing economic growth.
Yet,
China is confident that its size and economic
leverage over the US are such that ignoring
Washington on embargoing Iranian oil would not
incur real damage.
When one Chinese oil
firm, Zuhai Zhenrong, was recently placed on the
financial sanctions list for trading with Iran,
Beijing reacted furiously and conveyed "strong
dissatisfaction and adamant opposition". There is
no automatic trigger for closing American
financial markets to all foreign companies that
trade in Iranian oil, and this discretionary
element in the sanctions architecture gives China
and other Asian powers scope to wiggle out of the
proposed embargo.
Moreover, none of the
Asian states are certain that the embargo on Iran
will be long-lasting, given that anti-Iranian Arab
petro-kingdoms cannot fill in the supply gap
beyond more than one month. Barring a sudden fall
of the Iranian regime, the embargo's success
through universal participation would only mean a
huge spike in the price of crude oil and a big
setback to the industrial machines of Asia.
Economic recessions have frequently
followed "oil shocks" and the embargo on Iran
could usher one more cycle of downturns.
Despite their strategic closeness to the
US, countries like India, Japan, South Korea and
Turkey are equally wary of costly economic fallout
from sanctions and war in the Persian Gulf. New
Delhi has decided not to heed the West on
abandoning Iranian oil imports, and it is
proceeding to negotiate alternative payment
processing mechanisms to continue trading with
Tehran.
But since India is not in a
position to prevent a violent conflagration
involving Israel and Iran, it is being reported
that India's Petroleum Ministry has instructed its
public sector oil refining companies to "reduce
their dependence on crude imports from that
country [Iran]".
As with other Asian
importers of Iranian oil who are on tenterhooks
because of the cold war between Iran and the West,
India will eventually have to diversify away from
(though not totally renounce) a politically
unstable oil exporter like Iran and the supply
chain originating from the Middle East as a whole.
With international sea freight rates
declining steadily, India can think of entering
into long-term contracts to raise oil imports from
geographically more distant but predictable
countries such as Venezuela, Brazil and Angola.
Currently, India depends on the volatile Middle
East for 70% of its oil and gas imports, an
unhealthy addiction laden with grave international
political risks.
While seeking to
gradually free itself from Iranian and other Arab
energy producers, India and other Asian powers
must also factor in the larger structural
implications - for the Middle East as a region -
of deserting Iran at a time when the US and the EU
are aiming at Tehran's jugular.
If the
Iranian regime falls to a mix of economic woes and
US-Israeli sanctions or war, it could leave the
Middle East bereft of any counterbalancing force
to the West. Democracy in Iran through popular
internal mass mobilization is more preferable as
the new regime that emerges is unlikely to be a
stooge of the West.
It is in the interests
of Asian powers to avert a Middle East entirely
under the Western thumb simply because India and
its continental peers profess a desire for a
multipolar world where there is no single global
hegemon. It makes tactical sense to slowly
retrench from Iranian oil, but it would be a
strategic disaster for Asian powers to become
reliant on Western approval to access Middle
Eastern energy, which will remain important in
Asia's energy mix for at least some more years.
This geopolitical balance-of-power
imperative is often lost in Indian strategic
thought, which is prone to calculating more
narrowly about the benefits and losses from a
supply disruption in oil or inflation of barrel
rates for crude.
China and Russia have the
grand strategy of resisting Western hegemony in
the Middle East, and they try through various
developments, such as the imbroglio over democracy
in Syria, to deny the onset of West-friendly
regimes in that region.
Indian lenses are
less global and New Delhi does not see itself as a
counter-balancer to maintain multi-polarity on a
global scale. There is also an implicit consensus
in India that its only balance-of-power concern
lies vis-a-vis China and that being seen openly as
entering into a troika with Russia and China on
issues in the Middle East would hurt India's
chances to assert its claim to be even-steven with
China.
But the current standoff over
embargoing Iran, which supplies 11% of India's oil
needs, is so vital to New Delhi's national
interests that it begs for more proactive
diplomacy on the question of hegemony in the
Middle East.
Unlike China, which has a
first-mover advantage, India is also realizing the
value of Africa and Latin America as stable
sources of energy and trade rather late.
The economic war via Iran's oil embargo
should be a wakeup call to redouble Indian
diplomacy and foreign investment in these two
hitherto neglected continents, while not passively
turning one's back on the still pivotal Middle
East.
Playing it safe and seeking more
assured oil supplies is an evolutionary process
for Asian powers. The interregnum period, until
they tether their economies firmly to Africa and
Latin America, will require joint positioning for
maintaining a power balance in the Middle East.
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