Iran’s Global Ambitions – Part II

Holding the third largest oil reserves in the world, Iran is an attractive trade partner, giving it an edge in the world economy. This YaleGlobal series examines Iran’s big power ambitions and its ability to divide the international community to achieve its goal. As Iran rejects demands to end high level enriching nuclear fuel, the UN Security Council in June approved a fourth round of sanctions aimed against the country’s dominant military. China and Russia, both expressing concern about US intervention, resist the toughest proposals for sanctions. “The big question is whether China at this stage will openly support Iran in alleviating the sanctions,” asks China analyst Willem van Kemenade, in the second of three articles. Observers anticipate that China will keep its energy companies at bay and display patience while assessing the global dynamics. China has found that caution breeds fewer enemies. – YaleGlobal

Iran’s Global Ambitions – Part II

China's caution in supporting UN sanctions is good news for Iran's nuclear aspirations
Willem van Kemenade
Wednesday, September 15, 2010

This way, please: Chinese official shows the way to Iranian President Mahmoud Ahmadinejad in Shanghai. China's cautious approach to UN sanctions helps Iran

BEIJING: After a diplomatic marathon of several months, China agreed on June 9 with fellow permanent members of the UN Security Council plus Germany to a new round of UN sanctions against Iran’s nuclear program. But that approval was on the condition that China’s extensive interests in Iran’s oil and gas sectors would remain untouched.

When US President Barack Obama signed a bill with new, more rigorous unilateral sanctions, China strongly criticized the move as excessive and stated: “China believes that the Security Council resolution should be fully, seriously and correctly enforced and cannot be willfully expanded.” China’s criticism echoed Russia’s and aimed not only at the US but also at the tougher measures that the European Union was preparing in Obama’s footsteps.

China worried that its companies and banks with exposure in Iran could be banned from doing business in the US and had to make preemptive moves, such as transferring Iran assets away from companies that wanted to keep options open for the US market. By early August, Washington warned China not to take advantage of the UN sanctions regime, by “backfilling,” or scooping up opportunities left by departing EU-companies that complied with Obama’s unilateral sanctions bill.

China and Russia have accumulated vast interests in the Iranian nuclear energy and other sectors after Iran’s largest trading partners, the US and Britain, rushed for the exit during the 1979 Islamic revolution. China became the main supplier of Iran’s nuclear program – and other sectors – after the ayatollahs resumed the shah’s ambitious nuclear program in 1985.

During a severe crisis in US-China relations over Taiwan, trade/MFN, human rights and the Iranian nuclear program in the mid 1990s, China yielded to US pressure and halted its nuclear cooperation with Iran in 1997, leaving the role of nuclear supplier to Russia. China had the choice: Enter into its own nuclear technology transfer relationship with the US or forfeit this in favor of Iran.

In 1995 the Russians had already agreed to complete a major nuclear power plant in Iran  started by German Kraftwerke Union under the Shah in 1974. After numerous delays, the civilian nuclear plant in Bushehr on the Persian Gulf was inaugurated on August 21, 2010, with Russia expected to supply the low-enriched uranium.

Still Washington demanded delay of the launch, because of evaporating pro-Western warmth from the Kremlin and opposition from Israel. The hard-line Jerusalem Post demagogically wrote “completion of the Bushehr project is another sign that the international sanctions are not working.”

Renewed Russian support for Iran is a reflection of the policy discrepancies between pro-Western President Dmitry Medvedev and hardline realist Prime Minister Vladimir Putin. The latter has concluded that losing Iran as a major nuclear customer and allowing the West to progressively weaken Iran would be detrimental to Russia’s own security, strengthen NATO in Central Asia and facilitate further US interventionism in the region. China expresses similar concerns, reflected in detailed accusations that the US National Endowment for Democracy is engaged in schemes to destabilize Tibet and Xinjiang.

Regardless of American resets and separate new EU and US sanctions, the Moscow Chamber of Commerce told Bloomberg News in late July that state-controlled Russian oil companies, including Gazprom and Rosneft were in talks with the Iranians about delivering gasoline during August and September.

Chinese editorials condemn US policy without specifics on retaliatory action Beijing might take, while gloating that the hard-line united front on sanctions is cracking: “The US is building its case against Iran by overstating the threat Iran poses to regional peace and stability,” one editorial wrote. “The US policy of antagonizing the existing government, labeling it as a member of the axis of evil, and threatening to use force against Iran, is dragging the entire region into dangerous uncertainty.” The editorial accused the US not only of casting the shadow of war on the world, but also of harming China’s interest: “China values a smooth Sino-US relationship, but it does not wish to sacrifice its developing relationship with Iran. China is against Iran acquiring nuclear weapons; meanwhile, China has to secure its strategic interests in Iran.”

Faced with combined Russian and Chinese, but also Turkish, Brazilian and even German opposition on the sanctions-front, President Obama continued taking bold moves to deescalate the tension. In a months-long internal debate with US Secretary of Defense Robert Gates, Obama has ruled out laying down any public red lines “at this point” for Iran’s uranium-enrichment and wants to set out a clear series of steps the US would accept as proof that the Tehran regime was not pursuing the bomb as it always vows. For now, Obama returns to his position during his first year in office: distinguish between Iran developing nuclear capability, but stopping short of making the bomb, as described by Gareth Porter in Asia Times. This is known as the so-called “Japanese Formula,” and while not final, it may unblock the road to compromise.

The big question is whether China at this stage will openly support Iran in alleviating the sanctions. Yin Gang, a senior research fellow at the Institute of West Asian and African Studies at the Chinese Academy of Social Sciences and regular commentator on Chinese television, says that China will be cautious in balancing its interests with Iran, the Arab countries and the US: “Iran wants gasoline from us and wants us to build seven refineries. These are not on the list of UN sanctions, but they are on the list of US and EU sanctions,” he says.  “It is not beneficial for China to do this now and not in the interest of international law either. The government hasn’t made a decision, but I don’t think we will do it.”

Yin says that China’s major state oil companies are jumping to take over the projects that Europeans will abandon, but that the government is reining them in. “These business people have no sense of the damage that indiscriminate expansion in Iran will do to China’s interests in the Arab world, particularly our relations with Saudi Arabia,” he laments. We need US-EU-China dialogue to coordinate Middle East policy to promote diplomatic and peaceful solutions.”

Iranian officials boast that China has invested $40 billion in the Iranian gas sector, but Yin says that it may reach that amount when including all letters of intent and intergovernmental agreements. In terms of final business contracts, he notes, the total is far less.

Similar to 1997, when China abandoned its large-scale support for the Iranian nuclear program, tensions in US-China relations have again grown under the Obama presidency: North Korea, Taiwan arms sales and, most recently, the South China Sea and Vietnam, where the US reasserts its strategic interests in disputing China’s territorial claims.

Yin Gang concludes: “Our main priority with the United States now is that it doesn’t move too close to Vietnam.” His veiled message may be that China must reassess its interests in Iran once again in view of global dynamics.


Willem van Kemenade is a China analyst, based in Beijing, and a senior fellow at the Clingendael Institute of International Relations in The Hague. His latest book is “Iran’s Relations with China and the West, Confrontation and Cooperation in Asia,” Clingendael, The Hague 2009.
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