Global Policy Forum

By Antoine Blua

China's economy is booming, witnessed by its skyrocketing energy needs. Oil imports have doubled over the past five years and surged nearly 40 percent during the first eight months of 2004 alone. In an effort to secure future energy reserves, state oil trader Zhuhai Zhenrong agreed earlier this year to buy $20 billion of liquefied natural gas (LNG) from Iran over the next 25 years. More recently, Beijing signed a much bigger accord with Tehran under which China will buy Iranian oil and gas and help develop the country's giant Yadavaran oil field.

Jean-Philippe Beja, a specialist on contemporary Chinese policy at the Center for International Studies and Research (CERI) in Paris, says the new agreements will help China meet its soaring demand for fuel: "China, which is experiencing extremely fast [economic] growth, increasingly needs energy. So, it needs to import more and more oil and gas for at least half its consumption. It currently imports massively from the Middle East. In order to ease its dependence on relatively pro-American governments, China is seeking to sign agreements with Iran."

Reports differ on the scale of the energy deal signed during a visit to Beijing in October by Iranian Oil Minister Bijan Namdar Zangeneh. According to China's Xinhua news agency, the two countries signed a memorandum of understanding committing China's large oil firm Sinopec to buy 250 million tons of LNG from Iran over the next 30 years. Tehran would also export 150,000 barrels of crude oil per day to China after Sinopec helps to develop Iran's Yadavaran oil field. Xinhua valued the deal at $70 billion. The Iranian news service IRNA said the memorandum provides for LNG sales of 10 million tons a year for 25 years. IRNA also reported that a second accord was signed, envisaging the construction of a gas condensates refinery in the southern Iranian city of Bandar Abbas within the next three years.

Ben Faulks is a Middle East analyst at the Economist Intelligence Unit in London. He points out the agreements come at a time when Tehran "badly needs" foreign investment:"The pace of Western investment in the Iranian oil industries has been pretty slow recently, for two main reasons. There are concerns over contractual arrangements that Iran imposes on any kind of agreement. And secondly, for political reasons. Iran badly needs foreign investment in its oil industry. And therefore, there's a practical reason for it to turn to Asian consumers. China is one of them and, in fact, the most significant." No timeframe has been set for finalizing the investments. LNG deliveries will not begin for at least five years, while the Yadavaran oil field will take at least four years to develop.

Hooman Peimani is a senior research fellow at the Centre for International Cooperation and Security at the University of Bradford in Britain. He says that, beyond the economic aspects, the arrangements have political significance: "Iran and China are getting closer and they do not see each other as potential enemies. The message is clear. China is not going to follow the American foreign policy all the way." Following the signing of the deal, China backed Iran in its standoff with the International Atomic Energy Agency (IAEA) over its suspected nuclear program. Beijing said it opposes U.S. efforts to have the Islamic Republic referred to the UN Security Council for possible sanctions. China -- as one of the five permanent members -- holds a veto on the Security Council.

However, Beja notes that the Chinese leadership is facing the enormous task of developing the country to Western levels. Until this objective is reached -- perhaps in one or two decades -- he says Beijing will continue to see the United States as the world's only superpower, with which it is preferable to avoid conflicts and provocations. "Once in awhile, China can provide some support to Iran at the United Nations Security Council. But it is definitively not ready to put into question its relations with the United States to defend Iran," Beja says. "So it will not go as far as opposing the United States if [Washington] is really eager to take a decision on Iran."

Washington accuses Tehran of secretly trying to develop nuclear weapons under cover of a civilian atomic energy program. The Bush administration wants the IAEA to refer Tehran to the Security Council when the UN's nuclear watchdog meets on 25 November. Iran denies the allegations.