Publication: China Brief Volume: 5 Issue: 12

Today, China accounts for 12 percent of the world’s energy consumption. That is second only to the U.S., at 24 percent, and up from 9 percent a decade ago. China’s entire modernization strategy is based on access to abundant supplies of energy, and this also remains its weakness. Once oil-independent, China has over the last decade become increasingly reliant on imports, which now account for 60 percent of its oil consumption, compared with only 6 percent in 1993. According to the February 5, 2004 of Beijing Review, within the next few years China’s oil imports are expected to continue rising and will account for 61 percent of the country’s estimated demand by 2010 and 77 percent by 2020.

Chinese petro-diplomacy already extends worldwide, including Africa, and it is actively establishing surveillance stations, naval facilities and airstrips to safeguard the oil route from the Gulf to the South China Sea. But Beijing’s main goal in escaping dependence on maritime oil supplies is access to Iranian and Central Asian, as well as Russian oil. Central Asia is rich in oil and natural gas reserves. According to estimates, 200 billion barrels of crude oil, i.e. one fourth of the world’s total, are present in countries lying on the coasts of the Caspian Sea. Similarly, natural gas is also present in vast quantities in these countries. There are also huge oil and gas reserves in Iran.

China’s Growing Interest in Iran

In early July 2004, Iranian Minister of Petroleum Bijan Namdar Zanganeh announced that several large oilfields had been discovered in southwest Iran, raising the country’s oil reserves by 17 billion barrels to 132 billion barrels, the second largest in the world, accounting for 11.4 percent of the world’s total. Zanganeh predicted that Iran’s daily oil production, now 4.2 million barrels, would exceed 7 million barrels in several years. Experts point out that the world currently consumes about 77 million barrels of crude oil every day. This figure is likely to hit 90 million barrels by the end of 2010. The huge energy reserves in Iran mean that the country will have a bigger say on the world stage as global energy demand increases. It is likely that China, a huge energy consumer, has great interest in what happens to these vast energy resources.

China and Iran enjoy exemplary friendly ties (diplomatic relations established in 1971), which have not only sustained changes of governments and the ups and downs in the regional and global situation, but, in fact, have been expanding and becoming even deeper. In 2000, both governments reached a common understanding on enhancing bilateral cooperation by signing a joint communiqué on the basis of mutual respect for sovereignty and territorial integrity, equality and mutual benefit, and peaceful coexistence.

In March 2002, Wu Yi, a member of China’s State Council, visited Iran to meet with President Mohammad Khatami. The aim of the visit was to improve trade and economic ties. In August 2003, Iran’s Foreign Minister Kamal Kharrazi went to Beijing for further economic talks with Wu. In terms of economic relations, China has become one of Iran’s most important trade partners. Bilateral trade has increased rapidly in recent years, with trade volume reaching some $3.3 billion last year, several times higher than some ten years ago. Chinese firms are active in Iran in the field of electricity, dam building, cement plants, steel mills, railways, shipbuilding, transport, oil, gas and refineries. Chinese auto manufacturer Chery Automobile Co. Ltd. opened its first overseas production plant in Iran in February 2003. China is also cooperating with Iran to develop ports, jetties, airport and infrastructure, including motorways and metros in six Iranian cities.

The troubling aspect of China’s growing relationship with Iran is access to improved ballistic missile technology (which is developed, deployed and utilized by the PLA) and China’s support for Iran’s nuclear energy programs. Iran has a long history of acquiring nuclear weapons technology. In light of the fact that the founder of Pakistan’s nuclear program, Abdul Qadeer Khan, is said to have provided Tehran not only with equipment for enriching uranium, but also with actual designs for the bomb, Iran’s claim to be pursuing a civilian nuclear program looks thin.

It is clear that without the transfer of nuclear technology from China and Russia (Russia’s contribution to the Bushehr reactor is significant) Iran could not have achieved the pace of progress that it has in developing nuclear weapons. Iran, as a signatory to the Nuclear Non-Proliferation Treaty and the treaty’s Additional Protocol, which calls for intrusive safeguards, claims that it has the legal right to engage in peaceful nuclear research and development, subject to inspections of the International Atomic Energy Agency (IAEA). Iran has consistently insisted that its nuclear programs are solely for peaceful purposes and that is has no existing program to develop nuclear weapons, nor has it the intention of developing one.

Many analysts, however, do not subscribe to Iran’s claim to be pursuing a civilian nuclear program. Iran possesses among the largest proven oil and gas reserves in the world, more than enough to fuel its domestic needs. Why would it opt for nuclear energy, which is far more complicated to develop and far more expensive to produce?

China’s Relations with Iran Counterbalance Moves by the West

The European Union, which has strong economic ties with Iran, is trying to engage and negotiate with Iran to stop it from developing nuclear weapons, and is advocating the necessity of a sustained dialogue to defuse the crisis. Like EU countries, China called for a peaceful resolution, rather than a military one, to resolve the Iran nuclear issue. On September 18, 2004, Zhang Yan, China’s Ambassador to the UN, was quoted in Beijing Review on October 21, 2004 saying that “The Iran nuclear issue should and is completely able of being resolved within the IAEA’s framework through dialogue, and China is opposed to referring the issue to the UN Security Council.”

In the face of U.S. pressure, Iran now feels that it would try its best to avoid diplomatic isolation along with safeguarding its economic interests. Perhaps this explains why Iran has brought its nuclear enrichment program to a halt, and why Tehran has likewise warmed to Beijing. On November 15, 2004, Tehran signed an important nuclear agreement with the EU, pledging to temporarily stop all of its uranium enrichment, conversion, and reprocessing activities. In return, the Europeans have agreed to address Iran’s security concerns and expand commercial exchanges. The IAEA has endorsed the agreement. Liu Jieyi, Director General of the Department of Arms Control and Disarmament of China’s Ministry of Foreign Affairs, commented in the December 30, 2004 issue of Beijing Review that “China welcomes the agreement reached between Iran and three EU countries. China will, together with other members of the international community, continue to play a constructive role in facilitating a proper resolution of the issue within the framework of the IAEA at an early date.”

Beijing Looks to Tehran for the Future

In the meantime, Khatami’s administration is taking steps that would restrict the West’s leverage in the long run. Focusing on oil, Iran is consciously looking eastwards, with a clear intent of reinforcing its linkages with China and India. In developing new strategic partnerships, Iran is offering China and India lucrative investment opportunities in its oil sectors. Iran has formalized a deal with China, which conservative estimates say would amount to upwards of $70-100 billion. It includes a Chinese commitment to purchase 250 million tonnes of Iranian liquefied natural gas over 30 years, develop the giant Yadavaran oilfield in southwest Iran (near the Iraqi border), and import 150,000 barrels a day of crude from the field at market prices.

In the long term, China also hopes to participate in an Iranian pipeline project (the so-called “Nekka project”). This pipeline would link Tehran to the Caspian Sea. From there, a line with another planned pipeline from Kazakhstan to China is envisaged. China’s deal with Kazakhstan is remarkable. Under this deal, China will acquire the right to develop two oilfields (Aktuibinsk and Uzan) in exchange for its commitment to build a 3,000-kilometer pipeline from the oilfields to China’s Xinjiang province, and a 250-kilometer pipeline to the border of Iran (via Turkmenistan). The construction of these pipelines is in progress. When completed, the pipeline is expected to transport a huge quantity of oil from Kazakhstan to China. It would leave China in the least vulnerable position with respect to oil transportation risks.

According to Shahram Akbarzadeh, who is an Iranian expatriate and now senior lecturer at Monash University in Melbourne, all of these developments indicate that Iran’s ultimate strategic goal is “to become a major economic power and hub for the transit of goods and services between the Persian Gulf and Afghanistan, and possibly even China.” If this is indeed the case, the Beijing-Tehran friendship is only beginning to bloom.

Sharif Shuja is Research Associate with Global Terrorism Research Unit at Monash University, Melbourne.