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Analysis: Iran and China team up for gas

By DEREK SANDS, UPI Energy Correspondent   |   Jan. 22, 2007 at 1:55 PM   |   Comments

CAIRO, Jan. 22 (UPI) -- Amid ever-increasing U.S.-Iran tensions, a recent $3.6 billion gas deal between China and Iran not only reflects Beijing's need for energy and Tehran's need to develop its gas sector, but also a desire by both countries to shrug off American pressure.

The recent for the China National Petroleum Corp. to develop part of the Iranian offshore South Pars gas field is not the first between the two countries, but it comes at a time when the United States is becoming increasingly aggressive with Iran, and soon after Beijing publicly requested that Washington not interfere in its dealings with Tehran.

A $16 billion agreement in December for Chinese development of the 48 trillion cubic foot North Pars gas field immediately attracted U.S. criticism.

Iran has long been the target of U.S. economic pressure. American oil and gas companies have been barred, under U.S. law, from doing business with Iran because of Tehran's alleged support of terrorist groups. More recently the United States has criticized Iran for supporting insurgents in Iraq.

And the United States has led Western countries in trying to stop Iran from uranium enrichment activities that could lead to a nuclear bomb, an effort that in December resulted in the United Nations Security Council imposing limited sanctions on Iran.

While Iran holds more than 970 trillion cubic feet in proven reserves of natural gas, according to the Energy Information Administration, the data arm of the U.S. Department of Energy, it is in desperate need of investment, partially due to U.S. pressure.

"Iran has the second-largest gas reserves in the world, after Russia, but they are not developed currently, and there is a shortage of gas these days," according to Judith Kipper, director of the Energy Security Group at the Council on Foreign Relations.

"Russia's gas is committed, Qatar is not accepting any new contracts until 2009 so the market for gas is very tight," Kipper said.

Indeed, Iran cut off gas shipments to Turkey this winter because it needed available supplies for domestic use.

The recent gas deals with Beijing are not a new approach for Iran. It has been pursuing investment with China long before December's U.N. sanctions against Tehran, according to Farideh Farhi, a political science professor at the University of Hawaii Manoa, and an expert on Iranian policy.

"Given the longstanding U.S. sanctions against investments in the oil and gas sector by U.S. companies in Iran (as well as the less effective extra-territorial sanctions for non-U.S. companies), Iran has been trying very hard to diversify the sources of investment in the Iranian oil and gas industries for years, and China constitutes an important component of that strategy," Farhi said.

And China is as desperate for energy as Iran is to develop their resources.

"China's strategic plans to assure adequate energy supplies to maintain 10 percent growth, which they need for stability, is an economic necessity," Kipper said.

China has been aggressively pursuing new sources of energy in recent years, often doing business in countries that the United States seeks to isolate, such as Sudan and Iran. But larger issues may prevent Washington from pressing the Chinese government too hard over recent gas deals.

"The U.S. doesn't like it, but it is more of an annoyance than a major factor. The U.S. needs China for North Korea, and to stick with U.N. sanctions, so Washington is not likely to press China on economic deals," Kipper said.

China is widely seen as the key to convincing North Korea to abandon its nuclear ambitions, a problem Washington has been struggling with for more than a decade. China also holds a permanent seat, and veto power, on the U.N. Security Council.

Although Beijing may not be likely to overtly flex its power at the U.N., it could prove useful to Tehran in the delicate negotiations over its nuclear program. But while there could be political benefit for Iran to have a friend at the United Nations, analysts agree that the motivation for the deals is fundamentally economic.

"It is political in so far as any important or significant deal, particularly within the current context of enhanced economic squeeze of Iran by the United States, will be considered a political victory for Iran and to a lesser extent a statement by the Chinese about their ability to weather U.S. pressures (hence the Chinese warning about the US not meddling in Chinese affairs that came last week). But the roots of the deal for both countries are economic," Farhi said.

Kipper shares a similar view.

"Obviously China's appetite for energy and its willingness to invest are positive elements for Iran. The cultural and economic shift toward Asia will produce many such deals between China, and other countries, as well as India. At the same time, this is expedience, and China is not likely to isolate itself within the Security Council on strategic issues if Russia goes along," Kipper said.

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(Comments to energy@upi.com)

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