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China, Iran Poised to Proceed on Oil Deal Despite Nuclear Impasse


China and Iran appear ready to go ahead with a multi-billion dollar deal to develop the Yadavaran oil field in western Iran, despite an impasse between Iran and other nations over Tehran's nuclear intentions. Analysts say the deal would test China's role as a responsible stakeholder in the region and the world.

When China voted this month, albeit reluctantly, to refer Iran's nuclear programs to the U.N. Security Council, some analysts saw it as a sign that Beijing might be setting its own short-term interests aside for the sake of regional and world stability.

Some analysts' perceptions changed later when reports quoted Chinese officials as saying a delegation of top economic policy makers is heading to Iran - probably in March.

Sources familiar with the deal say Chinese and Iranian officials will negotiate prices and details of a deal to develop Iran's Yadavaran oil field.

Manucheher Takin of the Center for Global Energy Studies in London, says the Chinese view the nuclear dispute as a passing disturbance and they are staying focused on meeting the energy demands of its rapidly expanding economy. Takin says Iran sees China as an easy customer.

"Both Iran and China look at this from a purely business point of view," said Takin. "Iran would like to export its oil and gas, is looking for customers, would like to have a good deal on its agreements. Because the Chinese are looking more for the long-term supply, securing supplies of energy for themselves, they are more flexible in their terms."

The deal has been under consideration for years, and negotiations expected to take place next month would follow up on a memorandum of understanding that Iran and China signed in 2004.

Under the arrangement, reports say the state-owned China Petrochemical Corporation will - with the help of an Iranian company - develop western Iran's Yadavaran oil field. In return, China agrees to buy 10 million tons of liquefied natural gas each year for 25 years.

Since China and Iran signed the original memorandum, Tehran has been locked in a dispute with the International Atomic Energy Agency and several countries over its nuclear programs. The United States and many European nations fear that Iran is developing nuclear weapons, in violation of its IAEA commitments. Iran denies the charge.

Earlier this month, the IAEA board of governors voted to ask the agency to report on Iran to the United Nations Security Council. That move could lead to the council voting to impose sanctions on Iran.

The United States has called on Beijing to assume its role as a "responsible stakeholder" in international issues such as Iran's nuclear programs. Observers say the energy deal with Iran highlights the difficult decisions China must make in its new role as an emerging major player in the international system.

Some analysts say China ought to subordinate its narrow national interests for the sake of stability and well being of the region and the world.

"This is an international community issue where it's important for China to step up to the plate and demonstrate its interest in stability in the region, by looking very carefully at investments of this kind that might strengthen the Iranian regime and give Iran an option to evade the Security Council and IAEA's efforts to prevent them from going nuclear," said Jeffrey Bader, who directs the China Initiative at the Brookings Institution, a research group in Washington.

Bader and other analysts say Beijing should build on existing relationships with reliable oil partners such as Saudi Arabia rather than go for less stable suppliers such as Iran.

China has urged Iran to suspend all uranium enrichment but has opposed having other countries take strong action against it. Beijing reluctantly cast its vote at the IAEA in favor of referring the matter to the U.N. Security Council - on the condition that any action, including possible sanctions, be deferred.

China is eager to avoid a confrontation with the United States and its allies. At the same time, it wants Iran to avoid sanctions that could threaten its energy sources. Iran accounts for about 14 percent of China's oil imports.

China's efforts to defuse the crisis and avoid sanctions have intensified, with Beijing sending Vice Foreign Minister Li Quozheng on a three-day visit to Tehran for discussions this week. Foreign Ministry spokesman Liu Jianchao on Thursday said his meetings will focus on resolving the nuclear issue peacefully.

Mr. Liu says the issue can be resolved properly though negotiations and dialogue. He said China hopes sanctions, which he says would benefit no one, do not happen.

International political analysts and some Iranian officials say Beijing and Tehran hope to get their deal finalized before any sanctions are put in place. If sanctions are imposed it could happen after March 6, when the IAEA reports on Iran.

However, Chinese officials on Thursday denied reports that they are rushing to cut a deal before possible sanctions are imposed.

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