Wednesday, March 15, 2006

China, Iran: An Oil Cutoff's Chief Victim

Iran threatened March 14 targeted oil boycotts against countries that support U.N. sanctions against it. It is not a threat, however, that will hold much weight outside of one critical state: China.

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Iranian Oil Minister Kazem Vaziri-Hamaneh said March 14 that Tehran could revise oil supply contracts, suggesting boycotts against specific buyers, if those countries support the passage of U.N. sanctions against Iran on account of its nuclear activities.

Unlike a broad embargo in which Iran simply ceased exporting oil, such a policy would allow Iran easily to shift its oil sales to other states, minimally impacting its own income. It also narrows the target list substantially, limiting it to the 15 members of the U.N. Security Council, and thus hopefully limiting international condemnation of the Islamic republic.

Good strategy, right? Wrong.

Of the 15 current Security Council members, Russia, Denmark, the Republic of the Congo, Argentina and Qatar are net oil exporters. Tanzania, Peru, Ghana, Slovakia, the United Kingdom and France are net importers, but purchase their crude from countries geographically closer to them than Iran, such as Russia or Nigeria. The United States, of course, already boycotts Iranian oil.

This really only leaves three states that might be vulnerable. The first, Greece, gets about 80 percent of its crude from the Persian Gulf, and about half of that from Iran. But Athens knows an unhealthy dependency when it sees one, and is now aggressively cozying up to Russian suppliers to break its chain to the Middle East.

The two remaining countries, China and Japan, are a different story. Like most Asian states, both are a bit over an (oil) barrel when it comes to supplies of crude: there is nowhere for them to get large amounts of crude besides the Persian Gulf. It benefits both to maintain a commercial interest in Tehran so that their only sizeable supplier in the region is not U.S.-influenced Saudi Arabia. Both need Iran, and neither has an alternative.

Japan, however, is unlikely to give in to Iran's threat for two reasons. Tokyo's alliance with the United States is critical not simply for Japan's security, but for its economic well-being. Market access into the United States is something that ebbs and flows with Japan's foreign policy, and while the Japanese economic situation has improved of late, Tokyo is not daft enough to assume all is well. The second factor, often overlooked, is cultural. Japan is a deeply anti-nuclear state, not surprisingly in light of Hiroshima and Nagasaki.

That leaves China, the state most adamant about keeping any international chastising of Iran as weak as possible, precisely because Iran is one of China's major oil suppliers. Paradoxically, the state most vulnerable to Iran's newest threat is the one country that has done all it can to keep Iran unfettered.

But if Beijing has its way, it will not remain vulnerable to Tehran's threats for long. China, like Greece, realizes it is far too dependent upon Middle Eastern energy. Also like Greece, it is thus working studiously to diversify its suppliers. Thus, even though China's absolute consumption of Middle Eastern crude jumped in the past two years, its relative dependence upon such oil actually dropped during the same period.

But while China is making impressive strides in the direction of diversification, Beijing certainly knows it cannot take lightly any threat to its imports of Iranian oil -- yet.