Wednesday, July 27, 2005

Chinese-Iranian Trade Fueled by Distrust of U.S.

David R. Sands, The Washington Times:
United in part by their shared distrust of U.S. power, Iran and China have struck a profitable and growing alliance based on oil, arms and strategic resources. The alliance, analysts say, could complicate two central goals of the Bush administration's foreign policy: managing China's rise to power in Asia and containing the Islamic regime in Tehran and its hopes for greater influence in the Middle East and Central Asia. READ MORE

John W. Garvin, a China specialist at the Georgia Institute of Technology who is completing a book on Chinese-Iranian ties, said Beijing sees Iran as a dependable source of energy and key industrial minerals to supply China's rapidly expanding economy.

Iran, he said, sees China both as an important ally in the bitter dispute with Washington over Tehran's nuclear policies and as an investor and customer that doesn't attach the conditions and strings that Western European competitors demand in their deals.

A skewed hegemony

More fundamentally, "Iran and China just do not like what they see as an unbalanced post-Cold War world" dominated by U.S. military and economic power, Mr. Garvin said. "They agree that the United States is a hegemonist run amok and that this is bad for the world order," he added.

Kaveh Afrasiabi, a political scientist at Tehran University, said in an analysis published late last year that both China and Russia see Iran as a critical bulwark in the effort to contain American power, particularly after the U.S.-led war in Iraq.

"Increasingly, the image of the Islamic Republic of Iran as a sort of frontline state in a post-Cold War global lineup against U.S. hegemony is becoming prevalent among Chinese and Russian foreign policy thinkers," he wrote.

U.S. officials openly fear that China is becoming Iran's supplier of choice for military hardware that Tehran is barred from buying in the West. Huge new energy deals are a direct challenge to U.S. efforts to isolate Tehran and deny it the funds to finance a military buildup. China, the world's second-largest energy importer, receives an estimated 14 percent of its oil from Iran.

China bolsters Iran

The CIA, in a report to Congress, said Chinese firms "have helped Iran move toward its goal of becoming self-sufficient in the production of ballistic missiles."

With Middle East power relationships in flux after the war in Iraq, Gal Luft, executive director of the Institute for the Analysis of Global Security, told a congressional hearing last week that China welcomes Iran's growing military strength.

China's veto as a permanent member of the U.N. Security Council is one reason the Bush administration has been reluctant to seek U.N. sanctions over its suspicions that Iran has a secret nuclear weapons programs.

"China is interested in a militarily stronger, even nuclear Iran that could challenge U.S. domination" in the Middle East, Mr. Luft said.

Frederick Cedoz is vice president at Global Water and Energy Strategy Team, a Washington-based energy policy consulting firm. He said Beijing has sought out oil suppliers whose trade with the United States is cut off or restricted for political reasons, from Burma and Sudan to Iran and Venezuela.

China needs more oil

"The pattern is unmistakable," Mr. Cedoz told a Heritage Foundation forum this month. "China badly needs oil, and it looks to get it from places which can benefit from Chinese technology and military transfers."

Beijing, he said, "makes deals that exploit the power vacuum left by U.S. absence or some other economic advantage."

Although the strategy has not been limited to Iran, some of China's most spectacular deals have been conducted with the Islamic regime in Tehran.

In November, China and Iran signed a 25-year energy deal worth an estimated $100 billion over the next decade. Under the agreement, China is expected to buy about 10 million tons of natural gas annually from Iran, with Chinese engineers and excavation specialists helping Iran develop the huge South Pars oil and gas fields.

That same month, Chinese Foreign Minister Li Zhaoxing paid a warm visit to Tehran, during which he said China saw "no reason" to refer Iran's nuclear programs to the United Nations, a course the United States contends may be necessary.

Iranian Petroleum Minister Bijan Zanganeh told the China Business Weekly that Tehran hoped to see China replace Japan as Iran's biggest energy market.

"Japan is our No. 1 energy importer due to historical reasons, but we would like to give a preference to exports to China," he said.

Eastern pipeline aided

The deal came amid U.S. sanctions that penalize foreign companies that invest more than $20 million in Iran's energy infrastructure. In addition, China has offered strong support to a proposed pipeline to ship Iranian gas through Pakistan to India, with the expectation that some of the gas eventually will be used to meet Chinese demands. Beijing officials talk of one day extending the pipeline to southern China.

Trade between the two countries remains modest. Figures are sketchy, but Iran-China trade last year was estimated at $7 billion. Mr. Garvin of Georgia Tech said about 80 percent of China's purchases are energy-related, but that Iran also supplies it with so-called "strategic minerals" such as sulfur, copper ore, zinc and chromium.

In turn, China has become a major investor and supplier in Iran's industrial sector outside the energy sector, with ventures that include fish canneries, sugar refineries and paper mills.

Official trade statistics for 2003 put China sixth behind Germany and several Western European countries among importers to Iran, but Mr. Garvin said third-country resales of Chinese consumer goods to Iran, mostly through the United Arab Emirates, probably make Beijing the country's largest de facto importer.

China seeks markets

Markets such as Iran's are important to China's overall development strategy, Mr. Garvin added.

Although Chinese low-end consumer goods have conquered U.S. and other Western markets, Chinese higher-end industrial producers, from automakers to large-appliance manufacturers, have had a more difficult time cracking markets in the advanced industrial economies.

"Iran is one of the few cash-heavy markets that China can sell to, so it is very useful to China's overall strategy," he said.

Bijan Khajehpour, a Tehran-based business consultant, said China has become a trading partner of choice for Iran almost by process of elimination.
Iran pursued an isolationist policy in the years immediately after the 1979 Islamic Revolution, shunning both the United States and the Soviet Union.

Early openings failed

With the country shattered by an eight-year war with Iraq, Iran's leaders first wooed Western Europe and then, briefly, the United States in the 1990s seeking to develop the economy. When those efforts faltered, Iran signed an energy-development deal with Japan in 2000, but Tokyo's close ties to Washington and the harsh security environment after September 11 limited future ties.

It was only then, said Mr. Khajehpour, that Tehran turned in a serious way to Asia's two rising powers.

"Iran very clearly uses the element of energy in consolidating its foreign policy goals," he said. "It's very clear right now that the focus is on China and India."

In addition to the pipeline deal, Iran and India signed a 25-year energy deal this year that mirrored last year's agreement between China and Iran. Mr. Afrasiabi said the huge, decade-long deal with China last year could serve as a sign to other international customers that have been reluctant to enter long-term contracts with Tehran.

Iran needs friends

Mr. Khajehpour said nationalist and Islamic ideological factions in Iran's badly divided ruling class both favor deeper ties with China. The latter, they say, serves as a bulwark against U.S. pressure and demands far fewer political concessions as a price for more trade.

Many hard-line Iranians also say the Islamic republic should copy the "Chinese model," combining major economic growth and exports with continuing authoritarian political controls.

New Iranian President Mahmoud Ahmadinejad has ties to both factions and could be expected to support future China deals, Mr. Khajehpour said.

The one major group in Iran that is suspicious of deeper ties with China are pro-Western technocrats, who argue that China and India can provide Iran only with second-tier technology and goods. This group favors more trade with Western Europe.

Ties likely to grow

With China's oil and gas needs expected to increase sharply in coming decades, ties to Iran are expected to intensify. But Mr. Garvin said areas of potential conflict could limit the relationship.

China's openness to the West -- culturally as well as economically -- unnerves some in Iran, Mr. Garvin said, as does Beijing's hard-line stand against its Muslim Uighur minority in China's far western provinces.

Although wary of American power, China's leaders have been careful not to provoke confrontation with the United States. Mr. Garvin said he thinks China would do all it can to prevent the Security Council from taking up Iran's nuclear programs, but would not veto sanctions if the four other permanent Security Council members -- France, Russia, Britain and the United States -- were in agreement.

"In a way, China and Iran have what amounts to a nonaggression pact when it comes to Washington. The two sides have agreed to cooperate with each other independent of the hostile relationship either might have with the United States or a third party at the time," Mr. Garvin said.