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ENERGY POLICY AND ENERGY PROJECTS
IRAN’S GEOPOLITICS IN THE MIDST OF THE U.S.-RUSSIA-CHINA ENERGY SECURITY STRUGGLE FOR GEOSTRATEGIC CONTROL OVER EURASIA
Thrassyvoulos (Thrassy) N. MARKETOS
Ph.D. (International Relations), internationalist lawyer; specialized in public international law at the University of Aix-Marseille III (France); was nominated doctor of International Relations by the Panteion University of Athens (Greece). Works for the Hellenic Ministry of Foreign Affairs, serves as a lecturer of Eurasia geopolitics at the Athens branch of the Center for Diplomatic and Strategic Studies (C.E.D.S.—Paris)
(Athens, Greece)
Introduction
For reasons of both world strategy and control over natural resources, the U.S. administration is determined to secure a dominant role in Eurasia for itself. The Eastern Caspian
shore of the Central Asian states of Kazakhstan and Turkmenistan is crucial to oil and gas flow control, because determining which one, or both, of the two major projects—the Trans-Caspian
Corridor plus the Nabucco pipeline or the Caspian pipeline plus the South Stream pipeline—will reach the European or Asian market will in effect determine which major power, the U.S., Russia, or China, will gain geostrategic control over Eurasia.
The important geographical location of Central Asia (CA) with respect to the transport and communication networks in the West-East and North-South directions, concentration of the sizable fuel reserves there, as well as its vulnerability to the problems of the neighboring regions of South Asia and the Middle East has revived the ideas of the “Heartland” and “Eurasian Balkans” with the emphasis on the specific role and significance of CA in world politics.
The struggle of the leading world powers (U.S., Russia, and China) for geopolitical and geo-economic domination in the Caspian region is explained first by their geostrategic aspirations for leadership in the post-Cold War world order, as well as by the necessity to solve various regional and global security problems, many of which are linked with the Islamic Republic of Iran.
This paper argues that the key to this equation is Iran. In fact, how Moscow proceeds with the reconfiguration of Russo-Iranian relations could well form the centerpiece of the geopolitics of energy security in Eurasia.
Moscow can be expected to make vigorous efforts to coordinate with Iran over its oil and gas output and exports. The rationale for such a coordinated strategy involving Iran is very obvious. First, Moscow is intensely conscious of the West’s awareness of Iran’s enormous untapped hydrocarbon reserves as an alternative to Russian supplies. Russia will strive to stay ahead of the European, and eventually American, overtures toward Iran. Second, the hydrocarbon sector in Iran is firmly under state control and Moscow and Tehran are in harmony in this regard. Third, the two countries will be coordinating their energy policies for wider geopolitical purposes within the broad framework of their strategic cooperation. Furthermore, market forces dictate the rationale of Russia-Iran cooperation. Moscow would simply like to avoid competing with Iran as a major oil and gas route connect-
ing the Caspian and Central Asian energy-producing countries. Russia and Iran control roughly 20% of world’s oil reserves and close to half of the world’s gas reserves, and it makes good sense to accommodate each other.
Iran is indeed an important energy partner for Russia for many reasons. Russian oil companies, flush with funds, are keen to invest abroad. The Iranian upstream oil and gas sector and Iran’s energy ventures, such as pipeline projects, offer an attractive proposition for Russian investment. Again, Iran’s geographical location is ideal as an export outlet for expanding Russian energy exports, especially its ambitious developing liquefied natural gas (LNG) industry. Besides, Iran is an influential member of the Organization of Petroleum Exporting Countries, the decisions of which have a bearing on price stability and Russian export volumes.
But the most important consideration for Russia will be that Iran’s energy policy should not come into conflict with Russia’s interests. Once the U.S.’s engagement of Iran commences, Tehran will have plenty of choice while accessing foreign capital and advanced upstream oil and gas tech-nology.1 Iran is bound to probe gas markets such as Turkey, the Balkans, and Central and Eastern Europe. Also, Iran is keen to develop a new LNG industry. Moreover, Iran could well end up competing with Russia as a major oil and gas route connecting the Caspian and Central Asian energy producing countries.
Cooperation with Iran is no less important for Russia in terms of Caspian Sea issues. True, the two countries have divergent views on how the Caspian Sea should be divided. Russia prefers a median line solution, whereas Iran has insisted on an equal share (20%) solution for each littoral state regardless of the length of coastline. All the same, Russia and Iran are in profound agreement in their opposition to the U.S.-led Trans-Caspian pipeline projects.
Russia’s number one priority in energy cooperation with Iran will be for upstream partici-
1 See: M.K. Bhadrakumar, “Russia, Iran and Eurasian Energy Politics,” Japan Focus, available at [http:// www.japanfocus.org/products/topdf/2613].
pation by Russian companies. Gazprom has had some limited participation so far in the early phases of Iran’s massive South Pars gas fields with an estimated aggregate cumulative production range of a stunning 13 trillion cubic meters. Moscow will be keen to promote greater involvement. Gazprom has shown an interest in the Iran-Paki-stan-India pipeline project not only as a contractor but also as an investor.
But the big-ticket item will be the future development phases of South Pars, which Tehran has earmarked as feedstock for producing and exporting LNG for the European and Asian markets. Without doubt, Moscow will be keen to develop a role in Iran’s nascent LNG industry so that it doesn’t end up competing with Russia’s own LNG industry.
On top of this, Moscow would be pleased at the present orientation of Iranian energy exports toward the Asian market. On the one hand, this would ease the competition from China for gaining access to Central Asian energy producers and, on the other, it reduces the likelihood of Iranian energy flows to Europe, which may otherwise cut into Russia’s market share.
Equally, Russia would actively promote an Iranian gas pipeline to China via Pakistan and India. But the project is stalled due to U.S. pressure on India. By opposing the Iran-Pakistan-In-dia gas pipeline, the U.S. is principally trying to deny China easy access to Iranian energy reserves.
To be sure, Moscow began anticipating several months ago that with the inevitable collapse of the United States’ policy of containment of Iran and with Iran’s ensuing arrival as a gas-exporting country, an altogether new scenario would shape up on Eurasia’s energy map.
Beijing too is highly interested in the future orientation of the Iranian hydrocarbons. First, we should bear in mind that China, according to the country’s declared security concept, seeks to create a worldwide atmosphere of mutual trust, mutual benefit, equality, and collaboration. It is willing to implement its previously elaborated principle of refraining from any pressure on smaller countries and interference in their internal affairs, to implement policies aimed at
demonstrating to the world community its fundamental position of great power, to explain the main content of China’s foreign policy, which is focused on friendly relations and partnerships with a wide range of states, and to convince the world community that it is actively fighting for peace, equal rights, and justice, and is trying to dissociate itself from the “thesis on the Chinese threat.”
It is in that sense that Beijing approaches questions referring to hydrocarbon export from the landlocked countries of CA. China’s proximity to Central Asia permits it to quickly build oil pipelines from Kazakhstan to Xinjiang. The joint construction of a Sino-Central Asian gas pipeline is still underway. In 30 June, 2008, the first phase of construction of a gas pipeline from Uzbekistan to China began, a project with a total value of over 2 billion dollars. According to a previously signed agreement between the oil and gas companies of Uzbekistan and China, Chinese companies refine oil and gas reserves in Uzbekistan, and they have preferential access to wells once drilling is complete. These projects will give China direct access to oil and gas deposits in Uzbekistan and Turkmenistan, in addition to Azerbaijan and Iran, and will meet these countries’ willingness to sell their energy directly to China regardless of Russia. Therefore at present, China is intensifying its investments for the exploration and exploitation of new oil and gas fields in Kazakhstan, Uzbekistan, and Turkmenistan, as well as building infrastructure to deliver energy to its maritime regions.
Thus, Tehran’s choice to cooperate in the energy sector with Russia and China against the U.S. and EU interests in CA, or with the one power against the other, or even aligning itself with America’s energy security policy in Central Eurasia, may define the world order of the 21st century.
This paper, following the principles of the neo-realist school of thought in geopolitics, is organized in three sections. Firstly, we shall examine the way in which tension in Iranian-U.S. relations stimulates the CA states to maneuver within the limits of the Iran-U.S.-Russia triangle. In the second part, we shall define the reason why
the development of Sino-Iranian relations over the past two decades is part of the steady expansion of ties between China and the wider Middle East, and more broadly, between the countries of East and West Asia. Finally, in the third part, we will shed light on the reason why many Chinese energy firms are increasingly shifting
their investments toward Africa and Central Asia, probably trying to diversify to the extent that is possible, and away from the Persian Gulf, and thus from the risks and uncertainties associated with the deeply entrenched U.S. military power, local instability, and maritime transportation of oil supplies.
Map 1
Eurasia Energy Infrastructure.
Iran's Role in Existing and Projected Oil and Gas Pipelines
Russian Energy Geopolitics in Central Asia: The Iranian Factor
Historically, “Big Iran” comprises the Middle East and part of CA (Tajikistan, Uzbekistan, and Turkmenistan), an Arab part of Western Asia and Egypt. In the 1990s, Tehran tried to take control over the former Soviet republics in CA and in the Gulf.
The essence of the Iranian foreign policy lies in the formation of a multi-polar world order under the aegis of the U.N., in which Iran and the other Islamic countries will represent one of the poles. At
the same time, Tehran regards CA as a continuation of the Persian Gulf region, which is a vitally important zone of Iranian economic interests as a whole. Therefore, the Islamic Republic traditionally defends projects of energy routes from CA states through its territory as the cheapest and most economically justified.2
However, the Soviet Union’s collapse, the U.S. economic sanctions, Tehran’s non-admission into the CA region energy projects, and the formation of Iran’s negative image as a sponsor state of international terrorism, all hinder Iran’s strategy to develop full-fledged relations with CA states. But, like Turkey, Iran failed to win a leading position in the region and in 2000 gave way to China. In the early 2000s, a sharp rise in oil prices, and most of all the U.S.’s mistakes in Iraq (toppling of Saddam Hussein), gave Iran an unprecedented opportunity to stand up against the U.S.
Tehran considers that Washington is still being hostile toward revolutionary Iran, aspires to world leadership, acts against Iran’s economic goals in the CA region, and is conducting a propagandistic campaign against Iran. Moreover, it thinks that the U.S. military-technical cooperation with CA states and NATO’s movement toward the East is an indication of America’s desire to control and dominate in the Caspian region and part of the U.S. global efforts to surround and isolate Iran. In this sense, conflicts in Afghanistan and Palestine are also regarded by the conservative Iranian clergy as an “attack on the whole of the Muslim world.”3 Tehran also regards the growing presence of Israel, a U.S. ally, in CA as a challenge to its national interests.
The anti-Iranian U.S. sanctions, and the Iranian-American dispute over CA, played such a decisive role in regional states economic strategy that the Caspian region’s leading energy states, Kazakhstan and Turkmenistan, did not consider the mostly economically attractive transportation route through Iranian territory and restricted their cooperation with Iran to swap operations. Most importantly, the tension in Iranian-U.S. relations stimulated the CA states to maneuver within the limits of the Iran-U.S.-Russia triangle, a situation that promoted militarization of the Caspian Sea, which delayed development of the regional economy.
Speeding up of the armament race virtually put the Caspian states in the so-called “resource wars” stimulated by the American-Russian competition in the sphere of energy resources. Kazakhstan itself, having officially declared a multi-vector external relations strategy, considers the Iranian transit route to be a direct exit to the sea ports and hence the most realistic intermediate route of raw material supply to the markets of South Asia and Asia-Pacific states. Turkmenistan is also vitally interested in partnership with Iran, since for Ashghabad, the Iranian corridor means a possible liquidation of Russia’s monopoly of its national gas reserves.
Factors like,
(a) the traditional American approach connecting the problem of Islamic fundamentalism with the problem of human rights and development of democracy in CA,
(b) the U.S.-CA states’ discrepancies over the ways and methods to solve regional security problems,
(c) the unsettled wars in Afghanistan and Iraq, along with
(d) strengthening of the American-Iranian confrontation and
(e) further consolidation of the Eurasian partnership within the framework of the Shanghai Cooperation Organization (SCO) and the Eurasian Economic Community (EurAsEC), distanced
2 See: “New Regional Developments and National Security of the Islamic Republic of Iran,” An Iranian Quarterly Discourse, Vol. 1, No. 1, Summer 1999.
3 G. Yuldaseva, “Geopolitics of Central Asia in the context of the Iranian Factor,” Caucasian Review of International Affairs (CRIA), Vol. 2 (3), Summer 2008, p. 134.
the CA states from the U.S. in the advent of 11 September, 2001 and consequently invigorated Russian and Iranian positioning in the Caspian region.
It has become obvious that various anti-Iranian restrictions in the oil-gas sphere promoted by the West, as well as the continuing instability in Afghanistan and other countries adjacent to CA, have altered the external political preferences of most CA states in favor of Iran and Russia, both owing to economic and political motives that clearly contradict U.S. interests.
As far as Russia is concerned, it perceives its access to CA’s energy resources and control over the transportation and communication corridors through the prism of its devotion to the idea of multipolar approaches to international relations. However, Russia’s Central Asian geostrategy presupposes political, economic, and social stability in a region fraught with Islamic extremism that threatens, above all, the stability of its own southern borders and territorial integrity. This geopolitical reasoning obliges Moscow to try and play an important role in Afghanistan’s post-conflict stabilization.
Furthermore, while the U.S.-Russian rivalry is accelerating in Eurasia, and the U.S.-Iranian contradictions remain unsettled, Moscow is spending much of its political capital in building a coop-erational relationship with Tehran as a counterweight to America’s geopolitical and economic interests in CA. This is in fact the main stumbling block in Russian-American relations. The main condition for U.S.-Russian partnership is discontinuation of Russian-Iranian military-technical cooperation (including supplies of nuclear equipment). Of course, Moscow continues cooperating with Iran in its nuclear program, obviously convinced that Tehran’s relations with Moscow are objectively strengthening the pragmatists’ position on the Iranian domestic scene and neutralizing the radical Islamist approaches.4
Russia’s stronger position there in the few last years may have forced the U.S. to try seeking decentralized pipeline networks, but Washington, nevertheless, insists that the pipelines bypass both Russia and Iran. For that reason, the pipelines which cross Azerbaijan and Georgia before reaching Turkey and the BTE gas pipeline are still the main instruments of geopolitical rivalry with Moscow. The future of many of these projects depends on the extent Kazakhstan and Turkmenistan, or even Iran, are prepared to use these lines.
It is noteworthy that Iran’s outstanding gas reserves were essential to the early prospects for Nabucco. Iran has 28.13 tcm of natural gas reserves, accounting for 15.5% of the global supplies and ranking the country second in the world after Russia. These resources are both mismanaged and underexploited, so the huge 105 bcm/y output is not enough to meet domestic demand. As a result, Iranian gas is totally removed from the international markets, with the exception of a small amount (5.60 bcm/y) exported to Turkey.5 Several scholars consider Iranian gas as the only source able to meet Nabucco’s needs6 to a twofold extent: on the one hand, obviowsly, the size of the reserves and the high reserves/production ratio. By exporting an additional 30 bcm/y to fill Nabucco, Iranian reserves are expected to last about 205 years. On the other hand, there is the country’s strategic position, which makes Iran the most economically viable way to ship Turkmen gas beyond Gazprom’s control. Unfortunately, Iranian gas exports suffer considerable setbacks as far as the systemic level is concerned. By limiting foreign investments in Iran’s hydrocarbon sector to 20 million USD, the
4 See: G. Yuldaseva, “The Russian Factor in Central Asian Geopolitics in the Context of Iranian-American Contradictions,” Central Asia and the Caucasus, No. 5 (47), 2007, available at [www.ca-c.org/online/2007/journal_eng/cac-05/ 04.shtml].
5 See: BP, “Statistical Review of World Energy”, 2008, pp. 22-27.
6 See: G. Mangott, K. Westphal, “The Relevance of the Wider Black Sea Region to EU and Russian Energy Issues,” in: The Wider Black Sea Region in the 21st Century: Strategic, Economic and Energy Perspectives, ed. by D. Hamilton, G. Mangott, Centre for Transatlantic Relations, Washington, 2008, pp. 147-176; F.F. Fee, “The Russia-Iran Energy Relations,”
Middle East Economic Survey, Vol. 59, No. 11, 2007, pp. 12-17.
U.S. Iran-Libya Sanctions Act (ILSA) seriously undermines Iran’s appeal for Western investors. Despite the fact that most of the penalties harmed U.S. companies, such as ConocoPhillips, and no European company has been targeted so far, the threat of the sanctions, which are focused on credit access, prevented companies such cs OMV and Shell from undertaking massive investments in the development of both Iranian upstream and domestic transport.7 As a result, given the political climate stemming from the Iranian nuclear issue, it seems to be considerably difficult for the EU to engage Iran in participating in the Nabucco project, whilst avoiding at the same time the emergence of disruptive effects on transatlantic relations. In other words, Nabucco turns out to be undermined by the U.S. sanctions more than by Russia’s attempts to build alternative routes like South Stream. Other commentators are more dismissive about the need for Iranian gas. Their main argument is rooted in the poor Iranian infrastructural network, which is under massive strain because of growing domestic demand as well as the lack of investments aimed at upgrading the grid, notably the south-north trunk line which should ship gas from the giant South Pars offshore field. In other words, leaving aside the political consequences caused by Iranian involvement, the question of how Iran will ultimately be able to free up gas for export remains unresolved.
As for Turkmenistan, another most important gas supplier vital to the viability of any projected pipeline scheme, it has huge natural gas resources and a high level of production, but these resources need massive western investments to be developed. At the same time, Russia is apparently succeeding in strengthening its grip on the Central Asian infrastructural landscape.
The Nabucco pipeline needs to rely on Turkmen gas given the position of two other potential suppliers. Azerbaijan is the safest source, but it is still importing gas to satisfy its increasing domestic demand and the gas predictably coming from the giant Shah Deniz field is unlikely to fill Nabucco’s double outlet. As a result, the participation of Azerbaijan alone seems to be unable to justify the huge investments required by the construction of Nabucco. Despite these misgivings, the Nabucco agreement was solemnly signed in Ankara on 13 July, 2009. It is worth mentioning here that the EU has invested its hopes in this project of disengaging from Russia in the energy sector, despite the many uncertainties regarding the states willing to fill the pipeline with gas.
In this regard, Iran has a huge amount of gas reserves at its disposal able to challenge Russia’s dominance on the European markets. Unfortunately, the political climate is preventing Western companies from making investments aimed at developing Iran’s gas upstream as well as its domestic grid, given the limited capacity of the south-north corridor.
Turkmenistan’s engagement is needed to fill Nabucco in the short and medium terms, but several doubts arise concerning the available resources and the transit corridors. As far as resources are concerned, the EU should regard Turkmenistan gas as a “transitional source” while waiting for significant improvement of the political climate around Iran. However, Turkmenistan has committed itself to long-term agreements with Russia and China, with Europe losing its sole appeal, since Gazprom promised to raise the prices for Turkmenistan to the international levels. From a broad political perspective, Russia profited from the need of Turkmen President Berdymukhammedov to consolidate his power in the light of the regional context potentially sensitive to “destabilizing pressure” coming from the systemic level within the framework of the U.S.’s involvement in the “broader Middle East.” Furthermore, given the unlikelihood of exporting Turkmen gas to Europe through Iran, Nabucco’s prospects seem to be highly dependent on the TCP’s prospects, which are turning out to be poor so far in the aftermath of the previous mid-2000s failure. However, the improvement of Azerbaijani-Turk-men relations, as well as a partnership between Turkmenistan and Russia, which is not as stable as it seems, leave some room for the EU and Western companies to maneuver.
7 See: P. Rivlin, “Iran’s Energy Vulnerability,” Middle Eastern Review of International Affairs, Vol. 10, No. 4, 2006, pp. 103-116.
Overall, Iran’s involvement in the Central Asian region during recent decades has shown the inadequacy of efforts to limit the export of Islamic fundamentalism from Iranian territory by means economic sanctions and political isolation at the regional and global levels. This is why the Iranian vector in Central Asian foreign policies will steadily increase due to economic and political considerations, stimulated by de-ideologization of Iran’s foreign policy. It is obvious that this cooperation would strengthen more under the new, moderate, and flexible Iranian regime. At the same time, Iran continues to be a potential competitor for the Central Asian states in the sphere of energy resources, which justifies the plurality of energy pipelines from the region.
However, the tough Iranian position on the nuclear issue and its inflexibility in solving regional security issues have brought Tehran to the brink of war with the U.S. Any military action under the above-mentioned circumstances would surely involve all the interested political parties, movements, and states in Central and South Asia, the Caucasus, and the Middle East and would have the potential of turning into another world war.
As a whole the positive dynamics of the geopolitical processes in the examined region will be dependent on well-defined constructive behavior by all regional “game” participants, including the U.S., the EU and Russia, Iran, as well as the states of Central Asia.
Meanwhile, it is worth taking the positive changes in Iran as an indication that Tehran is willing to moderate its position. It seems that with the advent of the new, more monolithic and united conservative cabinet in Tehran, the prospects for holding serious talks with the U.S. will grow. Especially if we take into account Iran’s interest in “sincere cooperation” with Russia and the U.S. in the energy sphere and the possible development of new, positive approaches to the situation in the Caspian proceeding from this fact.
Balanced Eurasian-Atlantic cooperation in Central Asian region corresponds to the interests of the Central Asian states, which aspire to a multi-polar world order and a collective security system in Central Asia as the sole effective means of providing stability and development in the region. Moreover, constructive cooperation of the two main players in the region—the U.S. and Russia—could potentially restrict the growth of Iran’s and China’s regional ambitions and serve as the basis of stability for forming a Eurasian system of energy supplies and transport links.
In the new multi-polar architecture of international relations, with its various complex mechanisms of restraints and counterbalances, Iran, as well as other states with hegemonic intentions, could become a stable, but not dominant, player in Central Asia and the Caucasus.
Chinese Energy Geopolitics in Central Asia: The Iranian Factor
China is aiming to quadruple its per capita GDP to $3.200 by 2020 from the $800 attained in 2000. This would imply an average annual economic growth of 7.2% until 2020. In order to attain this, China will have to keep meeting the enormous appetite of its manufacturing economy for raw material and energy resources. On the other hand, it has to open up new markets for Chinese products while keeping the competitive economies of Asia and America at bay. This has to be driven by international relations backed by strategic defense capability. Conscious of these imperatives, China’s international relations are developing on twin tracks: gaining sources of raw materials across the globe and increasing its strategic power projection. Beijing is on a fast track with respect to developing its missile capability and submarine fleet. Some analysts say that China will be able to match the defense capability of the U.S. by 2050.
Considering the above as an imperative, Beijing is rapidly opening up to South Asia. This region’s geographic location, midway between the oil-rich Middle East and the South East Asian regions, borders on most of China’s sensitive southern boundary. This gives China the strategic option of opening direct access through South Asia to the international sea lanes of the Indian Ocean. The Indian Ocean region has always been the scene of a power play among Russia, the U.S. and the West, and theocratic Islamic states like Iran, simply because 75% of global merchant shipping passes through it.
China has used Iran to bridge its connection to the Middle East. China and Iran are important geopolitical actors as well as major players in the global energy market.8 In recent years, Sino-Iranian relations have broadened and deepened. Energy cooperation is the main axis around which this partnership revolves. As a result, China is a stakeholder in the outcome of the diplomatic crisis that has been brewing over the Iranian nuclear program.
The development of Sino-Iranian relations over the past two decades is part of the steady expansion of ties between China and the wider Middle East, and more broadly, between the countries of East and West Asia. At the same time, Sino-Iranian relations have distinctive origins and characteristics, not to mention potentially far-reaching implications. The relations are rooted in shared historical experiences, in common outlooks and concerns about the current state of international and regional affairs, and in overlapping interests.
Energy cooperation is the backbone of Sino-Iranian economic relations, though economic ties have been forged in other areas as well. Trade in crude oil is the core of energy cooperation. In 2005, Iran was China’s third leading foreign supplier, satisfying about 14% of its import requirements.9 In January 2006, Iran replaced Saudi Arabia as China’s number one source of imported oil. With respect to the benefits accrued to China, it is worth noting that Iranian crude oil not only helps meet skyrocketing Chinese consumption needs, but also helps to contain the rising import costs through purchase of the relatively cheap, heavy (sulfur-rich) oil that is plentiful in Iran (and Saudi Arabia).
China’s growing appetite for natural gas in the form of liquefied natural gas (LNG) has provided a second energy link with Iran, which has an estimated 15% of the world’s natural gas reserves.10 In March 2004, the state-owned Zhuhai Zhenrong Corporation (a spin-off of NORINCO) agreed to import 110 million tons of Iranian liquefied natural gas (LNG) for over 25 years, a deal worth approximately $20 billion. According to the terms of the Yadavaran project agreement, Sinopec has committed to the purchase of 10 million tons per year of liquefied natural gas (LNG) over a period of 25 years, beginning in 2009.11 Iran’s Deputy Oil Minister Hadi Nejad-Hosseinian estimates that gas exports to China will gradually increase to 40 million tons per annum.12
A third area of cooperation in the energy sector is upstream and downstream development. Participation by Chinese companies in such projects is part of the internationalization of their business operations and part of their global effort to obtain equity stakes in production, thereby enhancing long-term energy security. In August 2000, CNPC won its first drilling contract in Iran (to drill
8 According to ‘Ali Akbar Vahidi Ale-Agha, Deputy Managing Director of Petroleum Engineering & Development, an National Iranian Oil Company subsidiary, “China and Iran are perfectly matched for each other ... China has the world’s biggest market of customers and no secure energy resources. We have a lot of energy, and we need foreign currency. And they have a lot of money to invest. It’s a win-win situation” (V. Walt, “Iran Looks East,” Fortune, 21 February, 2005).
9 See: “Iran’s Crude Oil Sales to China,” Mehr News Agency, FBIS-Near East and South Asia (hereafter FBISNES), 12 April, 2005.
10 See: International Energy Outlook 2006, U.S. Energy Information Agency, June 2006, Table 8, available at [http:/ /www.eia.doe.gov/oiaf/ieo/nat_gas.html].
11 See: Associated Press, 19 March, 2004; The Asian Wall Street Journal, 13 March, 2004.
12 See: “Iran: Official Says Gas Exports to China To Start in 2009,” Mehr News Agency, FBIS-NES, 5 July, 2005.
19 gas wells in southern Iran). The most significant breakthrough in this area is the widely reported preliminary agreement (reached in October 2004) between the National Iranian Oil Company (NIOC) and Sinopec to develop the Yadavaran oil field, whereby NIOC would sell 150,000 barrels per day (bpd) of crude oil to China at market prices over a period of 25 years when the field becomes fully operational.13
For Iran, engaging Chinese companies in these ventures stems from a mixture of motives. The main commercial objectives are access to much-needed foreign investment capital and technology. These objectives dovetail with the strategic imperative of locking in an economic partnership with a major world power that holds a permanent seat on the U.N. Security Council—a potentially useful lever in countering U.S. and Western pressure.
China and Iran have also found common ground in construction of oil and gas pipelines. Chinese companies are involved in projects that will enable Iran to augment the volume of its swap deals. The Neka-Sari pipeline, built by a consortium of Chinese companies led by Sinopec and CNPC (completed in 2003), carries Russian crude oil shipped from the ports of Astrakhan and Volgograd from the Iranian port of Neka further into Iran. Another pipeline being built with Chinese participation will carry oil from the Neka terminal to a refinery on the southern outskirts of Tehran in the municipality of Ray.14 China has an interest in expanding Iran’s oil/gas pipeline network quite separate from whether or not its own firms help to build them. Consistent with its aim to develop alternative supply delivery networks,15 Beijing hopes to receive the necessary guarantees from Tehran to build an oil pipeline from the Caspian Sea, 386 km in length, to another pipeline in Kazakhstan that will be connected to China.
In addition, China and Iran have been working separately and jointly to augment their capacity to handle the increased volumes of oil, gas, and refined products moving from the Persian Gulf to East Asia. For example, in order to support the growth of LNG imports from Iran and other suppliers, China is building receiving terminals at Guangdong, Shanghai, and Fujian.16
All in all, whereas Iran seems determined to develop a full-blown strategic partnership, China appears primarily interested in commerce and limited political-strategic engagement. Foreign Minister Manouchehr Mottaki’s statement reflects Iranian thinking: “China is seeking reliable energy and we are able to guarantee its supply. In fact, a strategic phase is now beginning in cooperation between the two countries.”17 With Western pressure on Iran tightening, Iranian officials have, at every opportunity, sought to draw closer to China.
According to Ali Larijani, Secretary of Iran’s National Security Council, China (along with Russia and India) “can play a balancing role.”18 Similarly, President Ahmadinejad’s statements at the SCO summit in Beijing in June 2006 are illustrative of the way in which Tehran has attempted to use its energy assets as a political lifeline. Echoing these statements, Dr. Ali Akbar Velayati, former foreign minister and now advisor to Spiritual Guide Ali Khamenei, referred to the SCO as a “political bloc.”19
13 See: “China To Cooperate With Iran in Oil, Gas Sectors,” Islamic Republic News Agency (hereafter IRNA), FBIS-NES, 27 December, 2004.
14 See: P. Hooman, “Russia Turns to Iran for Oil Exports,” Asia Times, 11 February, 2003.
15 This is evident, for example, in the Chinese government’s decision to finance about 80% of the estimated $248 million cost of constructing the deep-sea port of Gwadar and thus move oil overland through Pakistan to western China.
16 Quoted from: IRNA, in: FBIS-NES, 14 October, 2005.
17 See text of interview with Islamic Republic of Iran Broadcasting (IRIB), IRNA, BBC-SWB-NES, 8 June,
2005.
18 B. Savadore, “Tehran Seeks Allies Through Energy Cooperation,” South China Morning Post (Hong Kong), 16 June, 2006.
19 J. Calabrese, “China and Iran: Partners Perfectly Mismatched,” Middle East Institute, 18 August, 2006, available at [http://209.85.229.132/search?q=cache:Jcd2EWbqNpwJ:www.energiasportal.com/download/375/+Calabrese+John+ South+China+Morning+Post&cd=16&hl=en&ct=clnk].
Iranian officials appear, at times, to underestimate how much Sino-American relations means to China and perhaps overestimate how far Beijing might be willing to go to support Tehran. In addition, to the extent that the Iranian leaders are enamored by the “Chinese model” and determined to apply an Islamic version of it, they appear to have conveniently omitted from their frame of reference the fact that China’s success hinges on dynamic economic relations and a political modus vivendi with the West, particularly with the United States. Finally, by proclaiming China to be the “superpower of the new century” and implicitly tying Iran’s future to the latter’s coattails, Iranian officials run the risk of becoming prisoners of their own wishful thinking, while the Chinese leadership, keenly aware of its present limitations vis-a-vis the United States, has been quite careful to avoid stumbling or being dragged into a direct confrontation with Washington.
In that sense, it is also instructive to look at some of the shortcomings and uncertainties in the economic sphere. The mainstay of Sino-Iranian cooperation in the energy sector is the export of large and increasing quantities of Iranian crude oil to China. But the Iranian energy industry is badly in need of foreign investment and technology. To date, China’s investments are dwarfed by Iran’s investment needs. Furthermore, in an effort to diversify, Chinese energy firms are increasingly shifting their investments toward Africa and Central Asia, perhaps reflecting the need to diversify to the extent that is possible, and away from the Persian Gulf, and thus from the risks and uncertainties associated with the deeply entrenched U.S. military power, local instability, and maritime transportation of oil supplies.
Conclusion
Beijing’s efforts to connect itself to the Greater Central Asian region is restrained by the all pervasive American presence in Afghanistan. Even so, it is evident that Kabul remains a vital part of Beijing’s energy infrastructure, linking China with Pakistan, Iran, and the oil rich Central Asian countries. So it came as no surprise when China invested $3.5 billion in the Aynak copper field project in the remote Logar province in May 2008. China also extended the Xinjiang railway up to Kashgar (via the Karakoram highway) about 500 km from the China-Pakistan border and is involved in the construction of a rail line to link Gwadar with the Pakistan-Iran railway.
China is taking advantage of its enormous cash reserves to buy up major energy assets in distressed countries like Afghanistan, thus securing for itself not just energy flows but key strategic advantages for years to come. Although most of its energy imports still come from the Middle East, Beijing is rapidly seeking to diversify its suppliers on a global basis: Venezuela, other Latin American countries, Africa, and Russia, as well as Central Asia. Furthermore, it has well-known strategic anxieties that the Strait of Malacca or other Indian Ocean waters may be closed to it during a time of crisis. Therefore, for geostrategic reasons, China seeks to avoid excessive dependence upon Middle Eastern and African producers. Most important, the geographic proximity of the greater Caspian Basin states, many of which border on China, and the lack of a strong U.S. military presence in CA, especially one that can counter Beijing’s massive land power, has made it an appealing source of energy in the eyes of Chinese planners. There would be no need for energy to be transported across the ocean, where China’s energy supplies would be vulnerable to potential maritime interdiction by the U.S. and Indian navies. Tehran is privileged in Beijing’s eyes since gas and oil can be shipped to it overland through the new pipelines that China is helping to build in Kazakhstan, Turkmenistan, and Uzbekistan and which could ultimately connect to Iran. The Atasu-Alashankou oil pipeline from Kazakhstan to China was opened as early as December 2005, and in 2006 Beijing announced its plans to also build a natural gas pipeline running parallel to it.
In addition, China is discussing prospective gas pipelines with Uzbekistan and Turkmenistan and Tajikistan that would link up with the projected gas pipeline scheduled for completion in 20092010.20
In spite of these developments, Iran remains China’s most important Caspian producer. In the first quarter of 2006 alone, China’s oil imports from Iran increased by 25 percent in gross volume. Iran already supplies 15-17 percent of China’s annual oil imports, and the interest in an overland pipeline from Iran to China makes it clear that Iran’s role in Chinese energy policy will only continue to increase in the foreseeable future.21
In addition, Beijing is discussing its potential participation in the projected Iran-Afghanistan-Pakistan-India pipeline. Likewise, if the projected Turkmenistan-Afghanistan-Pakistan-India pipeline is implemented, it too will likely attract Chinese participation. Were energy relations between Pakistan and China to materialize, they would only heighten the existing nexus of energy, security, and maritime power projection exemplified by China’s support of the construction of a major deep-sea port in Gwadar, Pakistan. Islamabad’s role as an energy provider for China would certainly intensify Chinese efforts to help Pakistan remain secure, stable, and non-fundamentalist. It is noteworthy to mention here that according to a contract signed in May 2009, Iran will start exporting 21.5 million cu m of gas to Pakistan per day.
Tehran itself is betting on the total “interdependence of Asia and Persian Gulf geo-economic policies.” In that context, Tehran has proposed the Asian Energy Security Grid and the $7.6 billion Iran-Pakistan-India pipeline, both good examples of Iranian regionalization efforts, but doomed under great pressure from other actors, primarily the U.S.
In the meantime, Russia’s and Iran’s desire to oppose Washington’s position to keep them away from Caspian energy transportation projects, the Iranian-American confrontation, and Tehran’s doubts that Russian-American cooperation is viable are forcing the country’s leaders to demonstrate more flexibility in regional policy and remain loyal to their alliance with Russia in the interests of their own security and as a possible counterweight to America’s Central Asian policy. Moscow itself, in the context of bitter geopolitical and geo-economic rivalry with Washington in CA and the Middle East, finds cooperation with Tehran to be its only solution, even at the expense of a compromise in the Caspian Sea delimitation process or in Iran’s nuclear program. So, Iran and Russia are joining forces to pull Central Asian states onto their side by implementing regional projects as the international transport North-South corridor, the North-South fiber optic communication line, and others which in the future might promote the economic integration of these states. Moscow is surely rewarded by acting as an intermediary between Iran and the West, and by Tehran’s consent to Russia’s intention to join the Organization of Islamic Council (OIC), as a counterweight to America’s influence on the Islamic world in general and on the Muslim oil and gas exporters in particular.
The same scheme applies to China, another of Moscow’s rival. In fact, since the mid-1990s Russia and China have been talking about building, together with Iran, the so-called pan-Asian continental oil bridge, a network of pipelines that will connect the Russian and Central Asian fuel energy producers with Chinese, and possibly also Korean and Japanese, customers. This idea has the potential of being realized, provided Tehran joins the Shanghai Cooperation Organization, in an energy security project binding actual SCO members (Russia, China and the Central Asian states) with Iran.
20 See: St. Blank, “China’s Emerging Energy Nexus with Central Asia,” Jamestown Foundation, China Brief, Vol. 6, Issue 15, 19 July, 2006.
21 Ibidem.
Talking about the European Union, it is inclined to involve Russia and China in its Iranian projects, a tendency which contradicts U.S. interests in the region.22 We must bear in mind that Iran is already an energy exporter to Europe through Turkey, funneling through Turkmenistan’s gas and swapping oil with Kazakhstan and Azerbaijan. Iran, Russia, and India have also conceived new areas of cooperation that connect northern Europe to the Indian Ocean via Iran and the Russian Federation. In that sense, the 25-year supply agreement, worth up to $42 billion, signed between Iran and Switzerland, is only a prelude to what could follow if America does not find a more comprehensive way of dealing with Iran.23
The EU is also in favor of Iranian participation in projects such as Nabucco, White Stream, and the Iranian-Turkish gas pipelines, with the possible inclusion of Arabian gas originating from Egypt or Syria.24 These Iranian endeavors can reorient Central Asian energy routes through its territory and form a kind of “gas cartel” along with Russia and the CA countries, an idea put on the table recently by the Gulf Cooperation Council and approved by Tehran.
Of course, any thought about Tehran’s possible inclusion in the Nabucco project produces strong American opposition, but both the EU and the U.S. are maneuvering new incentives for Iran to scrap its uranium enrichment program.25
As for Turkey, in an effort to become the main energy corridor to Europe through the TransCaspian gas pipeline, it is not excluding the possibility of Iran’s involvement. In fact, it is actively involved in the project for moving Iranian and Turkmenian gas to Europe across Turkey, which, it is convinced, will allow Europe to become independent of alternative gas suppliers. Provided that Washington’s relations with Tehran improve, these geo-economic trends might come to the fore in U.S. Central Asian strategy. Such a thought sounded more realistic when the Bush administration no longer regarded Turkey as a reliable and acceptable partner when it comes to transporting energy resources to Europe.
The prospect of developing an alternative petroleum route from both the Caucasus and Central Asia to the Persian Gulf via Iran would be a wise foreign policy initiative in “realpolitik” terms. Iran has the potential of becoming an international petroleum port pumping station for its own petroleum resources, as well as that of the oil-rich Central Asian republics and the Caucasus. This would minimize Russia’s influence and Europe’s reliance on Russian energy and pipeline routes, while providing a greater sense of energy security for the industrialized world.
Iran clearly has the capacity for a Kazakhstan-Turkmenistan-Iran pipeline. The project, which is estimated at around $1.2 billion, is currently being considered and may develop into a viable strategy and solution, pumping 1 million bbl oil per day from Kazakhstan and Turkmenistan to the Persian Gulf island of Kharg. Tehran is also supporting a projected Iran-Turkmenistan-Turkey-Europe gas pipeline which, covering a distance of 3,900 km, will supply up to 30 billion cubic meters of gas by 2010.26
A cooperation context between Europe and Iran could include, apart of Iran’s contribution of gas to the Nabucco pipeline project, the use of the Iranian grid for transporting natural gas from Caucasian and Central Asian producer states to the European market, as well as European investments in the Iranian energy sector.27 It may look like a paradox, but Washington will not be able to reduce
22 See: “Shell, Repsol Wary of Iran Deal: Report,” PayvandNews, 3 May, 2008.
23 See: “US Fearful of Iran-Europe Gas Deals,” Payvand News, 3 May, 2008.
24 See: D. Gollust, “Major Powers Make New Incentives Offer to Iran,” VOA, London, 3 May, 2008.
25 Ibidem.
26 See: R. Molavi, M. Shareef, “Iran’s Energy Mix and Europe’s Energy Strategy,” Durham University Centre for Iranian Studies, Policy Brief, 2008.
27 See: I. Grigoriadou, “Evropaiki Energiaki Asfaleia—Ellhno-Tourkiki Synergasia” [European Energy Security -Greek-Turkish Cooperation], ELIAMEP, Policy Brief , No. 12, December 2008.
Europe’s dependency on Russian gas without Iran’s participation. As Russian analysts point out, it is up to Tehran to decide whether to gain access to the Western market through participation in the Nabucco project orjoin Russia, China, India, Pakistan, and some of the CA countries in implementing the “Energy of Asia” scheme. They also suggest that cooperation within the SCO appears to be the most convenient form of integration among Russia, Central Asian states, and Iran.28
28 See: V. Yurtayev, “Iran and Russia: New Start after 30-year Pause,” Strategic Culture Foundation, available at [http://en.fondsk.ru/print.php?id=1877].
