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The Race for Iran

CHINA MOVES STRATEGICALLY WHILE THE U.S. REMAINS STUCK ON IRAN

 

Yesterday, President Obama declared that the international community is “moving along fairly quickly” toward imposing new multilateral sanctions on Iran.  Today, the Obama Administration followed that up by announcing new unilateral financial sanctions against individuals and corporate entities associated with the Revolutionary Guards .  The Administration proclaims that its “engagement” policy has been successful, after all, in that it has enabled the United States to consolidate some measure of Western support for additional sanctions against the Islamic Republic.  In reality, though, U.S. policy on Iran-related sanctions—unilateral, multilateral, and secondary sanctions directed against third-country entities investing in the Islamic Republic—is stuck in an anachronistic model of the global economic order. 

In this anachronistic model, America’s ability not just to keep U.S. companies out of Iran but also to limit the willingness of other Western (primarily European) companies to invest there put real constraints on the Islamic Republic’s capacity to develop its hydrocarbon resources and other important sectors of its economy.  Now, of course, non-Western countries from what we used to call the developing world—e.g., China—have emerged as increasingly critical players in the global economyThis is catalyzing a shift in the worldwide distribution of both economic and political power that has serious implications for the American approach to Iran.         

Today, Reuters reported from Beijing that China’s biggest and most internationally prominent national energy company, China National Petroleum Company (CNPC), has concluded a final contract to proceed with upstream exploration and production of Phase 11 of Iran’s massive South Pars gas field .  In June 2009, CNPC signed a preliminary agreement to undertake upstream development for South Pars Phase 11; in doing so, CNPC appeared to be threatening to displace Total, which had originally been slated to oversee both upstream development and downstream exploitation (primarily through the Pars LNG project) of South Pars Phase 11.  Now, it seems that CNPC has displaced Total from at least the upstream segment of South Pars Phase 11; Reuters reports that CNPC could start drilling in the field as early as March, after Chinese New Year celebrations are concluded. 

If the Reuters report is accurate, CNPC’s move into upstream development of South Pars Phase 11 would represent an important expansion of the Chinese company’s business activities in Iran.  CNPC began operating in Iran in 2004, signing a service contract with the National Iranian Oil Company (NIOC) to take over development of the aging Masjid-i-Suleiman oil field.  In 2005, the company commenced exploration of the Kudasht oil block.  In January 2009, CNPC entered Iran’s upstream oil sector in a strategically significant way, signing a contract with the NIOC to take the lead in developing the North Azadegan oil field, which has the potential to become a major producing asset for CNPC.  (A Japanese consortium had a similar opportunity in 2004-2006 to develop South Azadegan but withdrew, in large part, because of U.S. political pressure.)   Assuming the lead in developing South Pars Phase 11 would make CNPC a major foreign player in Iran’s upstream gas sector as well.

If the Reuters report is accurate, it would also represent an important next step in the development of China’s energy links with Iran.  As always, for a comprehensive examination of Sino-Iranian relations, including their energy dimensions, we recommend that readers take a look at the monograph we published last September through the Reischauer Center at SAIS with our colleague John Garver, Moving (Slightly) Closer to Iran: China’s Shifting Calculus for Managing Its “Persian Gulf Dilemma”.     

There was another interesting piece of energy-related news out of Iran today.  Press TV quotes the NIOC’s (NIOC) managing director, Seifollah Jashnsaz, as saying that “Iran is ready” to start exporting natural gas to Switzerland, via Turkey.  In 2008, Switzerland’s Elektrizitäts-Gesellschaft Laufenburg (EGL, an energy trading and supply company) signed a contract with a NIOC subsidiary to purchase more than 5 billion cubic meters of natural gas per year from Iran for 25 years.  The Swiss company contracted for these gas volumes to help supply the Trans Adriatic Pipeline (TAP), which EGL is developing in a joint venture with Norway’s Statoil.  The TAP—one of several projects envisioned as part of a broader European effort to develop a “southern” corridor for transporting natural gas from the Caspian Basin and the Middle East to European markets—will run from Greece through Albania and across the Adriatic Sea to Italy.  Of course, gas delivered to Italy through the TAP could also be shipped onward to Switzerland or other European markets. 

Now Iran says it is ready to start delivering the volumes for which EGL contracted.  Jashnsaz acknowledged that EGL is still in discussions with Turkey about the delivery of Iranian gas via Turkey to the TAP’s starting point in Greece.  These discussions will, no doubt, be difficult.  But Jashnsaz’s statements, along with the expansion of CNPC’s involvement in Iran’s upstream gas sector, underscore how America’s ongoing efforts to keep Iran’s natural gas reserves in the ground seem increasingly out of touch with the realities of the Eurasian energy scene. 

Notwithstanding what many in the oil and gas industry describe as weaknesses in Iran’s historical progress toward realizing its potential as a producer and exporter of natural gas, the resources are there—they will be brought out of the ground eventually, and they will go to market somewhere.  Who helps Iran to get its gas out of the ground, and where those gas volumes that are not consumed domestically are ultimately marketed, are issues of potentially profound strategic significance.      

–Flynt Leverett and Hillary Mann Leverett

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13 Responses to “CHINA MOVES STRATEGICALLY WHILE THE U.S. REMAINS STUCK ON IRAN”

  1. Jon Harrison says:

    I agree with the views of Chris and Dan Cooper.

  2. Dan cooper says:

    For electricity: uranium must be enriched to 3.5%
    For medical isotopes: uranium must be enriched to 20%
    For Nu-clear weapons: uranium must be enriched to 90%

    The White House spokesman Robert Gibbs said: Iran is not capable to enrich uranium to 20% but the US Treasury Department imposed new sanctions and accused Iran of wanting to enrich uranium to 90% to make a bomb.

    If USA believes that Iran is not even capable of enriching uranium to 20%, how can they accuse Iran of building nuclear weapons?

  3. kooshy says:

    Bahman is right on, I am from northern Tehran and I have seen how disconnected this part of the city is with the rest of Tehran south of Vanak nerveless the rest of Iran The outcome of the elections was obvious if anybody would have traveled in villages no Iranian official before Ahmadinijad had a 4 year village to village campaign before It would have been a fraud if he had lost he is good at campaigning you got to give him that after all this is a new way of politics in Iran similar to here which eventually new candidates will have to fallow to get the votes that means campaigning starts at least two years before any elections also you will need to travel to important provinces
    You can’t just go to 3 or 4 large cities and expect to win. This was in all ways an important election which has changed Iranian politics in many ways that we will see in next few years

  4. Dan cooper says:

    The lessons of Iraq have been ignored: The target is now Iran.

    Unlike Iraq, Israel, the US and Britain, Iran has not invaded and occupied anybody’s territory, but has the troops of two hostile, nuclear-armed powers on its borders. And for all Ahmadinejad’s inflammatory and hyped up rhetoric, it is the nuclear-armed US and Israel that maintain the option of an ttack on Iran, not the other way round.

    Perceived intention and potential capability is not enough to justify war,

    Iran’s crime is its independence

    http://www.campaigniran.org/casmii/index.php?q=node/9312

  5. 22 Bahman says:

    with what happened yesterday in Iran, the U.S seriously needs to refresh its so called Iran experts, and change her hostile policies toward Iran. obviously, many of these experts have no clue what an average Iranian mindset is. forget about these out of touch experts!, many of these young people, to whom many are my friends, screaming here and there are isolated socially. they can’t easily communicate with an average Iranian, let’s say a shopkeeper, a barber, taxi driver… i am not sure even their own family at large. I always tell them, look who are you mingling with the most. you even barely know somebody from lower class or even cities other than Tehran (I am not from Tehran, but many of my friends are from there).

    these were obvious long before. it seems, the U.S wanted to see them again and again. the problem is; the U.S is not used to negotiate without leverage, and is desperately trying to exploit every irrelevant phenomenon. sometimes, this is the outcome.

  6. JohnH says:

    This is so reminiscent of Venezuela–US oriented, upper classes feeling disaffected by a government the serves the interests of the broader population. Then when an election happens, they can’t conceive of the possibility that their candidate got trounced.

    As for the group thinking Washington elites, they can’t conceive of such an outcome, either. Everyone they talk to–expatriates and Western oriented elites who travel–tell them it’s not possible. Add a good dose of wishful thinking, disdain for the regime, and believing your own propaganda, and Washington ends up with egg all over its face.

    Yet they never seem to learn. It’s as if their imaginations are more powerful than what’s happening in the real world.

  7. kooshy says:

    Yesterday’s event is in line with the World Public Opinion organizations average of 12 polling with regards to the government of Iran popularity inside the country it also proves that green revolutionary dreamers and the so called Iran experts are clueless about the current internal Iranian affairs. People’s rally I saw live on TV last night wouldn’t have brought their infant Childs out if they were afraid there would be violence and if they were against the government they wouldn’t be there that is best poll everyone should consider. You can’t boss in 5 million people just because you will give them free drinks that is an insult do the dignity of every Iranian who rallied for the revolution yesterday of course no one is denying that there is no opposition with the current government there are at least 13 million who did not vote for current Iranian government but this group is not looking to mount another revolution and more importantly they can’t even if CNN and NPR run a 24/7 program begging them to do so, As Leveretss are recommending stereo typing a new revolution will damage the American standing in Iran as well as in greater middle east. If that’s what this country wants so let be it.

  8. Iranian says:

    It was obvious to everyone here in Tehran that the green people had no popular support and that the pro-IRI rallies throughout the country would be enormous. The clueless Iran experts in DC have some answering to do.

  9. Liz says:

    The pro-Islamic Republic rallies today show that the idea of a “green revolution” is rubbish.

  10. kooshy says:

    Here is what Time reported that Senior Haass should read for his next article

    http://www.time.com/time/world/article/0,8599,1963656,00.html?xid=rss-topstories

  11. kooshy says:

    All news sources indicate that Mr. Haass’s Green revolution did not have much to show yesterday did they? I think that is a point that Lavreetts got right

  12. JohnH says:

    “Who helps Iran to get its gas out of the ground, and where those gas volumes that are not consumed domestically are ultimately marketed, are issues of potentially profound strategic significance.” Perhaps the whole ballgame?

  13. Chris says:

    Clearly, the Obama administration has given in to the Israel lobby. Only time will tell whether this is good policy for the United States. My gut feeling is that the administration is heading towards a foreign policy disaster in the Middle East.