The Obama Administration – with Secretary of State Hillary Clinton playing Sancho Panza to President Obama’s Don Quixote – continues its futile quest to induce China to foreswear its increasingly strategic energy relationship with Iran. Two recent articles – one from AFP, the other in The Wall Street Journal – indicate that the Administration is encouraging Gulf Arab oil producers, including Saudi Arabia and the United Arab Emirates, to expand their oil exports to China. According to U.S. officials, the goal of this effort is to persuade Beijing to roll back its burgeoning energy ties to the Islamic Republic.
The Obama Administration’s latest initiative to “ween” China off Iranian oil would be comical were it not such a galling manifestation of strategic incompetence. We have discussed the economic and strategic factors shaping the development of Sino-Iranian relations in two earlier posts (here and here) on this blog and in a monograph we published with our colleague John Garver last week.
Based on this extensive analytic work, it is clear to us that merely increasing the volumes of crude oil available to China from Gulf Arab energy producers will not induce Beijing to abandon its ties to Iran, for at least four reasons.
First, Chinese decision-makers will not accept such a reduction in the diversity of their country’s oil supply sources in the Gulf. Looking ahead, China is the great marginal market for Gulf Arab oil producers. Saudi Arabia and the UAE will be sending more of their production to China anyway; Beijing does not have to surrender its ties to Tehran in order for that to happen.
Second, Iran has the potential to become a major supplier of gas as well as oil to China. Saudi Arabia is certainly not able to do this. While the UAE is a nominal gas exporter, its own domestic needs for additional gas supplies are so great that it will not be in a position to increase its gas exports to any strategically meaningful degree.
Third, with the Islamic Republic – in contrast to every other hydrocarbon producer in the Gulf – Beijing has at least a theoretical option to transport oil and gas to China via overland routes. China could do this by running pipelines from Iran to Central Asia, where CNPC – China’s largest national energy company – is already developing oil and gas export infrastructure in Kazakhstan and Turkmenistan. Conversations in Beijing with Chinese military and intelligence officials suggest that parts of China’s policy making apparatus are quite focused on this option.
Fourth, Chinese energy companies have opportunities to access upstream resources directly in Iran, in contrast to almost everywhere else in the Gulf. Since the end of 2007, all three of China’s major national energy companies have signed upstream investment contracts in the Islamic Republic; more upstream deals are almost certainly in the works. While Saudi Arabia lets foreign companies (including a Chinese company) explore for non-associated natural gas in the Kingdom, Saudi Arabia is not about to let Chinese or other foreign companies into the Kingdom’s upstream oil sector. Likewise, Kuwait remains closed to foreign participation in upstream projects. Abu Dhabi affords foreign companies greater opportunities than Saudi Arabia or Kuwait to participate in developing upstream oil and gas resources, but, in practical terms, Chinese companies are not well positioned to establish significant upstream positions in the UAE. Even in Iraq, CNPC and other Chinese companies are not likely to obtain anything other than service contracts to work on Iraqi oil fields.
The Obama Administration’s “dual track” approach to the Iranian nuclear issue – which seeks, in essence, to present Tehran with a choice between surrender and “crippling” international sanctions – is a charade.
– Flynt Leverett and Hillary Mann Leverett