Tom O'Donnell , Ph.D.
Thus far, Beijing has found little wiggle room to resist the U.S.-E.U.-Saudi common vision that severe sanctions be used to shut down the bulk of Iran's oil exports by June.
The reality being revealed in this confrontation is that China has much less ability to maneuver independently in the global oil system—whether in the market or in diplomatic and military matters—than most analysts would lead us to believe.
Preface: What are Washington v. Beijing´s strategic objectives here ?
In my assessment, there are clear underlying energy'market security reasons why the U.S. is pursuing this geopolitical path. The U.S. aim is to prevent Iran from projecting greater influence over key Gulf oil-market players Saudi Arabia, Iraq, the UAE, Kuwait and etc. as the U.S. withdraws from its over-extended presence in Iraq and Afghanistan. This draw-down is very important for U.S. strategy globally; but Washington will not accept Iran gaining greater influence over other local OPEC producers and thereby the global oil market (aka, The Global Barrel) as it steps back.
Stopping any Iranian nuclear program is of course a significant part of this; but really, for Washington, the more general issue is that if sanctions were lifted, Iran would soon become the oil powerhouse it is ultimately destined to be, its income would grow rapidly and its conventional military capacity along with it. Nuclear weapon or no, Iran would increase its regional weight, and, considering the region, gain a level of world oil-market clout the U.S. and its allies (whether local or European) deem unacceptable.
As for China, its oil policy is essentially hostage to this conflict. It can clearly not project significant power in the Gulf region to avert the conflict, nor its basic outcome. It also cannot now risk a major worsening of its relations with the U.S. and its allies. So, Beijing has to defend its energy security interests, which now include both short- and long-term oil relationships with Iran, but yet find a way to “go along, get along” with the U.S. and its allies on this issue.
Let's look at Beijing's initial responses to date, and consider what they imply about the oil-market and geopolitical realities it now faces:
Saudis help Beijing respond to U.S. demands
As I mentioned in a previous post, U.S. Treasury Secretary Geithner went to Beijing early in the year, on January 9, after Obama signed the new U.S. sanctions law late in December. He went to “urge” Beijing to stop buying Iranian oil. This included an ultimatum. Beijing was told to stop buying oil from Iran (in stages would be fine), or else Chinese banks found to be making payments to any Iranian bank for that oil, including to Iran's central bank, will be barred from doing business with U.S. banks. And, the EU has since passed its own sanctions which basically do the same.
And, then, within days of Geithner's visit to Beijing, China's Premier Wen Jiabao went on a five-day visit to Saudi Arabia and its allies in the Persian Gulf. This trip is quite interesting as it´s the first time in over 20 years that a Chinese premier has gone to see the Saudis.
But, the second interesting thing about this trip is that, even though China is estimated to have made some $120 billion in investments in oil and gas projects in Iran just since 2009, nevertheless, the premier skipped visiting Iran while he was in the Gulf region. [ In Talks With the Chinese, Geithner Faces an Uphill Climb, by Michael Wines, NYT, 11 Jan 2012.]
Just for some sense of comparison here: in Venezuela, PDVSA and the state under Hugo Chavez have accepted about $36 billion in loans from China. Even if one assumes say, another $10-to-20 billion Chinese investments in Venezuelan oil fields, Iran's $120 billion investments–only since 2009–are immense by comparison. Premier Wen's visit to the Gulf, yet skipping Iran, should be seen in this light.
And, what did the premier have to say as his visit progressed? This also was quite out-of-the-usual for Beijing:
“Mr. Wen's comments on Iran were unusually pointed for Chinese diplomacy. In Doha, Qatar's capital, he said China “adamantly opposes Iran developing and possessing nuclear weapons.” He also explicitly warned Iran not to close the Strait of Hormuz, the Persian Gulf bottleneck through which roughly a fifth of the crude oil traded worldwide passes, saying that such action would be regarded as aggression against most of the world's nations. Iran had earlier threatened to shut down the strait should the United States strengthen sanctions against Tehran.”
Yes, this is quite an unusually assertive stance for China, normally so wedded to its political “non-interference” policy as its businesses acquire basic commodities across the Middle East, Africa and Latin America. But, the full message still had the distinctive mercantilist bent:
“But throughout his visit, Mr. Wen repeated that China's business deals with Iran — its No. 3 supplier — were separate from diplomatic questions and that sanctions threatened global trade more than any individual nation.” [ China Leader Warns Iran Not to Make Nuclear Arms,” by Michael Wines, NYT, 20 Jan. 2012.]
Along these lines, the key aspect of the visit is that Premier Wen was also assured by the Saudis that they would make up for the Iranian oil imports China would lose if it gets on board U.S. sanctions [There was a good lead on this in Petroleum Intelligence World: “ Saudis Play Silent Role in Iran Sanctions ” PIW, Vol. LI, No. 4, 30 Jan 2012], and the Saudi's had some interesting business deals to offer.
Beijing gets the Saudi-U.S. ¨Good Cop-Bad Cop¨ Treatment
So, basically, Beijing was treated to a coordinated “good cop, bad cop” routine by the Royals and the Obama administration. Washington played the ‘bad cop,” with Geithner delivering the demand to start cutting its Iranian imports. But, immediately, the Saudi's played the “good cop” role, offering Beijing a way out for its two big concerns:
First, they offered a new, significant stream of oil imports from the Saudi's presently ample surplus capacity. Outside PIW and some industry-insiders, the fact that this is a relatively advantageous time, from a market perspective, for the U.S. to push for sanctions on Iran, has not been stressed. World demand is down and the Saudi's have a significant surplus production capacity, probably about 2.5 million barrels that they can use to wean Beijing from its Iran dependency.
The exact volume promised is not clear, but one should not assume it was only Saudi oil that was offered. (For example: In order to get the Chinese to vote at the UN for the previous instance of sanctions [Security Council Resolution 1929 of 9 June 2010], the Obama administration had pressed the Saudis beforehand to provide the Chinese with increased exports. These started to flow from the UAE after Secretary Clinton personally met with the King and pressed him on this. [I confirmed this in side discussions with other U.S. analysts during a dinner we were invited to with Pres. Ahmadinejad in NYC in Sept. 2010] )
Second , besides substituting for lost Iranian oil imports, Primer Wen also was offered new opportunities for joint investments in oil development projects:
“The arrangements included a plan by China's Sinopec Group to build a $10 billion, 400,000-barrel-a-day refinery on the Saudis' Red Sea coast. While Mr. Wen was in Qatar, the China National Petroleum Corporation unveiled plans to build a refinery at Taizhou, on China's Pacific coast, in a venture with Qatar Petroleum International and Royal Dutch Shell. “ [Ibid, NYT 20 Jan 2012]
Interpreting China´s Response Thus Far
The last time the Obama Administration wanted new sanctions on Iran, in 2010, Beijing started out rather loudly opposed, even threatening to block the sanctions at the U.N. …
Misinterpretations of China´s Opposition in 2010 and 2012
(Continued from Monday, 13 Feb 2012) The last time the Obama Administration wanted new sanctions on Iran, in 2010, Beijing started out loudly opposed, threatening to block the sanctions at the U.N., something Beijing had never before seriously threatened.
The last time the Obama Administration wanted new sanctions on Iran, in 2010, Beijing started out loudly opposed, threatening to block the sanctions at the U.N., something Beijing had never before seriously threatened.
Overwhelmingly, observers at that time declared a major nodal point had arrived in the evolution of a new “multipolar world,” that the U.S. had lost its superpower status while China was feeling its new-found strength, was “standing up to the U.S.” and would block U.S. plans to sanction Iran.
At the time, looking at the facts at hand, I objected strongly to this assessment. (See: especially Middle East Economic S urvey, and Q&A of this talk at the Middle East Institute Sept. 2009, in D.C.) In fact, China ended up dropping this public campaign and agreeing to U.S. sanctions. No major confrontation whatsoever ensued.
Thus far, in 2012, China is again coming along, albeit slowly and step-by-step, with what is going to be a much more severe sanctions regime than that of 2010.
And Beijing is coming along for exactly the same reasons it did in 2010: because its objections are not fundamental, they are well-defined business-like worries about its energy security and investments in Iran. The U.S. precisely knows this, and therefore knows exactly what to do to ‘take care' of Beijing's angst over Iran sanctions.
That's not to say that there won't be loud complaints or all sorts of give and take between Washington and Beijing; but things seem to be going exceptionally well this time, as compared to 2012. For example, this week, Vice President Xi Jinping, who will likely become China next leader, as its President, is in the U.S. and a bipartisan group of former presidential national security advisers presented Mr. Xi with a petition
“We believe that the value of these sanctions is to encourage the kind of diplomatic breakthrough on Iran's nuclear activities that both of our nations seek,” read the letter from the security advisers group, the Partnership for a Secure America, based in Washington. “In the context of your historic trip to the United States, we therefore urge you to make clear that China will significantly reduce its imports of oil from Iran, uphold the applicable resolutions of the United Nations Security Council, and use its economic influence with Tehran, coupled with robust diplomacy, to help resolve this issue peacefully.” [ Backers of Iran Sanctions Make an Appeal to China By Rick Gladstone, NYT, 13 Feb 2012.]
This might give the impression things are not going well as far as China agreeing to oil sanctions. However, on Tuesday (13 Feb.) Mr. Xi was at the White House, where, first, Vice President Biden has a meeting with Xi where he was tasked with giving him a bit of a tongue lashing on Syria, China's currency policy and such. However, according to press reports, Biden did seem to complain at all about China's policy on Iran. Moreover, shortly after this meeting, Mr. Xi was in the Oval Office meeting with President Obama.
Some of Mr. Biden's message echoed …. The president pressed him on trade practices and China's currency, as well as on Syria, though he thanked China for its support of sanctions against Iran over its nuclear program . [Ibid, NYT; emphasis added - T.O'D.]
Indeed. The point here is that, just like in 2010, any Chinese objections thus far in 2012 should not be seen as a fundamental demand that the U.S. not impose sanctions, or that the U.S. not confront Iran over expanding its regional power (via its nuclear program, its conventional forces or whatever). China is not opposed to this basic thrust of U.S. policy against Iran.
Rather, Chinese objections in 2010 (when they were rather strong) as well as now (when they are much quieter) have been focused on the quite limited demand that, if the U.S. picks a fight with Iran that it do so in what Beijing sees as a “responsible” manner. A responsible manner would include, first, that the U.S. provide Beijing with another source for the oil imports China would lose and, second, that the U.S. guarantee China's economic interests and investments already in-place inside Iran. Beijing is simply complaining: “It's not fair for Washington to start something with Tehran without taking care of our oil security and business interests!”
Washington & Riyadh are taking care of Beijing's Energy Security Worries
And, indeed, Washington (with Saudi assistance) has a history of taking care of Beijing, and has established a certain reserve of good will in this regard from the last round in 2010 which it can draw upon.
In the previous round, in 2010, the father of modern U.S.-Chinese diplomacy, Henry Kissinger, was even enlisted by the Obama administration to make a trip to Beijing to sort out the arrangements. In the end, the investments that China had made in oil and gas before that round of sanctions were somehow ‘grandfathered in' ( Spanish: tratarlas como derechos adquiridos ) in spite of the U.N. Security Council's June 2010 sanctions.
In a discussion I had with a Chinese diplomat engaged with this issue, before the U.N. vote in 2010, they were really quite nonplussed at the idea that any investments Beijing had made in Iranian oil and gas before the day UN sanctions would take effect should be negatively affected in any way whatsoever, on the argument that those Chinese investments were made before the sanctions were to be imposed, and so, the logic went, must be exempt, else, in his words, “It's not fair!”
Now, of course, if every country got such an exception, sanctions would be pretty meaningless. However, China has a UN veto (as it demonstrated over Syria recently, in concert with Russia), so, the Obama administration did indeed grant Beijing just such an exception in the 2010 round of sanctions. And, the administration is clearly ready to do something similar again with the 2012 sanctions. President Obama has been left sufficient leeway by Congress in imposing the sanctions to allow quid pro quos with states that have begun seriously decreasing their Iranian oil imports. [By the way, I can't resist asking readers to guess who Mr. Xi met with over dinner on the evening of his first day in D.C., before going to the White House? Yes, to a dinner with Dr. Kissinger, America's very own Cardinal Richelieu , along with Brent Scowcroft and others. [ibid, NYT 15Feb])
To be Continued. (Part III: Beijing's Attitudes on Geopolitics as v. on Business Relations, and etc.)