Chris Stanton

Source:

July 28. 2010

China received slightly more than 9 million barrels of oil from Iran by the end of last month, down from 13.1 million during the same period last year. Reuters

China’s imports of Iranian crude oil fell by almost a third in the first half of the year, new figures showed this week.

Volumes have decreased just as new US and European sanctions threaten to disrupt energy ties between the two countries, experts say.

Iran shipped just over 9 million barrels of oil to China to the end of last month, making it China’s third-largest crude supplier, according to fresh Chinese customs data. That was down from 13.1 million barrels in the first half of last year, even as Chinese imports from Angola, Saudi Arabia and other major exporters rose significantly.

In May 2009, Iran was the number one supplier to China,” said Afshin Molavi, an Iran expert at the New America Foundation, a think tank in Washington. “There is a lot of talk about whether this is a political decision by China or whether it’s simply a pricing matter. We don’t have a definitive conclusion on that yet.”

Iran enticed China to buy its crude and invest in its energy sector as European companies reduced their operations in the country and the Russian government pressured Tehran to curtail its nuclear programme. US companies have not been present in Iran for decades.

The result is that Iran needs China more as a partner than China needs Iran, Mr Molavi said at a recent conference on Iran at the Woodrow Wilson International Centre in the US capital. The nature of the relationship is illustrated by the fact that hardly any of the US$80 billion (Dh293.83bn) to $100bn worth of investment agreements with Chinese companies reported by Iranian media have been finalised, he said.

“In many ways, Iran is over-dependent on China for its crude oil future,” Mr Molavi said. “It’s often more in the headlines than reality, the Iran-China relationship.”

Beijing was more interested in maintaining good ties with Saudi Arabia and pursuing oil developments in Iraq, Mr Molavi said.

The new US and EU sanctions on the Iranian energy sector could further weaken Chinese interest in Iran, said Erica Downs, a China energy expert at the Brookings Institution, another Washington think tank.

New EU sanctions that came into force this week ban European companies from investing in Iran’s energy sector and selling insurance to Iranian firms. US sanctions adopted earlier this month penalise companies that sell petrol to Iran and require the US Congress to publicly investigate any foreign firm that signs a contract to invest in Iran’s energy sector.

“I do wonder if the new legislation is going to bring China closer to having to make a hard choice,” Ms Downs told the conference at the Wilson Centre. “I don’t think a Chinese company, or the Chinese government, would be happy to have their company chastised in the court of public opinion. There are still other places that the Chinese companies can go, like Iraq.”

Until now, firms such as China National Petroleum Company have been non-committal about investing in Iran, a strategy they first employed in Iraq in the 1990s when that country was under UN sanctions, Ms Downs said.

“They want to be first in line when the sanctions are lifted,” she said. “China’s national oil companies, like all oil companies, are reluctant to pump billions and billions of dollars into Iran without knowing when they will get their money out.”