Tuesday, May 3, 2011

China-US diplomatic minuet over Iran...

China-US diplomatic minuet over Iran...

The latest WikiLeaks/CIA cables exclusively with Reuters open a window on the complex diplomatic minuet being played out between China and US over Iran sanctions. What comes to relief is the extent to which Washington is going to get China to roll back its energy tie-ups with Iran and the seamless pragmatism on the part of China to run with the hare and hunt with the hounds.

It all began in 2009 with the US goading Saudi Arabia to step up its oil exports to China so that China becomes less dependent on imports from Iran. The Saudis were willing to play ball since Riyadh was in any case keen to diversify its exports to the Asian market and China is a famously huge guzzler. The convergence of interests has propelled Saudi Arabia today to emerge as China's number one oil supplier. SA today exports more oil to China than to the US.

But did that discourage China from importing from Iran? No way. It seems China cultivated both Saudi Arabia and Iran as big time suppliers of oil. Make hay while the sun shines, isn't it? The American intention was to somehow goad China into falling in line with the US' push to impose tougher sanctions against the Iranian regime. Did the Americans succeed? Partly, yes. China did become more cooperative than before on the diplomatic front. But behind the curtain, Chinese state oil conglomerates moved into Iran in a big way - ironically, to occupy the areas vacated by the western majors due to the sanctions regime! Wasn't that smart thinking? Earn American goodwill while at the same time expand the business opportunities in Iran! But that is not the end of the story.
Instead of reconciling as a passive player, China became a player on its own by taking matters into its own hands and it began performing as a a go-between for Washington with Iran. At one point, Chinese FM Yang Jiechi even assured the US diplomats that rhetoric aside, Iran "deep down" appreciated Barack Obama's willingness to work together.
Meanwhile, Chinese oil companies took care to dodge any punitive American measures by claiming that their projects in Iran were in the nature of service or engineering contracts rather than involving equity stakes or capital investments.

But Washington soon caught on. It mulled over things and came up with a two-pronged strategy - offering sticks and carrots at the same time. The US Congress adopted more stringent laws that could bring within their ambit Chinese energy conglomerates and other foreign firms operating in Iran's energy sector. But simultaneously, US also signaled that as quid pro-quo for cooperation, it would allow Chinese energy firms to gain access to the American energy market. Beijing weighed the relative factors of advantage and apparently bit the carrot and asked its big energy firms to go slow in Iran. What induced the Chinese rethink? Well, according to Reuters, "China this year has concluded several major joint ventures to develop shale gas fields in North America as it seeks drilling technology to develop its own reserves of shale gas, the world's largest."