Tag Archives: Iran

China’s CNPC Takes Advantage Of Total Retreat From Iran

WITH WASHINGTON AGAIN turning the financial screws on Iran, China stands to pick up a lot of the pieces that will get broken in the process.

The Iranian state news agency yesterday announced that China National Petroleum Corp. (CNPC) would take over Total’s 50.1% share of the $4.8 billion Phase 11 (of 24) development of the giant South Pars gas field, the world’s largest unitary gas reserve.

Terms, including financial ones, are unknown. Neither Total nor CNPC has made a public comment at this point. Confusingly, the Iranian oil ministry subsequently said that the terms of the contract remain formally unchanged, though that is not necessarily inconsistent with CNPC taking over.

Last year, in signing on, the French energy company became the first sizeable Western oil and gas company to invest in Iran following the lifting of sanctions on Tehran the previous year.

Now the Trump administration has pulled out of the nuclear agreement that enabled those sanctions to be lifted, fresh US sanctions have been imposed that force companies to choose between trading with Iran and trading with the United States.

For most Western companies, it is no choice at all. Total had already indicated that it would have to walk away from the South Pars project in the new circumstances.

CNPC, which has had a presence in Iran since 2004, already had a 30% stake in Phase 11. Iranian state-owned Petropars owns the rest.

The project is intended to supply gas to the domestic Iranian market from 2021 with excess to that requirement being exported, now assuredly eastwards rather than westwards. That gas could either be shipped or sent to China via the network of pipelines existant, under construction or planned across Central Asia and Pakistan.

China is already the largest market for Iran’s exports of crude oil and condensates, taking 24% of the total last year.

In addition, Chinese banks have extended $25 billion in credit lines for infrastructure investment, suggesting Chinese firms will easily be able to slip into the spaces vacated by Western multinationals and be in a position to negotiate favourable terms now they will be the only game in town for Tehran.

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China’s Western March Into The Middle East

President Xi Jinping (C, front) poses for group photos with Kuwaiti Emir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah (6th L, front) and heads of delegations to the eighth ministerial meeting of the China-Arab States Cooperation Forum in Beijing, July 10, 2018. Photo credit: Xinhua.

CHINA’S INTERESTS IN the Middle East are quietly expanding, driven by the region’s growing role as a source of energy and as a recipient of Belt and Road Initiative (BRI) investment.

The eighth meeting of the China Arab States Cooperation Forum, (pictured above) held with some fanfare in Beijing this month, brought that into focus, with Beijing promising $23 billion of funding to its guests.

Such large-headline-number funding packages (not that $23 billion is that large by the standards of these things) tend to comprise money already spent or committed and money that will never materialise. But $150 million that will likely be shelled out is the sum allocated to ‘social stability’. As in Africa, Chinese investments in the Middle East are at risk from social and political developments in the region. (See Libya, Zambia and Angola for precedents.)

That $150 million promise will probably manifest itself as sales of Chinese security equipment and the training to use it. Afghanistan provides a rudimentary model.

And, as in Afghanistan, China is recognizing it has to play a more active diplomatic and security role in the Middle East, and has been doing so — incrementally — since at least 2012-16, part of the ‘March West’ to counter the ‘Pivot East’ of the then US administration of Barak Obama. This was outlined in a policy paper published at the start of 2016.

The bulk of the latest tranche of offerings, $20 billion, is earmarked for loans for reconstruction and development, though that is a relatively modest sum in overall BRI investment. What the money also does is help Beijing straddle the historical rift in the region between Saudi Arabia and Iran.

China is unlikely to break its ties with Tehran and will continue to be a market for Iranian oil as restored and new US sanctions cut off sales to the West. The Trump administration’s withdrawal from the Iran nuclear deal, which Beijing played an instrumental role in setting up, is likely to leave Chinese firms better positioned commercially than they were on the ‘last man standing’ principle as Western firms are driven to retreat from Iranian business by Trump’s reversal of policy.

But equally, China needs good working relations with Riyadh and its allies, whose influence in northern and eastern Africa touches directly on China’s greater economic interests in those regions, too (from oil fields and copper mines to China’s first overseas military base in Djibouti and anti-piracy operations off the Horn of Africa).

Outreach to the Gulf States also balances within the Arab world China’s long-standing relationship with Egypt. The $65 billion memorandum of understanding for investment cooperation that Saudi King Salman signed during a visit to Beijing in March last year had already underlined this.

China sells Saudi Arabia the weapons and military kit that the United States will not out of deference to Israeli objections. One of only thee Chinese armed-drones manufacturing plants outside of China is in Saudi Arabia.

One complication for the countries of the Middle East is Beijing’s repressive treatment of its Muslim minority, and particularly the Uighers. However, few Middle Eastern leaders have spoken out publicly on this — a sign of the importance of the growing ties in other areas and China’s ability to use its economic clout to dampen international criticism of its domestic policies.

The more significant issue for Beijing in the region will be the one that has confronted the other outside powers that came before it: it is difficult to maintain a neutral position in a part of the world where there are so many overlapping and longstanding rivalries and conflicts while stepping up diplomatic and security engagement beyond the purely mercantilist.

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Iran, Oil and U.S. Sanctions: Beijing’s Complex Response

Beijing may be huffing and puffing about the sanctions Washington imposed last week on state-run Zhuhai Zhenrong Corp. for selling refined petroleum products to Iran, but it can scarcely be surprised.

“Imposing sanctions on a Chinese company based on a domestic (US) law is totally unreasonable and does not conform to the spirit or content of the UN Security Council resolutions about the Iran nuclear issue,” foreign ministry spokesman Liu Weimin says.

But it is what Washington does. Zhuhai Zhenron is one of three firms to be sanctioned in this case. The other two were Singapore’s Kuo Oil and the United Arab Emirates’ FAL Oil. Even though the sanctions on Zhuhai Zhenrong are largely symbolic as it does not do much business in the U.S. they could be considered a warning to some larger Chinese energy firms that do.

The sanctions followed Beijing’s rejection earlier last week of visiting U.S. Treasury Secretary Tim Geithner’s request that China use its economic clout as Iran’s largest oil export market to press Tehran to rein in its nuclear ambitions. Recent tightening of U.S. and EU sanctions won’t mean much if Tehran can still ship lots of oil eastwards. Tehran depends on crude oil exports for 60% of revenues and 80% of its hard currency.

Beijing’s argument was that China depended on Iranian oil for its economic development. Up to a point, but meanwhile, Prime Minister Wen Jiabao is in Saudi Arabia for the signing of an agreement between Sinopec and the Saudi energy giant Aramco to build an oil refinery Yanbu on the Red Sea with the capacity to refine 400,000 barrels of oil a day. Along with Angola, Saudi Arabia is already one of China’s top two suppliers of oil, ahead of Iran, which the number three. Wen would like to be assured China can get more oil from Saudi Arabia if necessary. Qatar and the United Arab Emirates are also on Wen’s itinerary.

Tensions are likely to remain high in the Strait of Hormuz for the foreseeable future. Iran is dependent on a break-even price for oil of $90 a barrel, so tension, if not hostilities, may suit it. Even if China and India follow Japan in reducing their purchases of Iranian oil, and even if that cut was by as much as 25%, Iran will get by. Meanwhile, China will continue to seek alternative sources of oil, and not be too sorry if Washington is diverted from its new geo-political pivot towards the Asia-Pacific region by a reminder of its interests in the MidEast.

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Shifting Sands Of China’s Relationship With U.S.

Reuters’ report that China’s three big state-owned energy companies, CNPC, Sinopec and CNOOC, have had their arms twisted by the U.S. to suspend new investments in Iran causes this Bystander to raise an eyebrow. CNPC has reportedly delayed work on a 4.7 billion dollar deal; Sinopec has postponed a 2.0 billion dollar oil development, and CNOOC has halted a gas venture according to the news agency after U.S. officials threatened sanctions against the SOEs’ U.S. investments. This they apparently did by bypassing official diplomatic channels and going directly to the companies.

Now, Washington has not had much success in getting Beijing to go along with its efforts to thwart Iran’s nuclear programme. Beijing opposes proposed UN sanctions, which would jeopardize the oil supplies it buys from Tehran, it’s third biggest supplier. Plus there is the general reluctance on Beijing’s part of being seen to be doing anything at Washington’s behest, and a general tendency to stick with old friends, especially those hostile to the U.S., (a policy that is causing some second thoughts, or at least some readjustment, in the light of events in places like Pakistan, Libya and Syria, all of which also have implications for the leadership’s legitimacy at home).

Even if there may be some shifting of the geo-political sands occurring, there is no way that any or all of CNPC, Sinopec and CNOOC would take it upon themselves to undermine official policy without at least tacit approval from Beijing. Which then makes the question, why would Beijing do this now. Is it just letting some of those swirling geo-political sands settle until prospects become clearer, or is using supposedly business decisions as a smokescreen, if we may mix and match our metaphors, for some back-channel cooperation with Washington that it sees to be in its short- or long-term advantage but which it can’t bring into the open? Or is it, as Reuters implies, just part of Beijing’s desire, seen since late last year, to ease tensions with the U.S.as it heads into it’s own leadership transition?

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Still Awaiting China Surprises From Leaked U.S. Cables

The leaked U.S. State Department cables published by WikiLeaks so far, at least those concerning China that we have seen coming from the U.S. embassy in Beijing, are mostly the diplomatic equivalent of sales-call reports: Mr X said A; Mr Y said Mr Z told him B and so on. As such many are mundane reportage of officials, advisors and academics who know they are talking to American officials, even if they may have thought at the time they were speaking in private.

Much of it is on the same level of observation that we read in the serious broadsheets attributed to unnamed government officials, except the diplomats name their sources, which provides some prurient interest. That is one reason that there are no great surprises to date. Another is that it takes a sharp pen to break out of the standard format cables follow, though these cables are refreshingly free of the polysyllabic obscurantism that wrings any meaning from most public statements by diplomats. English is, it happily turns out, the first language of U.S. senior officials after all.

Such communications are the string — hundreds of thousands of pieces of it — from which foreign ministries and security advisors form their analyses and create their policies. We have only a few pieces of that string so far that relate to Sino-American relations, all of it a year or more old, and most of it about Iran and North Korea. They do underline how much common cause Beijing and Washington have in keeping two volatile areas of the world from getting “out of control” through the acquisition of nuclear weapons, how much Beijing wants Washington to take the lead in bilateral talks with both Pyongyang and Teheran to bring them into international six-party talks to stop nuclear proliferation, how much more patient Beijing is than Washington with the diplomatic process and how much less faith Beijing has in the effectiveness of sanctions and how much more it has in the benefits of rewarding Teheran and Pyongyang for good behavior.

As we noted yesterday, our eye was caught by some assertions that Beijing’s support for Teheran wasn’t unconditional, and that it had told the Iranians that progress on the nuclear anti-proliferation talks would make continuing Chinese investment in Iran’s energy sector more likely. We wonder if future leaked cables, if published (there are more than 3,000 on China to come), will reveal the same attitude towards Pyongyang, as we believe has been happening. Most of all we are waiting to read cable traffic on the issues that get to the heart of Sino-American relations — regional defense and security and the handling of the global financial crisis and the associated macroeconomic imbalances, trade and currency issues.

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Leaked Cables Show U.S. Frustration At China’s Role In North Korea-Iran Trade

The leaks of U.S. State Dept. cables by the online whistleblower WikiLeaks as far as we can tell so far don’t reveal any great new secrets about Sino-American relations. We’ve turned up only a few China-related cables in the batches published by some newspapers, which are not the full set shown to them, so it is thin pickings at this point, though there will be thousands more to come. (WikiLeaks’ leaked cables from the U.S. Beijing embassy here.) Yet one of the few that has been made public initially underlines the depth of frustration felt in Washington about its inability to stop China playing the middleman in North Korea’s weapons trade with Iran.

A 2007 document signed by then U.S. Secretary of State Condoleezza Rice (via Guardian) mentions “about 10” occasions between December 2006 and August 2007 on which the Americans said North Korean shipments of jet vanes for ballistic missiles passed through Beijing. The vanes were trans-shipped to commercial passenger flights out of Beijing Airport, with the Chinese authorities ignoring American requests to intervene to stop them, despite the Bush administration raising the issue several times at the highest levels.

The leaked cable also says Iran was trying to buy tungsten-copper alloy plates from Dalian Sunny Industries to make the vanes itself should its North Korean supply dry up. Separate cables also have the Americans accusing Chinese firms last year of supplying Iran with materials and assistance for making chemical weapons and saying that Iran was trying to buy gyroscopes and carbon fiber for its ballistic missiles from Chinese companies.

If the jet vanes were missile related, as the U.S. claims, their trans-shipment would have been in contravention of a U.N. Security Council resolution preventing their international trade and China has publicly said that it won’t help any country develop ballistic missiles that can be used to deliver nuclear weapons. But there is plenty of wiggle room within those constraints for anyone who didn’t want to look too closely.

At the same time, a cable from the U.S. embassy in Beijing dated March 2009 says that senior Foreign Ministry officials were telling the Americans that China’s good political and economic relations with Iran weren’t unconditional, that China didn’t want a nuclear-armed Iran (and was not 100% certain Iran was developing nuclear weapons, as opposed to “nuclear capability”, which would give it some regional clout). The officials also said China was supporting international talks on the issue but that the U.S. should take the lead with direct negotiations. They also said that they had told the Iranians “not to take China’s economic interests in Iran for granted” and that progress on the nuclear issue would “create a foundation” for further Chinese investment in the energy sector.

Improved ties with Saudi Arabia makes Beijing less reliant on Iran for oil and gas. Another cable, on the occasion of Foreign Minister Yang Jiechi’s visit to Saudi Arabia in January this year, notes some prodding from the kingdom for China to get in line with international efforts to limit Iran’s nuclear ambitions, and non-specific promises that Saudi Arabia would assure what is now the largest customer for its oil of adequate supplies should its purchases from Iran be interrupted.

Without providing the supporting cable in its database of the leaks , The Guardian also reports that

the hacker attacks which forced Google to quit China in January were orchestrated by a senior member of the Politburo who typed his own name into the global version of the search engine and found articles criticising him personally.

The New York Times, another recipient of the leaked cables, adds that

The Google hacking was part of a coordinated campaign of computer sabotage carried out by government operatives, private security experts and Internet outlaws recruited by the Chinese government. They have broken into American government computers and those of Western allies, the Dalai Lama and American businesses since 2002, cables said.

The New York Times also reports that “American and South Korean officials have discussed the prospects for a unified Korea, should the North’s economic troubles and political transition lead the state to implode. The South Koreans even considered commercial inducements to China, according to the American ambassador to Seoul. She told Washington in February that South Korean officials believe that the right business deals would ‘help salve’ China’s ‘concerns about living with a reunified Korea’ that is in a ‘benign alliance’ with the United States.”

A cable from May 2009 also reveals that China felt that the “lever of economic development” had not been used effectively on North Korea in the six-party talks, and that the further sanctions being pushed by the West wouldn’t work. As with Iran, Chinese officials have been telling the Americans that they need to take the lead through a bilateral dialogue with Pyongyang to get the international talks going again. A cable from December 2009, summarizing China’s advice to the U.S. on what reassurances it should give North Korea about its intentions, gives a good sense of why Kim Jong Il’s regime feels its back is against the wall.

It also contains the best piece of diplomatic understatement in all the leaked cables we’ve seen. Wang Jiarui, who heads the Party’s department dealing with other Communist Parties, told the Americans that “it was impossible to predict North Korean behavior through ‘normal’ means of reading public indicators”.

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Hu Softens On Iran But Keeps Hard Line On Yuan

U.S. President Barak Obama took what he could from his private meeting with President Hu Jintao ahead of the Nuclear Security Summit in Washington. That was a willingness of China to be open to sanctions as well as diplomacy to pressure Iran over its nuclear program. But he got nothing when it came to the contentious issue of revaluing the yuan. That would happen when China deemed it should, Hu said, yet again, reminding his U.S. counterpart that “RMB appreciation would neither balance Sino-U.S. trade nor solve the unemployment problem in the United States,” and throwing in a cheeky suggestion that if Washington loosened its restrictions on high-tech exports, American companies could export more to China.

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