China Rushes Toward Oil Pact With Iran

By Peter S. Goodman
Washington Post Foreign Service
Saturday, February 18, 2006

SHANGHAI, Feb. 17 -- China is hastening to complete a deal worth as much as $100 billion that would allow a Chinese state-owned energy firm to take a leading role in developing a vast oil field in Iran, complicating the Bush administration's efforts to isolate the Middle Eastern nation and roll back its nuclear development plans, according to published reports.

The completion of the agreement would advance China's global quest for new stocks of energy. It could also undermine U.S. and European initiatives to halt Iran's nuclear plans, possibly generating friction in China's relations with outside powers.

Caijing, a financial magazine based in Beijing, reported Thursday on its Web site that a Chinese delegation comprising officials from the National Development and Reform Commission -- a top economic policy body -- intends to visit Iran as soon as next month to conclude an agreement. The deal would clear China Petroleum & Chemical Corp., also known as Sinopec, to develop the Yadavaran oil field in southwestern Iran.

China and Iran are attempting to swiftly conclude a deal in the next few weeks, ahead of the possible imposition of international sanctions against Iran, according to a report published in Friday's editions of the Wall Street Journal. The report relied on unidentified Iranian government officials. Sanctions could hinder Chinese investments in Iran.

Trade between Iran and China has grown quickly, though it remains relatively small, increasing from $1.2 billion in 1998 to about $10 billion last year, according to China's Ministry of Commerce.

Chinese officials declined to comment, and calls to Sinopec's offices went unanswered. In a written statement, the Iranian Embassy in Beijing asserted that the two nations have been working together on energy development "following the rule of mutual benefits and respect in all bilateral cooperation."

A deal would cement a memorandum of understanding signed by China and Iran in October 2004. The framework agreement includes a pledge that Sinopec will develop the Yadavaran field in exchange for the purchase of 10 million tons of liquefied natural gas a year for the next quarter-century.

Analysts in China said the deal should primarily be seen as part of China's global reach for new energy stocks to fuel its development -- a drive that has in recent years led Chinese companies to invest in Indonesia, Australia, Venezuela, Sudan and Kazakhstan. China is now locked into a high-stakes competition with Japan for access to potentially enormous oil fields in Russia.

But the speed with which China and Iran are moving to conclude their agreement and begin development appears to signal China's intent to limit the U.S.-led drive for sanctions against Iran to curb what Washington describes as Iran's rogue effort to develop nuclear weapons.

As one of the five permanent members of the United Nations Security Council, China can veto a sanction proposal at the U.N., or threaten to do so to restrict the bite and breadth of such an initiative.

"The timing is really interesting," said Shen Dingli, an international relations expert at Fudan University in Shanghai. "China and Iran appear to be collaborating not only for energy development but also to increase the stakes in case sanctions are imposed. This is a subtle message that even if sanctions are passed, you could have limited sanctions without touching upon oil."

China's voracious appetite for energy is increasingly guiding its foreign policy. It has used the threat of a Security Council veto to limit sanctions against Sudan, the African nation in which China's largest energy firm, China National Petroleum Corp., is the largest investor in a government-led oil consortium. China is the largest buyer of Sudan's oil, as well as the number-one supplier of arms to Sudan. The Sudanese government has been accused of massacring villagers to clear land for further energy development and of committing genocide in the western region Darfur.

China's pursuit of an energy deal comes as Iran has announced the resumption of its uranium enrichment program. Iran says this work is merely aimed at generating energy, while the Bush administration asserts that it is a precursor to the development of nuclear weapons.

China has urged Iran to halt its nuclear plans. But China's aggressive pursuit of an oil deal with Iran underscores how energy security has become a paramount concern for the Chinese government at a time of relentless industrial growth. Government forecasts show China's demand for imported crude oil growing from about one-third of its total needs to about 60 percent by 2020.

Analysts assume that the Iranian field could produce as much as 300,000 barrels of oil per day, making it one of the larger overseas operations for a Chinese company. Sinopec would hold a 51 percent stake in the Yadavaran project, according to the Caijing report, while India's Oil and Natural Gas Corp. would hold 29 percent. The rest of the venture would be divided among Iranian companies and perhaps other outside investors.

Special correspondent Eva Woo and the Associated Press contributed to this report.

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