Oil and politics go together. As much as one would wish for the two to keep clear of each other, they remain deeply entwined. And politics continues to impact, rather heavily, the crude markets. Recent events once again prove that.
While the world remained focused on the tug of war on the Iranian nuclear issue for the last couple of weeks, pundits kept arguing on the possible options. The hawks in the Washington administration and the US media kept furthering the possibility of putting in place harsh sanctions through the UN Security Council that could weaken and break the Iranian nuclear resolve, if any indeed.
Was it really possible to put up a joint show against Tehran? That is a difficult question to answer, yet analysts feel crude considerations could have thwarted the Washington bid to evolve a joint strategy against Tehran on the issue. After all politics revolves around protecting the interests of the nations’ involved and indeed crude interests of the countries involved in the entire theatre differed — and rather significantly — one could underline without fear or favor. And the crude shadow was hanging on the entire debate.
Iran is the world’s fourth-largest crude exporter and holds the world’s third-largest proven oil reserves. The country exported nearly two-and-half-million barrels of oil a day in 2008. Oil exports account for nearly half the Tehran’s revenues and most of its exports went to Asian countries, with China taking a big chunk. In an environment marked by a global competition to secure energy supplies, it was rather naive to believe Beijing would risk alienating Tehran.
Eyes were thus on Beijing. The issue was: Could it afford to stand firm against Tehran? Many said sanctions against the Iranian energy industry were literally off the table because China and other nations are too reliant on Iran’s oil. “They look to Iran as a major source of future oil supplies,” underlined James Placke of Cambridge Energy Research Associates. Chinese imports of Iranian crude grew to 13 million metric tons in the first half of the year to about 15 percent of China’s total, and up 22 percent from a year earlier, according to government data.
China depends on imports for half of its oil needs. That ratio will have to increase to make up for the shortfall from domestic production, which can’t grow much more, leaving China eager to keep Iran’s oil flowing unchecked.
Moreover, China has been investing heavily in Iran too as it looks to lock up energy resources for its growing economy. As the interest of the Japanese, European and Canadian firms wanes in the face of US pressure, Chinese oil companies were seen strengthening their ties to Iran’s oil industry in recent months. They have recently signed a string of multibillion-dollar deals to develop Iranian oil and gas fields, filling the gap left after Iran’s talks with major Western oil companies collapsed under the growing threat of nuclear sanctions. The China National Petroleum Corp., has recently signed billion-dollar contracts to develop oil and natural-gas fields, replacing other foreign companies that have backed out. China’s biggest oil refiner, state-owned Sinopec Group, has also signed on to develop Iranian oil fields. In fact as per some indications, state-run Chinese oil firms now have deals worth over $100 billion with Iran.
For Beijing to put everything in jeopardy would not have been possible. And even though the Russians had signaled some willingness in recent days to stand firmer against Iran — perhaps to reciprocate Obama’s plans to scrap a missile defense system in Central Europe — many thought Russia too was still not willing to go after Iran’s energy sector.
“Russia and China aren’t yet at the point where they’ll be willing to cut off oil and gas investment in Iran,” believes Michael Levi, senior fellow for energy and the environment at Council on Foreign Relations.
And it was the crude connection between Beijing and Tehran that led some pundits especially in the West to insist it fueled the Iranian intransigence on the issue. Don’t look for Iran to throw up the white flag anytime soon, some said.
And China is just not looking at Tehran. Already it enjoys extremely cordial relation with Riyadh too — its major crud supplier. It is also actively seeking cooperation with energy rich Africa. Chinese foray into Angola and other energy rich African states have been highlighted in the recent months too. A Chinese state-owned oil company is reportedly in talks with Nigeria, where 16 licenses are currently up for renewal, to buy large stakes in some of the world’s richest oil blocks.
The deal could eclipse Beijing’s previous efforts to secure crude resources overseas. The bids could also pitch Beijing into competition with western energy majors — Shell, Chevron, Total and ExxonMobil — which partially or wholly control and operate the 23 blocks under discussion. CNOOC is currently seeking to acquire 6 billion barrels of oil, equivalent to one in every six barrels of the proven reserves in Nigeria, sub-Saharan Africa’s biggest crude producer and a major supplier to the US. The overall value of the Chinese offer is not very clear, although a figure of about $30billion has been suggested in recent reports. Some oil sector executives claim the total on the table is $50billion. Realpolitik dictates nations to act according to their national interests.
Beijing too could not be expected to play otherwise, one must concede. Crude seems to be playing a very important role once again in shaping politics and positions. The two literally go hand in hand; one can’t help underlining that again.
