China and the Issue of Sanctions against Iran

Yuri Lyamin

The People’s Republic of China, together with Russia, from the very outset of the ‘Iranian issue’ has insisted on finding a peaceful resolution to problems through diplomatic negotiations and has spoken out against introducing tough sanctions against the Islamic Republic of Iran, but it has not taken a very firm stand on the issue. Russia has been the main opponent of sanctions. However, the ongoing processes are changing China’s position and encouraging it to take a more active role.

Background
Recently, the United States of America again raised the issue of tightening sanctions after Iran made its proposal for obtaining fuel for its research reactor in Tehran. According to an agreement proposed to Iran, it would be required to send 1200 tones of uranium enriched to a level of 3.5% at its enrichment facility in Natanz out of the country immediately. This uranium could be used as fuel in a nuclear power plant, but it is unsuitable for use in a research reactor. This uranium would have to be enriched to a level of 19.75% in Russia and France and assembled into the fuel cells needed for Iran’s research reactor.
Arguments about the proposal immediately broke out at the top levels of the Iranian government. While the administration of the President Mahmoud Ahmadinejad was ready to accept it, albeit with some modifications, a large part of the political forces both close to the government and opposed to it were totally against the proposal. Out of distrust for the Western countries, and strongly fearing possible incidents, Iran proposed a simple exchange of low-enriched uranium in stages for the fuel it needs to run its reactor, either on its own territory or possibly in Turkey. Iran’s proposal, despite its soundness and the possibility of negotiation and compromise, was almost immediately rejected by the United States and other Western countries; and they obviously chose to continue tightening sanctions.
China’s Iran position
Recent trends are making China the main opponent to sanctions against Iran. Chinese attitude is similar or tougher than Russia’s. Recent meetings by the Group of Six bear witness to that. This group consists of the six countries, including the United States, France, Great Britain, Germany, Russia and China, which have been conducting the main negotiations on Iran’s nuclear program. Some of these meetings were simply broken off because the Chinese representative did not attend. The last meeting, held on January 16 in New York, was attended by an advisor to China’s representative to the UN instead of its Deputy Foreign Minister. By sending a lower ranking representative to this meeting, China demonstrated that it is not willing to succumb to pressure from the United States and agree to tighten sanctions against Iran; and this position was confirmed during the meeting itself. All recent official statements by Chinese representatives have been totally opposed to new sanctions since they would not help solve the problem, and they have called for greater diplomatic activity and flexibility.
The attempt by Western countries to begin developing new sanctions against Iran has run into stiff opposition from China and Russia, and as a result no decisions have been made to raise the topic of sanctions for UN Security Council discussion. The parties have agreed only to new consultations on potential future measures. The West was greatly displeased by this, and many articles have even appeared in the Western media accusing official Beijing of arrogance and conceit, among other things.
China’s interests in Iran.
China’s actions are quite understandable: they do not want to sacrifice their own interests in favor of the United States. China has considerable interests in Iran and they continue to grow. In the economic sphere, the total amount of direct trade alone between China and Iran grew from a little over $3 billion in 2001 to almost $30 billion in 2008; and indirect trade takes place, as well, through Pakistan and the United Arab Emirates. Over the past decade, China has become Iran’s largest trading partner. Direct trade fell off during 2009 because of the world economic crisis and the drop in oil prices, but it is nonetheless expected to exceed $25 billion. This large trade volume came about as a result of the simultaneous increase in both exports and imports by both countries in recent years.
Iran is China’s third largest oil supplier after Saudi Arabia and Angola. China does not plan to reduce the volume of its oil imports from Iran during 2010. This is guaranteed by the multibillion-dollar contracts signed with CNPC, a major state-owned Chinese petroleum corporation, for development of the major oil fields in Northern and Southern Azdegan and the oil and gas field in South Pars, as well as with Sinopec, another major state-owned Chinese company, for development of the Yadavaran field. It is also worth mentioning that Chinese companies are beginning to replace some Western companies. For example, CNPC has replaced the French company Total in developing the South Pars field.
China, in turn, is becoming an increasingly important source of industrial goods and technologies for Iran, including items that it finds difficult to buy in other countries because of pressure from the United States. The memorandum of understanding between Sinopec and the Iranian oil refining company NIORDC involving multibillion-dollar investments in the Iranian oil refining industry is one of the most important agreements signed by Iran in 2009. Under this plan, the Chinese would build new oil refineries and modernize older ones. The plant in Abadan is one of the specific facilities mentioned; the upgrades to this facility and the construction of a new plant in Hormuz will increase gasoline production there by 29%. This is very important to the development of the economy and security of Iran, where there is a shortage of oil refining capacity. This shortage occurred in Iran because, on the one hand, Iran has kept gasoline prices in the country low, creating a high demand for fuel within Iran and incentives for smuggling to neighboring Turkey and Pakistan, and, on the other hand, because the lack of investments and the near impossibility of obtaining new technologies from the West have kept Iran from developing its oil refining industry and increasing its capacity. Iran will gradually begin solving this problem with the assistance of the state-owned Chinese companies by more than doubling its overall oil refining capacity in the next few years, from 1.56 million barrels per day to 3.2 million.
Another area of Chinese-Iranian trade that greatly annoys the United States is the supply of gasoline and diesel fuel to Iran. Under pressure from the Americans last year, many companies ceased or reduced deliveries of refined petroleum products to Iran, but that pressure has no effect on Chinese companies, which have very high capacities and are rapidly increasing exports to Iran. Thus, the further development of cooperation between China and Iran in these areas coupled with Iran’s ongoing reforms aimed at combating smuggling and fuel-saving may soon render all of the US efforts to create a fuel shortage within Iran completely useless.
Deliveries to Iran of equipment manufactured in China are increasing, from ordinary trucks to various types of special-purpose machinery. For example, CNHTC, one of the largest Chinese vehicle manufacturers, has a contract with Iran’s Khodro Diesel to deliver 10 thousand trucks per year. Cooperation between a number of Chinese and Iranian partners in engineering and electronics, among other fields, is intensifying to the mutual benefit of both countries.
China also has prospects for military-technical cooperation with Iran. China has long-standing ties with Iran in this area; it became one of the main suppliers of arms and military technology in the first few years after the Islamic Republic of Iran was formed, during the war with Iraq. The technologies provided by Beijing allowed Iran to develop the capability to independently produce many weapon systems, from small marine vessels to missiles. And now, China has various types of modern weapon systems to offer.
Chinese-American differences.
In addition to China’s economic motives for opposing American plans to tighten the sanctions against Iran, it also has foreign policy reasons for doing so. In recent months, several diplomatic conflicts have been sparked by such issues as the introduction of prohibitive tariffs on several Chinese goods and by US deliveries of new, improved Patriot Advanced Capability-3 air defense missile systems, UH-60 Blackhawk helicopters and other weapons systems for the Republic of China in Taiwan worth a total of $6.5 billion. The supply of military hardware to Taiwan is particularly painful for China. On the one hand, it is considered a clear example of the application of double standards by the United States, which tries by every means available to prevent deliveries of S-300 air defense missiles and other arms to Iran, against which no sanctions in this area apply. On the other hand, the United States is arming the government of Taiwan, which enjoys only limited recognition.
Another point of conflict was the dispute over Google’s actions in China, which became a diplomatic issue after US Foreign Secretary Hillary Clinton supported Google and spoke out against China’s regulation of the Internet. All of this naturally provoked a strong reaction in China. For example, editorials in the newspaper Renmin Ribao (‘People’s Daily’), the official organ of the Central Committee of the Chinese Communist Party, said that American Internet companies had become pawns in the hands of the US government for promoting American interests and influence. They cited the use of Twitter and YouTube to provoke and organize riots in Iran after the presidential elections as an example of such interference by the United States. Likewise, the February meeting between President Obama and Tibetan separatist leader Dalai Lama XIV did not help relations between Beijing and Washington.
Even this brief review of the current political and economic situation shows why Chinese antagonism toward the introduction of new sanctions against Iran is growing, and why it will be much more difficult now than previously for the United States and other Western countries to overcome Chinese objections. It is already making the US administration increasingly nervous as Secretary Clinton recently showed by her statement about the possible diplomatic isolation of China should it not support the imposition of additional sanctions. It appears that the United States has decided to resort to overt pressure and it is difficult to predict how the situation will evolve, since such pressure may lead to further confrontation with China when coupled with the growing disputes on other issues.

Source (in Russian)

Translation: Vebber