July 2nd 2005

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Articles from this issue:

COVER STORY: Unanswered questions about the Chinese defectors

CANBERRA OBSERVED: Senator Brian Harradine retires

EDITORIAL: How best to help our children

TRADE: 'Benign neglect' no answer to debt crisis

RURAL POLICY: Water trade to shift water from farms to cities

QUARANTINE: Government appeals against court ruling

TASMANIA: Potato-farmers' outrage at fast-food giant

ABORTION: Feminist luddites of the abortion lobby

RELIGIOUS FREEDOM: Christianity under threat in Sri Lanka

HUMANITARIAN CRISIS: East Timor in grip of major famine

ENERGY: China exchanges nuclear technology for Iranian oil

STRAWS IN THE WIND: The improvident society / A pub with no beer / Beazley's tax strategy / To Hell and back

Europe's malaise (letter)

Colin Teese on Europe (letter)

Strategy to prevent bushfires (letter)

Big Brother: sewage on TV (letter)

Child support reforms (letter)

BOOKS: GAY MARRIAGE: Why it is good for gays, good for straights, and good for America

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China exchanges nuclear technology for Iranian oil

by Dr Sharif Shuja

News Weekly, July 2, 2005
Two disturbing aspects of the growing China-Iran alliance are Iran's access to the People's Liberation Army's improving ballistic missile technology, and China's support for Iran's nuclear energy programs, writes Dr Sharif Shuja.

China remains the sole long-term challenger to US hegemony. As its economy rapidly expands, so does its thirst for oil, gas, coal and electricity. Today, China accounts for 12 per cent of the world's energy consumption - second only to the US at 24 per cent, and up from 9 per cent a decade ago.

China's whole modernisation strategy requires access to abundant supplies of energy. Once largely oil-self-sufficient, China has over the last decade become increasingly reliant on imports, which now account for 60 per cent of its oil consumption, compared with only 6 per cent in 1993. China's oil imports are expected to continue rising and to account for 77 per cent of the country's estimated demand by 2020.


Chinese petro-diplomacy already extends worldwide as far as Africa. It is establishing surveillance stations, naval facilities and airstrips to safeguard the oil route from the Gulf to the South China Sea. But its main goal in escaping dependence on maritime oil supplies is access to Iranian and Central Asian, as well as Russian, oil.

Iran and the Central Asian states are China's neighbours, and Beijing is keenly interested in accessing the energy resources lying there. Central Asia is rich in oil and natural gas reserves. According to estimates, 200 billion barrels of crude oil, i.e., a quarter of the world's total, are present in countries lying on the coasts of the Caspian Sea. Similarly, abundant quantities of natural gas are also present in these countries. There are also huge oil and gas reserves in Iran.

Iran is a large oil producer, with a growing and capable population and serious industrial potential. By 2050, its population is projected to exceed that of Russia. Several states have an interest in good relations with Iran for economic reasons.

In early July 2004, Iranian Minister of Petroleum Bijan Namdar Zanganeh announced that several large oilfields had been discovered in south-west Iran, raising the country's oil reserves by 17 billion barrels to 132 billion barrels, the second largest in the world, accounting for 11.4 per cent of the world's total.

Zanganeh predicted that Iran's daily oil production, now 4.2 million barrels, would exceed 7 million barrels in several years. Experts point out that the world currently consumes about 77 million barrels of crude oil every day. This figure is likely to hit 90 million barrels by the end of 2010.

Iran's huge energy reserves mean that the country will have a bigger say on the world stage as global energy demand increases. China, a huge energy consumer, naturally wants to have a hand in what happens to these vast energy resources. Hence, China is warming to Iran.

China's interest in Iran

China and Iran enjoy exemplary friendly ties (diplomatic relations were established in 1971), which have not only sustained changes of governments and the ups and downs in the regional and global situation, but, in fact, have been expanding and deepening. In June 2000, both governments signed a joint communiqué on enhancing bilateral cooperation on the basis of mutual respect for sovereignty and territorial integrity, equality and mutual benefit, and peaceful coexistence.

In March 2002, Wu Yi, a member of China's State Council, visited Iran to meet with President Mohammad Khatami. The aim of the visit was to improve trade and economic ties. In August 2003, Iran's Foreign Minister Kamal Kharrazi went to Beijing for more economic talks with Wu. In terms of economic relations, China has become one of Iran's most important trade partners.

Bilateral trade has increased rapidly in recent years, with trade volume reaching some US$3.3 billion last year, several times higher than a decade ago. Chinese firms are active in Iran in the field of electricity, dam-building, cement plants, steel mills, railways, shipbuilding, transport, oil, gas and refineries. Chinese car manufacturer, Chery Automobile Co Ltd, opened its first overseas production plant in Iran in February 2003. China is also cooperating with Iran to develop ports, jetties, airport and infrastructure, including motorways and metros in six Iranian cities.

Two troubling aspects of the growing China-Iran alliance are Iran's access to the improving ballistic missile technology being developed, deployed and utilised by the People's Liberation Army, and China's support for Iran's nuclear energy programs. Iran has a long history of acquiring nuclear weapons programs. In light of the fact that the founder of Pakistan's nuclear program, Abdul Qadeer Khan, is said to have provided Tehran not only with equipment for enriching uranium, but also with actual designs for the bomb, Iran's claim to be pursuing a civilian nuclear program looks unconvincing.

It is clear that without the transfer of nuclear technology from China and Russia (Russia's contribution to the Bushehr reactor is significant), Iran could not have achieved the pace of progress that it has in developing nuclear weapons.

Iran, as a signatory to the Nuclear Non-Proliferation Treaty and the treaty's Additional Protocol, which calls for intrusive safeguards, claims that it has the legal right to engage in peaceful nuclear research and development, subject to inspections of the International Atomic Energy Agency (IAEA).

Iran has consistently insisted that its nuclear programs are solely for peaceful purposes and that is has no existing program to develop nuclear weapons, nor has it the intention of developing one.

But why would Iran need to pursue a civilian nuclear program when it possesses among the largest proven oil and gas reserves in the world, which are more than enough to fuel its domestic needs? Why would it opt for nuclear energy, which is far more complicated to develop and far more expensive to produce?

Washington has accused Iran of deceiving the international community and of harbouring a nuclear weapons program. Washington fears that once Iran owns nuclear weapons, it will sell them to terrorists and threaten the security of the United States and its allies. So, the Bush Administration is talking tough, considering options such as sanctions or régime change.

Meanwhile, the US will look to its Proliferation Security Initiative, launched by President Bush two years ago, to contain proliferation as an international mechanism to put pressure on Iran through interdictions of cargoes by sea and air.

Nuclear weapons technology

The Review in February 2005 reported that the US has imposed sanctions on seven Chinese firms suspected of selling nuclear weapons technology to Iran. The penalties, which will remain in place for two years, include a ban on trading with, and receiving assistance from, the US Government.

Two of the largest Chinese companies named by the US, China's North Industry Corporation (Norinco) and China Great Wall Industry, have been repeatedly penalised for violating various export controls. Both have close ties to the Chinese army.

Last June, a US congressional report said China was failing to curb the proliferation of missile technology, despite promises from the Chinese Government. The report suggested China's growing dependence on Middle East oil was the main reason.

The European Union (EU), which has strong economic ties with Iran, is trying to negotiate with Iran to stop it developing nuclear weapons, and is advocating the necessity of a sustained dialogue to defuse the crisis. Like the EU countries, China has called for a peaceful resolution, rather than a military one, to resolve the Iran nuclear issue.

Zhang Yan, China's Ambassador to the UN, said on September 18, 2004: "The Iran nuclear issue should, and is completely able of being resolved within the IAEA's framework through dialogue, and China is opposed to referring the issue to the UN Security Council."

In the face of US pressure, Iran now feels that it should try its best to avoid diplomatic isolation, along with safeguarding its economic interests, by promising to halt its nuclear enrichment program.

On November 15, 2004, Iran signed an important nuclear agreement with the EU, pledging temporarily to stop all of its uranium enrichment, conversion, and reprocessing activities. In return, the Europeans have agreed to address Iran's security concerns and expand commercial exchanges. The IAEA has endorsed the agreement.

In the meantime, Khatami's administration is taking steps that would restrict the West's leverage in the long run. Focusing on oil, Iran is consciously looking eastwards, with a clear intent of reinforcing its linkages with China and India. In developing new strategic partnerships, Iran is offering China and India lucrative investment opportunities in its oil sectors.

Iran has formalised a deal with China, which conservative estimates say would amount to upwards of US$70-100 billion. It includes a Chinese commitment to purchase 250 million tonnes of Iranian liquefied natural gas over 30 years, develop the giant Yadavaran oilfield in southwest Iran (near the Iraqi border), and import 150,000 barrels a day of crude from the field at market prices.

In the long term, China also hopes to participate in an Iranian pipeline project (Nekka project). This pipeline would link Tehran to the Caspian Sea. From there, a link with another planned pipeline from Kazakhstan to China is envisaged.

China's deal with Kazakhstan is remarkable. Under this deal, China will acquire the right to develop two oilfields (Aktuibinsk and Uzan) in exchange for its commitment to build a 3,000-kilometre pipeline from the oilfields to China's Xinjiang province, and a 250-kilometre pipeline to the border of Iran (via Turkmenistan).

The construction of these pipelines is in progress. When completed, the pipeline is expected to transport a huge quantity of oil from Kazakhstan to China. It would leave China in the least vulnerable position with respect to oil transportation risks.

Iran has also entered into an estimated $40 billion tie-up with India. It covers an Indian commitment to import natural gas from Iran over a 25-year period and develop two Iranian oilfields and a gas field. India has agreed to build a 2,700-kilometre natural-gas pipeline from southern Iran to Rajasthan in central India, with Pakistan allowing the pipeline to pass through its territory.

All these developments indicate that Iran's ultimate strategic goal is to become a major economic power and hub for the transit of goods and services between the Persian Gulf and Afghanistan, and possibly even China.

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