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China: A Lifeline for Iran and Its Oil Exports?

There were few signs that U.S. Treasury Secretary Timothy Geithner had any success during his visit to Beijing this month to persuade China to help pressure Tehran over its nuclear program by buying less Iranian oil.

View of Iran's oil industry installations in Mahshahr, Khuzestan province, southern Iran.
Kaveh Kazemi | Getty Images
View of Iran's oil industry installations in Mahshahr, Khuzestan province, southern Iran.

"China's regular demand for energy has nothing to do with the nuclear issue and it should not be affected," Foreign Ministry spokesman Liu Weimin said Jan. 11, after Mr. Geithner met with top Chinese leaders.

China is Iran's largest oil and gas client, and Beijing has consistently played down economic sanctions as an effective way to influence Tehran, or any other government.

"Few issues can be solved by sanctions," says Tao Wenzhao, a foreign-affairs analyst at the government-sponsored China Academy of Social Sciences. "We think that the correct way to resolve international issues is through negotiations."

But while Beijing's reluctance to go along with United States sanctions came as little surprise, at the same time there seemed equally little chance that China would increase its Iranian oil intake to help Tehran if other countries cut back their purchases.

The European Union has agreed in principle to an oil embargo, and U.S. allies such as South Korea and Japan, two other major importers of Iranian oil, could also join America in pressuring Tehran.

"China will not go all the way" to support Iran, says Willem van Kemenade, a Beijing-based expert on Sino-Iranian relations. "They are not going to confront the US in a decisive way."

Oil traders here say Beijing, which last year bought 11 percent of its oil imports from Iran, cut back on purchases this month. But this appears to be a result of a dispute over price and credit terms, as China seeks to profit from Iran's straitened circumstances by bargaining for a better deal.

The temporary cutback, for which Beijing has compensated with emergency purchases from Vietnam, Russia, the Middle East, and Africa, does not mean that China has any sympathy for planned U.S. sanctions, analysts here say.

On New Year's Eve, President Obama signed a bill that would ban foreign financial institutions that deal with Iran's Central Bank from operating in U.S. financial markets. That would effectively make it impossible for refiners in China to pay Iran for the oil they buy.

Chinese officials have repeatedly criticized the effort to make other nations follow America's lead. "To place one country's law above international law and force others to obey is not reasonable," Mr. Liu said Jan. 11.

"China is not a U.S. ally, and it is not obliged to abide by U.S. law," adds Dr. Tao. "This is hegemonic behavior."

Chinese leaders may expect that Mr. Obama will exempt Beijing from the effects of the new bill, as he is empowered to do, on national security grounds. They may also be counting on resistance to the congressional bill from U.S. allies such as Japan and South Korea, both of which have expressed reservations about its impact on world oil prices.

Previous congressionally mandated international sanctions have failed, Tao recalls. A 1996 bill introduced by Sen. Alfonse D'Amato (R) of New York, punishing foreign companies that made energy deals with Iran, sparked such an international outcry that then-President Clinton issued a waiver to European countries.

"I doubt very much that the stipulations of the new law can really be implemented," says Tao. "It will cause widespread opposition around the world, not just from China and Russia but from U.S. allies, too."