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Tuesday, Feb. 14, 2012

China could teach India about power politics as Western pressure impacts trade with Iran

Special to The Japan Times

LONDON — As tensions rise between the West and Iran, the international community is looking anxiously to the emerging powers of the East — especially China and India — to provide some answers toward restoring the delicate balance of power in the Middle East.

China's response has been to steadfastly reject Western overtures to impose sanctions on Iran even as Beijing has signed a civilian nuclear energy cooperation pact with Saudi Arabia.

This is standard Chinese diplomatic practice in the region — trying to be all things to all parties, even when the parties concerned stand on opposite sides of the nuclear divide, as is the case with Saudi Arabia and Iran.

India's response so far has been low key, but New Delhi too is readying itself.

S. Jaipal Reddy, the Indian oil minister, has suggested that India be prepared for all eventualities, and therefore is planning to replace part of the nation's oil supplies from Iran with sources like Saudi Arabia.

India remains firm in opposing American and EU unilateral sanctions on Iran even as concerns rise that the United States might persuade Turkey to block the use of its bank as an intermediary for India to make payments to Iran for the $12 billion worth of annual crude exports.

While India is working with Iran to find the best way to ensure the uninterrupted purchase of oil from Iran, the U.S. is ready to sanction firms that do business with Iran's Central Bank and has been reaching out to its Asian partners such as Japan and South Korea in order to isolate Iran.

India imports 12 percent of its oil from Iran, which is its second-largest supplier after Saudi Arabia. Indian Finance Minister Pranab Mukherjee was categorical in suggesting it was not "possible for India to take any decision to reduce the imports from Iran drastically."

Iran clearly is feeling the impact of several rounds of economic sanctions that have been imposed on it by the West over the course of the last three years.

The Iranian economy is faltering with the nation's currency, the rial, slipping to an all-time low against the dollar after the U.S. placed the Central Bank of Iran under unilateral sanctions.

After Iran boasted for years that economic sanctions were not having any effect on it, the latest turn of economic events is a blow to the Tehran's credibility.

The troubles, however, have only just started, as the European Union, too, has imposed a new ban on the imports of Iranian oil that include curbs on the imports of Iran's main export commodity, petroleum.

Arab states in the Persian Gulf have signaled that they would be willing to fill any gap in energy supplies caused by the decision of those states that decide to curtail purchases of Iranian crude.

India's broader position on the Iranian nuclear question is relatively straightforward. Although India believes that Iran has the right to pursue civilian nuclear energy, it has insisted that Iran clarify doubts raised by the International Atomic Energy Agency regarding Iran's compliance with the Nuclear Nonproliferation Treaty (NPT).

India has long maintained that it does not see further nuclear proliferation as being in its interests. This position has as much to do with India's desire to project itself as a responsible nuclear state as with the very real danger that further proliferation in its extended neighborhood could endanger its security.

India has continued to affirm its commitment to enforce all sanctions against Iran as mandated since 2006 by the U.N. Security Council, when the first set of sanctions were imposed.

However, much like Beijing and Moscow, New Delhi has argued that such sanctions should not hurt the Iranian populace and has expressed its disapproval of sanctions by individual countries that restrict investments by third countries in Iran's energy sector.

India would like to increase its presence in the Iranian energy sector because of its rapidly rising energy needs, and is rightfully feeling restless about its own marginalization in Iran.

Not only has Pakistan signed a pipeline deal with Tehran, but China also is starting to make its presence felt. China is now Iran's largest trading partner and is undertaking massive investments in the country — rapidly occupying the space vacated by Western companies.

Where Beijing's economic engagement with Iran is growing, India's presence is shrinking. Firms such as Reliance Industries have, partially under Western pressure, withdrawn from Iran and others have shelved their plans to make investments.

There is a growing debate in China on China's global responsibilities and how China can become a "responsible global stakeholder." But as China's strong negative reaction to EU sanctions demonstrates, China is not yet ready to side with Western antagonism toward Iran. At the moment, China's priorities are energy security and secure oil supplies, especially as the economic climate in China becomes tenuous. Beijing is in no position to ignore Iran's position in its energy matrix.

So, cooperation with the West on the nuclear issue is not really on the agenda. Often the West forgets that China itself has been one of the biggest proliferators, having not signed the NPT.

Moreover, Western sanctions over the years have led to the further entrenchment of Chinese companies in the Iranian oil and gas sector, with the signing of a range of contracts worth up to $40 billion in the past few years.

With China's growing thirst for oil (it's the world's second-largest crude consumer), and Iran's oil and natural gas reserves ranking among the world's largest, there is a natural affinity between the two nations.

In the absence of Western investment, it's the Chinese companies that bring much-needed foreign capital to Iran's energy sector. China's state-backed oil trading companies are likely to be the main beneficiaries of the Western embargo on Iranian oil exports. China's approach is to maintain a balance in its ties with Iran and the Persian Gulf states.

So, earlier this month, while touring the region, the Chinese premier was strong on rhetoric in opposing Iran's nuclear pursuits, but he also defended China's right to buy Iranian crude oil as a normal part of trade.

To assuage Saudi concerns, China signed an accord with Riyadh laying the groundwork to jointly establish atomic energy facilities and to combine efforts in spheres such as the generation of nuclear fuel — thereby giving China's implicit support to Saudi Arabia's own nuclear aspirations. As pressure mounts on India on the issue of Iran, New Delhi should be thinking of emulating Beijing.

With China trying to navigate a balanced approach to power politics, India could surely learn a thing or two.

Harsh V. Pant is a professor of defense studies at King's College, London.

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