'Unfortunately for the West, all roads lead through Beijing'

Friday, 15 June 2012

'Unfortunately for the West, all roads lead through Beijing'

Via FLC

"...In April, China’s imports of Iranian crude nearly doubled, surging some 48 percent to reach 1.6 metric tons. That spike effectively reverses the trend seen since this winter, in which China – leery of mounting Western economic pressure against Iran and attendant penalties on its energy clients – had begun to trim its energy commerce with the Islamic Republic. Nor does it seem to be an anomaly; experts predict that Iran’s oil exports to China will return to regular levels in coming months, striking a significant blow to U.S. and European efforts to isolate Iran in the process.Crude purchases aren’t the only way Beijing is helping Tehran to weather Western sanctions. In recent weeks, as U.S. and European sanctions on Iran have begun to bite in earnest, China’s government has stepped into the void left by fleeing foreign partners. China’s shippers, for example, have capitalized on the lack of market competition to do a thriving business carrying Iranian oil. Chinese insurers, meanwhile, increasingly have supplanted skittish Western underwriters and guaranteed Iran’s foreign crude export shipments.

What accounts for Beijing’s backsliding? Economic considerations certainly play a role. Iran has long served as a key supplier of energy to China, and its output remains crucial to China’s economy. Despite some success in diversifying its energy sources over the past two years, Iran is still estimated to provide China with nearly 12 percent of its total annual foreign crude. That makes Iran roughly as significant for China, in energy terms, as Saudi Arabia is for the United States. It’s also why Chinese officials have been quick to declare that, notwithstanding a looming European ban on Iranian oil (now slated to take effect July 1) and U.S. threats of economic penalties, “the volume of our shipments will not drop.”

But politics are also bound to figure prominently in China’s calculus. China is a member of the “P5+1” group, and as such has watched firsthand the frenzied diplomatic efforts of the United States and its European allies for a negotiated settlement with Tehran over its nuclear ambitions. As of this writing, recent talks (first in Istanbul and most recently in Baghdad) have set up a protracted negotiating track that has, however temporarily, slowed Western efforts to apply economic pressure to Iran. In the process, it has provided the Iranian regime with much-needed breathing room to continue its nuclear effort.

Perhaps Chinese officials now believe that Iran’s leaders can indeed delay the West through diplomacy long enough to cross the nuclear Rubicon. Or perhaps Beijing is gambling that the Obama administration, concerned about the looming U.S. election, will be loath to deal with the economic implications of truly holding China to account for its partnership with Iran.

In and of itself, China’s break with Western sanctions is bad enough; but the signals from Beijing could end up becoming contagious. Western sanctions efforts have long struggled with the “free rider” effect, in which companies and countries involved in trade with Iran are reluctant to reduce commerce lest a competitor or alternate simply step in and take their place – and their profits. In just one example, Pakistan recently has sought to capitalize on the retraction of Iran’s traditional trading partners as a result of new Western sanctions by proffering new diplomatic outreach and energy cooperation to the Islamic Republic. Should China follow suit, the effect on the fragile consensus that now exists in Asia regarding disengagement from Iran could be nothing short of ruinous.

Which is why officials in Washington are now working hard to woo Beijing back into the fold. In early May, Secretary of State Hillary Clinton used the occasion of a high-profile speech in Beijing to urge China to join a “strong and united” international front against Iran. Clinton’s comments reflect an uncomfortable truth that lies at the core of current Western policy; in the effort to peacefully curb Iran’s nuclear ambitions, all roads lead through Beijing."