Center for Strategic Assessment and forecasts

Autonomous non-profit organization

Home / Politics and Geopolitics / China and its role in the new world order / Articles
Success story of Chinese diplomacy in the oil direction: review media
Material posted: Publication date: 03-12-2019
In this three articles by foreign authors China is an increasingly influential player in resource-rich countries – Iran, Iraq and Central Asia. If in Iran it is limited to interests in oil and infrastructure, and Iraq is added the problem of security and confrontation with the United States, the Central Asian part of China becomes more multidimensional, so that the people of the region, protesting against China, do not realize that rather a protest against the ineffectiveness of their own authorities, whereas the “Chinese dream” is becoming more desirable.

Simon Watkins in the September article in the publication Petroleum Economist "China and Iran flesh out strategic partnershipChina and Iran are developing a strategic partnership" writes about the growing importance of China for Iran on the basis of the source from Iran, which reveals some hidden aspects of the official agreements between the two countries. These hidden aspects can mark a seismic shift in the global hydrocarbon sector.

The foreign Minister of Iran Mohammad Zarif visited in late August, his Chinese counterpart Wang Lee, to present a "road map" of the comprehensive strategic partnership between China and Iran, signed in 2016. The updated agreement echoes many of the points contained in previous agreements between China and Iran, and is already in the public domain. However, many of the key points of this new document will not be made public, despite the fact that they represent a potentially significant shift in the global balance of oil and gas sector, according to senior sources closely associated with the Ministry of petroleum of Iran, with which publication the Petroleum Economist spoke at the end of August.

The Central element of the new deal is that China will invest 280 billion US dollars in development of oil and gas and petrochemical sectors of Iran.

This amount can be allocated in advance in the first five-year period of the transaction, it is thus provided that additional funds will be allocated in each subsequent five-year period, subject to the consent of both parties.

In the modernization of transportation and production infrastructure of Iran will invest 120 billion U.S. dollars, which again can be obtained in advance in the first five-year period and increase in each subsequent period, with the consent of both parties.

Among other benefits, the Chinese companies will be given the right of first choice for participation in the auctions to any new, suspended, or incomplete development of oil and gas. Also the Chinese companies will have the right of first opportunity to participate in any projects in the field of petrochemical industry in Iran, including the provision of technologies, systems, technological components and personnel needed to complete such projects.

"This implies inclusion of up to 5000 Chinese security personnel to protect Chinese projects in Iran, we will have additional personnel and equipment to protect the possible transit of oil, gas and petrochemical exports from Iran to China, where it is needed, including through the Persian Gulf", – said the Iranian source.

"China will also be able to purchase any oil, gas and petrochemical products with a minimum guaranteed discount of 12%, based on the average price within 6 months on a comparable reference products, plus get 6-8% discount off this figure to compensate for the risks."

In accordance with the terms of the new agreement, the author assumes that China will have the right to defer payments for Iranian products up to two years. China can also pay in non-convertible currencies which have accumulated from doing business in Africa and the former Soviet Union (FSU), in addition to the use of the Renminbi in case of necessity – this means that US dollars will not be involved in these commercial transactions from China to Iran.

"Given the exchange rates associated with the conversion of these "soft currency" in hard currency, which Iran may get their friendly Western banks, including Europäisch-Iranische Handelsbank (Germany), Oberbank (Austria) and Halkbank (Turkey), China claims another discount of 8-12% (relative to the weighted average US dollar rate), which means a total discount of up to 32% on all purchases of oil, gas and petroleum products," – said the source.

Another positive factor for China is that its active participation in building up the industrial infrastructure of Iran will fully comply with his initiative "Belt and road". China intends to use cheap labor available in Iran for the construction of plants, designed and controlled by a major Chinese production companies, Chinese with similar features and functions, according to Iranian sources.

Transport infrastructure

Manufactured products can enter Western markets on routes that were constructed or modernized, due to the growing participation of China in the transport infrastructure of Iran. In the summer of 2019, it was reported that Iran signed contract with China for the project for the electrification of the main 900-kilometer railway linking Tehran with the North-Eastern city of Mashhad, and it is planned to create a line of high-speed trains Tehran-Qom-Isfahan and extend this upgraded network to North-West, via Tabriz. In Tabriz a number of key oil, gas and petrochemical fields, as well as the city is the starting point for a gas pipeline Tabriz-Ankara. The plan of the pipeline will require cooperation with Russia, which until recently was thought to enter into their own separate comprehensive agreement with Iran. So, according to the source, the agreement includes a clause allowing at least one Russian company to have the same preferential conditions, along with the Chinese operator.

The benefits for Iran

According to the source, the Iranians will have three key benefits from a 25-year deal. The first is that China is one of the five countries having permanent membership in the UN Security Council (UNSC). Russia is indirectly included in the new transaction has a status in the UN security Council along with the United States, Britain and France. "To avoid any further strengthening of sanctions and encourage US to return to the negotiating table – Iran now has two of the five votes in the UN security Council on his side," claims the source.

The second positive point for Iran is that the deal will allow him finally to accelerate the growth of oil and gas production at three of its key fields. China agreed to accelerate development of one of the flagship gas field of Iran – 11 phase of the giant gas field South Pars (ЮП11). China national petroleum Corporation (CNPC), one of the Chinese manufacturers of the "big three", increased its share to 30% in this area when it acquired a 50.1% stake in Total, after the departure of the French in response to US sanctions. Since then, CNPC has made little progress in developing ЮП11 – a 30% discount from world market prices to potential condensate and reduced exports of natural gas (LNG), which can grow.

China also agreed to increase production of Iranian oil fields in West karoun, including North Azadegan managed by CNPC and Yadavaran controlled by another company "big three" Sinopec, an extra 500 000 barrels per day by the end of 2020. Iran hopes to increase the projected rate of recovery of these deposits in the Western Kharun, which it shares with neighboring Iraq, from the current 5% of available reserves to at least 25% by the end of 2021. "For every percentage point increase in the rate of recoverable reserves will increase to 670 million barrels, or approximately 34 billion U.S. dollars, even if oil will cost $ 50. / Barr.", – says Iranian source.

The last advantage of Iran is that China has agreed to increase its imports of Iranian oil despite the fact that in may, the United States did not renew the permission for China to import oil from Iran. Data General administration of customs of China (GAC), published in late August show that China not only has not reduced its imports from Iran but imported from the country more than 925 000 barrels per day in July, 4.7% more compared to the previous month.

According to Iranian sources, the actual figure is even higher, since the excess barrels are stored in floating storage in China and around it; without going through customs they do not appear in customs data but are in fact part of a strategic oil reserve of China.

China active in the neighboring country in Iraq. In the article "China, Not Iran, Is the Power to Watch in Iraq" claimed that China, not Iran, is a force for which you need to follow Iraq. Program assistant for the middle East at the Atlantic Council Daniel J. Samet expresses concern about the growing ties between Iraq and China, which may result in a threat to national security for the United States.

The concern of analysts on foreign influence in Iraq is a weak state, torn by sectarian tensions and extremism and vtyanuta currently in mass social unrest, is fully justified. However, while the United States is concerned about Iranian ambitions in the region, in the case entered a much more formidable power. In the autumn of this year, Prime Minister of Iraq Adel Abdul-Mahdi said that his country endorsed the Chinese initiative of the "Belt and road". This statement coincided with his state visit to Beijing.

Iraq and China gradually and imperceptibly deepened their relationship until this year. In 2015, Haider al-Abadi, the predecessor of Abdul-Mahdi, made his state visit to China, where both sides signed an agreement on strategic partnership. Iraq's oil exports to China increased to about 20 billion U.S. dollars last year, making Iraq the fourth largest supplier of oil to China.

The proximity of Iraq to the Maritime States of the Mediterranean sea and the Persian Gulf is a big plus to implement the “Belt and road”

No wonder China has its own plans for Iraq. Possessing huge oil reserves (the fifth largest in the world) and strategic geopolitical position, Iraq has a lot to offer China for the implementation of Chinese plans to dominate trade on the Eurasian continent. The proximity of Iraq to the Maritime States of the Mediterranean sea (Beijing actively considering the convergence and has already signed official agreements with Egypt, Israel, Lebanon, Syria and Turkey) and the Persian Gulf is a big plus to implement the “Belt and road”. What Baghdad can serve as a bridge for Beijing in the development of Maritime routes and the growing influence of China in Central Asia and Iran. Chinese infrastructure is currently systematically explores the landscape from East Asia to the Mediterranean.

Countries in the Middle East, received in 2018, a whopping 28 billion dollars investment under the “Belt and road”, play a crucial role in the Grand strategy of China. Under the leadership of General Secretary of the CPC, XI Jinping, Beijing has actively promoted throughout the region. Being ostensibly economic in nature, the data increased communication will almost certainly increase the political influence of China in the middle East. Besides, Iraq was one of 50 countries, supported by China, after its official publication letter of the Council for human rights of the UN to condemn China for its policies against the Uighur Muslim minority. Such is a sign of readiness of Beijing to use economic dependence of Iraq and other partners of the initiative as a means to achieve their political goals.

But Iraq may have signed up for greater than it can withstand. Consider Pakistan. The partnership of Islamabad with Beijing did not protect Pakistan from accumulating large debts that hamper the remaining projects in China. Time will tell whether Iraq can avoid a similar fate, and only Iraq must decide with whom to do business. But we should remember that China can be a dangerous cartridge that misleads the unwitting States.

Against this background should be taken into account that Iraq has several thousand American servicemen. The American Embassy in Baghdad is the largest in the world. Military ties between the two countries strong – since 2003-the year the United States has provided more than $ 23 billion of military sales since 2003. Some warn that, as partners of the United States are increasingly dependent on money from the Chinese, Beijing may put pressure on them so they have limited cooperation with Washington in the security sphere. The United States can make preventive efforts. The US government has already requested other countries to stop ties with Chinese Telecom giant "Huawei", which has a permanent presence in Iraq, and reduce the risk of intelligence sharing.

Si and his regime is ready to fill any gap that the United States intended to leave.

The Americans may well be "tired" of Iraq after several years of presence. But XI and his regime is ready to fill any gap that the United States intended to leave.

Director of research in the field of international security, Royal United Institute for the study of security and defence (RUSI, London) Raffaello Pantucci, recently wrote a column entitled "China's Complicated Relationship With Central Asiathe Complex relationship of China with Central Asia".

In Kyrgyzstan suspended the activities of the mining company, and in Kazakhstan continuing street protests, making the drama of the threat to Chinese investments in Central Asia the subject of heated discussion in the public field. Not a week goes by without somewhere in Central Asia did not appear a high-ranking Chinese official, revealing the advantages of the long-term impact in the game, where the winner is Beijing.

But the situation in Central Asia goes beyond just the issue of foreign investment. People want to connect their fate with China. In Ashgabat turn impatient young Turkmens are waiting at the Chinese Embassy to obtain the visa. For young people in Dushanbe, the Chinese language is now in Vogue. In Uzbekistan about Chinese investments actively speak and celebrate the Chinese autumn festival and China Expo tells that Uzbekistan is a key in the Chinese vision of Central Asia. And while in Kazakhstan and Kyrgyzstan, the protests took place, the Kazakh leader Kasym-Zhomart Tokayev visited Beijing, Reaffirming the commitment to the strategic partnership, and Kyrgyzstan has awarded the leader of China, XI Jinping, its highest national award, when he made his visit earlier in the year.

Small-scale clashes between Kazakh and Chinese workers are not uncommon. As you can see, currently in Kazakhstan, protests are usually associated with poor working conditions, conflicts between workers or environmental damage. Here can take place and influence in local politics.

Chinese money and workers form a regional economic geography with the open support of local authorities. So the protests can sometimes take the form of complaints addressed to local authorities. People often protest against their own government, and China becomes a convenient excuse. This is most clearly manifested in recent years in Kazakhstan, where public anger of the protesters was directed against the Chinese, but the protests were clearly provoked by political opponents of the government.

The history of environmental pollution, unequal wages and local corruption are mixed with the General fear of Chinese investment

In Kyrgyzstan, the distrust of foreign investors in the mining sector has repeatedly led to the fact that the locals scared off foreign investment. The huge Kumtor mine in Kyrgyzstan resulted in environmental and other issues for its canadian owner. Chinese scale projects less, but face similar challenges. The history of environmental pollution, unequal wages and local corruption are mixed with the General fear of Chinese investment, which is sometimes heated local authorities seeking to obtain more money or to score points against political rivals.

Meanwhile, China is focusing increasingly on the security of their investments in Central Asia. Stories about the private security companies of China, emerging in the region, accompanied by facts about the construction of bases, joint exercises and provision of equipment to Tajik forces along the Chinese border with Afghanistan. Already this year there have been reports on joint exercises with Tajik, Kyrgyz and Uzbek troops.

However, it would be unfair not to indicate the positive side of the presence of China in the region. In Badakhshan, the Tajik locals recognize that roads built in China, have changed their communities for the better. Chinese companies and projects are often more credible than the local, pompous and ineffective. And while the Confucius institutes regularly speak in public debates about both the centres, aimed at "brainwashing", they are visited by young people who dream about the great opportunities that China has to offer.

History of China in Central Asia is a complex and typical example of a developing region, whose residents are a little worried about the geopolitical confrontation with Washington (who are concerned about their neighbours), but instead try to find your way to prosperity, the same in China.

Tags: assessment , China , oil


RELATED MATERIALS: Politics and Geopolitics
Возрастное ограничение