Are Sanctions on Iran Really about Oil?

On April 10, Iran announced that it was going to stop exporting oil to Spain, and very soon it may stop selling oil to Germany and Italy. Four days later, Iran met with major powers of the world in Istanbul to discuss its nuclear program.

As the situation in Iran has become more and more urgent, the voices in the streets are getting louder and louder: The West, in particular the United States, is constantly stirring up trouble, and ultimately its goal is to get more oil. As it moves from Afghanistan to Iraq, from Libya to Iran, has the U.S. Army really been rushing towards oil fields instead of battlefields?

Interestingly, in March, China reiterated its disapproval of Washington’s unilateral sanctions on Iran. On the other side of the Pacific Ocean, there are many Americans who believe that China does not support America’s unilateral sanctions on Iran because China wants Iran’s oil.

As nations make complex calculations on national interests, energy issues strongly affect diplomacy and decisions to go to war. However, the relationship between nations is not as simple as fighting a war to rob another country of its oil.

America Fights Wars While China Gets a Free Ride

Even though the Middle East is undoubtedly an oil depot for the rest of the world, the total amount and the percentage of oil that the United States imports from the Middle East has already begun to gradually decrease.

Since 2008, the average amount of crude oil that the U.S. has imported from Iraq has fallen from 627,000 barrels, to 449,000 barrels, to 415,000 barrels, and finally 460,000 barrels (barrels of oil per day). That is approximately 31.22; 22.36; 20.67; and 22.21 million tons of oil per year, respectively. Before the Iraq War started in 2001, the U.S. imported 795,000 barrels of oil per day, or approximately 39.59 million tons of oil per year.

Meanwhile, China’s imports of crude oil from Iraq since 2008 have increased from 1.86 million, to 7.16 million, to 11.24 million, to 13.77 million tons per year.

After enduring a controversial war in Iraq for eight years and sacrificing the lives of thousands of soldiers, the amount of oil that the U.S. has gained from Iraq has not increased. In the meantime, Iraq has increased its oil exports to China. In 2009, the new Iraqi government held a second public bid for its oil fields, and a joint venture of BP and the China National Petroleum Corporation won the bid for the largest field, called Rumaila.

In truth, America’s biggest source of crude oil in the Middle East — Saudi Arabia — is a strategic ally. The U.S. imports more oil from Canada and Mexico than it does from Saudi Arabia. In 2011, these three countries provided more than half of the crude oil that the U.S. imported. In comparison, Iraq’s oil is not nearly as important.

“If America went to war in Iraq to get its oil, then after the war, it should have the decisive power to obtain oil in Iraq, and it should also have advantages in terms of trade and investment,” Bo Kong, assistant research professor at the Energy, Resources and Environment Program at John Hopkins University, said. “But that is not the case.”

The situation in Iraq played out again in Afghanistan. In 2011, after the Taliban regime collapsed, the first company to win the bidding to develop the gas and oil fields was China National Petroleum Corporation. Of course, Afghanistan is not a country with abundant petroleum resources. It depends on imports for diesel, gas and other fuels. The agreement between the Afghan government and CNPC was the first international oil production agreement signed by Afghanistan for several decades.

As for Libya, it stopped being a source of oil for the United States in 1983. After the economic sanctions were lifted in 2003, the amount of oil that the U.S. imported from Libya decreased to an almost negligible amount, while CNPC made major investments in Libya. According to statistics, approximately 11 percent of its crude oil is exported to China. In 2009, Libya was listed ninth on the list of Top Ten Suppliers of Oil to China.

The sudden war caused CNPC, who had just signed a contract with the Gadhafi regime, to sustain major losses. However, CNPC has already returned to Libya in search of new opportunities.

“The U.S. mobilized a great amount of military resources, but China barely committed any military resources. China had an opportunity to get a free ride,” said Chen Fengying, director of the Institute of World Economic Studies at the China Institutes of Contemporary International Relations. An open and competitive market, a stable supply of oil and reasonable prices: These are the things that China and other emerging markets gained “for free” after the war.

Oil as an Economic Sanction on Iran?

If the war was not to get oil, then what was it for?

According to Chen, America values the strategic importance of these countries. “America needs oil, but it will not start a war purely for oil. Even though resources are important, they do not totally define America’s diplomatic strategy,” she said.

Bo pointed out that the motivation for the war was related to U.S. foreign policy priorities. “Both the Bush administration and the Obama administration are strongly against nuclear proliferation; it is one of the most important priorities in US foreign policy. After 9/11, Americans realized that the threat of a nuclear terrorist attack had increased. This terrorist attack could be an airplane crashing into nuclear facilities in the US, or it could be a small scale radiological weapon.”

Thus, Iran’s nuclear program has become one of the biggest worries troubling the Obama administration. To prevent the Middle East situation from getting mixed up with nuclear weapons, America has repeatedly recommended sanctions on Iran.

What is interesting is that one of the main weapons the U.S. has for implementing economic sanctions is oil. In March, President Obama authorized one of the strongest economic sanctions on oil on Iran. According to the measure, once sanction takes effect on June 28, any foreign financial institution that does business with Iran related to the oil trade will be subject to U.S. sanctions.

Chinese Foreign Ministry Spokesman Hong Lei opposed the sanctions. “China has to consider its own economic development,” he said. “China legally imports oil from Iran through normal channels in a reasonable and fair manner. It is not violation of any UN resolution and does not impair the interests of any third party or international community. China has always been against unilateral sanctions imposed by any one country on another. We especially do not accept unilateral sanctions that are forcibly imposed on a third-party country.”

“It has always been difficult for Washington to win Beijing’s support,”* Brookings Institute Chinese Energy Research Fellow Erica Downs said. Downs believes that China has great economic interests in Iran and Beijing thinks strict sanctions are an effective strategy for solving global disagreements.

But in reality, China has already adjusted some of its economic activities in Iran according to the sanctions policy outlined by the U.S. and the United Nations. In August 2011, CNPC limited its investment in South Pars natural gas fields to $18 million, which was lower than the $20 million threshold stated in the U.S. sanction policy, and was much lower than the $400 million that Iran was expecting. At the same time, China followed the U.S. plan and did not take up the projects that were abandoned by Europe and Japan.

China was not only considering the importance of Sino-U.S. relations when it made these decisions. It had other considerations as well.

“China must consider the worries that other Middle Eastern countries have about Iran. Facing the pressure of its security misgivings and U.S. public relations, Saudi Arabia has repeatedly asked China to put economic sanctions on Iran,” Downs said. According to Downs, “Saudi Arabia promised to supply oil to China, and China does not want Saudi Arabia to be forced to develop nuclear weapons for self protection, which would disrupt oil production in the Middle East.”*

In terms of the distribution of China’s oil imports, 50 percent of oil comes from the Middle East. Clearly, China does not want this area to go to war.

This is where China and the U.S. have a common interest. If war broke out, world oil prices would increase, which would negatively impact the recovery of the U.S. economy and influence Obama’s re-election. Vice President Joe Biden spoke quite plainly: a military conflict in Iran would end Obama’s presidential career.

Chinese Diplomacy Limits Oil Profits

Since the 21st century, the percentage of oil imported to the U.S. from the Middle East has decreased, from 28.6 percent in 2001 to approximately 15 percent in 2011. The percentage of imports is gradually increasing for other countries on the American continent.

When this superpower no longer needs Middle Eastern oil, some observers become more worried about the possibility of war. For the past 20 years, the U.S. has not imported a single barrel of oil from Iran. Does that mean that Iran will start a war without considering any consequences?

Gao Shixian, Director of the Energy Economics and Strategy Research Center of the National Development and Reform Commission, said to the media: “When the U.S. decreased the amount of oil it imports from the Middle East, it may allow a more chaotic situation in the Middle East.”

An analyst at English oil giant BP talked with Chen about the possibility of the U.S. abandoning the Middle East, but Chen disagreed. “Unless the U.S. is no longer the strongest superpower and becomes the third or fourth biggest economy in the world, it is very unlikely to leave the Middle East. The Middle East does not only have oil, it is in a strategic location.”

She also pointed out, “America’s decreased presence has given other countries an opportunity to move forward, why not use it?”

Many people were worried that China’s dependence on foreign oil is reaching an alarming level of 60 percent. This could threaten China’s energy security. The International Energy Agency even predicted that China’s oil demand would increase to 10 million barrels per day in 2030, and at that point, its dependence on imported oil would reach 80 percent.

Chen believes that there is no need to exaggerate the situation. “As a result of geopolitics, China is different than America. America can use the American continent as a source of oil, while China will always be dependent on the Middle East,” she said. She added, “Furthermore, Middle Eastern Countries need to sell their oil, so they depend on China. Relations between China and Saudi Arabia have improved considerably recently.”

The fact that China’s oil reserves are insufficient has hindered China’s foreign policy. “Take the Iran question, for example. China’s oil interests mean that it has a limited room for maneuver in its foreign policy,” Bo said. “As long as a country imports oil, then there are a lot of factors that a local government cannot control. Considering China’s increasing dependence on the international oil market, China will continue to have to deal with uncontrollable factors, no matter whether or not there are changes in the source of imported oil.”

But the strategic significance of oil is decreasing. First, as the economies of many countries are recovering, there have not been any oil shortages. The price of oil actually dropped from its height at the end of last year before the holidays. Second, unconventional gas and renewable energy is booming, which is changing the game for world energy.

Shale gas is a unconventional gas which is extracted from shale. It is difficult to exploit and costly, but some progress has been made in North America recently. According to predictions, between 11 trillion and 13 trillion shale gas reserves exist in the world, greatly surpassing the approximately 400 billion tons of conventional oil reserves.

Bo said, “China’s unconventional natural gas reserves surpass even that of the United States. If China can revolutionize the shale natural gas industry, that would mean that China would have new bargaining chips and a completely new status concerning the international oil and gas market.”

*Editor’s note: the original quotation, accurately translated, could not be verified.