The Ties That Bind China, Russia and Iran

2005-06-18

Richard Moore

Friends,

We all need to be aware of this emerging set of alliances. We
might wonder, in fact, why Bush doesn't describe China,
Russia, and Iran as the "Axis of Evil". From his geopolitical
perspective, this is actually true, much more so than with the
minor powers Bush has been publicly condemning.

This doesn't mean the White House is unaware of these
alliances, not by any means. Indeed, the alliance helps
explain the rapid development of space weapons, and the
so-called missile "defense" system. But for economic and
political reasons the White House does not choose to talk
about these issues. As in the run-up to previous wars, the
tensions mount behind the scenes, and people keep trading and
making money, up until the last minute when some "incident"
"causes" the war.

All over the world, at all levels, dramatic confrontations are
emerging. Besides what we read in this posting, there are the
currency and oil confrontations, as described by Engdahl in
yesterday's posting. There are the developments in South
America - Argentina, Brazil, Venezuela - and the unprecedented
recent OAS rebuke of U.S. initiatives. There is the increasing
independence of "Old Europe" from U.S. policies, and even a
growing alliance between Germany and Russia. And then there's
the confrontation between people and elites, as was evidenced
by the European No votes to the constitution, and the growing
number of Americans who think Bush should be impeached.

All in all, these are the kind of conditions which precede
major wars.

rkm

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http://japanfocus.org/article.asp?id=303

The Ties That Bind China, Russia and Iran

By Jephraim P. Gundzik

The military implementation of the George W Bush
administration's unilateralist foreign policy is creating
monumental changes in the world's geostrategic alliances. The
most significant of these changes is the formation of a new
triangle comprised of China, Iran and Russia.

Growing ties between Moscow and Beijing in the past 18 months
is an important geopolitical event that has gone practically
unnoticed. China's premier, Wen Jiabao, visited Russia in
September 2004. In October 2004, President Vladimir Putin
visited China. During the October meeting, both China and
Russia declared that Sino-Russian relations had reached
"unparalleled heights". In addition to settling long-standing
border issues, Moscow and Beijing agreed to hold joint
military exercises in 2005. This marks the first large-scale
military exercises between Russia and China since 1958.

The joint military exercises complement a rapidly growing arms
trade between Moscow and Beijing. China is Russia's largest
buyer of military equipment. In 2004, China was reported to
have signed deals worth more than $2 billion for Russian arms.
These included naval ships and submarines, missile systems and
aircraft. According to the head of Russia's armed forces,
Anatoliy Kvashnin, "our defense industrial complex is working
for this country [China], supplying the latest models of arms
and military equipment, which the Russian army does not have".
Russia's relations with China are not limited to military
trade. In the past five years, non-military trade between
Russia and China has increased at an average annual rate of
nearly 20%. Moscow and Beijing have targeted non-military
trade to reach $60 billion by 2010, from $20 billion in 2004.
One of the key components of commercial trade is Russian
energy exports to China.

In early 2005, Moscow agreed to more than double electricity
exports to China, to 800 million kilowatt hours (kWh), by
2006. Officials at Russia's electricity monopoly, Unified
Energy Systems, are also courting Chinese investment in the
development and renovation of Russia's electricity system. In
October 2004, the China National Petroleum Corporation (CNPC)
and Russia's Gazprom signed a series of agreements intended to
study how Russia can best supply natural gas to China. At the
same time, Russia signed specific agreements with China on oil
exports.

Russia's oil shipments to China are slated to reach 10 million
tons in 2005, increasing to 15 million tons in 2006. All of
these shipments will be made by rail. However, this agreement
was overshadowed by talks concerning the construction of an
oil pipeline from Siberia to northern China. Russia has been
pondering an oil pipeline to China for nearly 10 years. In
2002, plans for this pipeline received a boost when Moscow
pledged to invest $2 billion in an oil pipeline running from
the Siberian city of Angarsk to Daqing in northeastern China.

At the end of 2004, Russian officials announced that rather
than running into China, the new mega pipeline would terminate
in Russia's Pacific port of Nakhodka. Japan lobbied Moscow
hard for this configuration, offering to finance the entire
construction project, the cost of which is estimated to exceed
$10 billion. In addition to a readily available financing
source, the Nakhodka pipeline will remain entirely in Russian
territory, allowing Moscow complete control over the oil flow.

Many analysts viewed Moscow's decision as a blow to relations
with China. Though the pipeline does not terminate in China,
it does pass within 40 miles of Russia's border with China. A
spur from this pipeline to China would be inexpensive, while
further diversifying the market for annual oil flows expected
to reach 80 million tons. In other words, why should either
Moscow or Beijing finance an eastern oil pipeline when Tokyo
is bending over backwards to provide such financing?

More indicative of Russia's deepening energy relations with
China are the circumstances surrounding the renationalization
of Russian oil major Yukos. Yukos was the only Russian company
exporting oil to China. Russia's government effectively
renationalized Yukos in late 2004 when it seized the company's
primary production unit, Yuganskneftegaz, and auctioned it off
to the highest bidder. Yuganskneftegaz, located in Siberia, is
Russia's second-largest oil producer.

Through somewhat twisted means, Russia's state-owned oil
company, Rosneft, acquired Yuganskneftegaz for $9.3 billion.
In December 2004, Russia's Industry and Energy Minister Viktor
Khristenko offered the CNPC a 20% stake in Yuganskneftegaz. In
February 2005, Russian Finance Minister Alexei Kudrin revealed
that Chinese banks provided $6 billion in financing for
Rosneft's acquisition of Yuganskneftegaz. This financing was
secured by long-term oil delivery contracts between Rosneft
and the CNPC.

It is unclear whether the CNPC owns a portion of
Yuganskneftegaz. However, in March, Russian authorities
approved a merger between state-owned gas company Gazprom and
Rosneft. This merger excludes Yuganskneftegaz, which will
remain a separate state-owned company. It is possible that
Yuganskneftegaz was left a stand-alone unit to facilitate
China's investment in the company.

China's involvement in the renationalization of Yukos
represents the most significant foreign participation in
Russia's highly guarded oil sector. The CNPC is also involved
in several joint ventures with Russia's state-owned gas
company, Gazprom. These include ventures to develop energy
reserves in Iran, the home of China's largest energy-related
investments.

Beijing and Moscow warm to Tehran.

In March 2004, China's state-owned oil trading company, Zhuhai
Zhenrong Corporation, signed a 25-year deal to import 110
million tons of liquefied natural gas (LNG) from Iran. This
was followed by a much larger deal between another of China's
state-owned oil companies, Sinopec, and Iran, signed in
October 2004. This deal, worth about $100 billion, allows
China to import a further 250 million tons of LNG from Iran's
Yadavaran oilfield over a 25-year period. In addition to LNG,
the Yadavaran deal provides China with 150,000 barrels per day
of crude oil over the same period.

This huge deal also enlists substantial Chinese investment in
Iranian energy exploration, drilling and production as well as
in petrochemical and natural gas infrastructure. Total Chinese
investment targeted toward Iran's energy sector could exceed a
further $100 billion over 25 years. At the end of 2004, China
became Iran's top oil export market. Apart from the oil and
natural gas delivery contracts, the massive investment being
undertaken by China's state-owned oil companies in Iran's
energy sector contravenes the US Iran-Libya Sanctions Act.
This law penalizes foreign companies for investing more than
$20 million in either Libya or Iran.

Side-stepping US laws is nothing new for China. Beijing, as
well as Moscow, has supplied Tehran with advanced missiles and
missile technology since the mid-1980s. In addition to
anti-ship missiles like the Silkworm, China has sold Iran
surface-to-surface cruise missiles and, along with Russia,
assisted in the development of Iran's long-range ballistic
missiles. This assistance included the development of Iran's
Shihab-3 and Shihab-4 missiles, with a range of about 2,000
kilometers. Iran is also reportedly developing missiles with
ranges approaching 3,000 kilometers.

In late 2004, former secretary of state Colin Powell asserted
that Iran was working to adapt its long-range ballistic
missiles to carry nuclear warheads. China was also believed to
be producing several new types of guided anti-ship missiles
for Iran in 2004. China's and Russia's sales of missiles and
missile technology as well as missile development assistance
contravenes the US-Iran non-proliferation act of 2000. This
act specifically states that sanctions will be "imposed on
countries whose companies provide assistance to Iran in its
efforts to acquire weapons of mass destruction and missile
delivery systems".

In the past several years a number of Chinese and Russian
companies have faced US sanctions for selling missiles and
missile technology to Iran. Rather than slowing or stopping
such sales, the pace of missile acquisition and development in
Iran has accelerated. Like relations between China and Russia
and China and Iran, Russia's relations with Iran have also
advanced considerably in the past 18 months. In addition to
increased investment in Iran by Russia and burgeoning arms
trade between the two countries, Russia has been heavily
involved in Iran's nascent nuclear energy industry.

After much wrangling and repeated US intervention, Russia and
Iran finally signed, in February, a deal clearing the way for
the shipment of Russian nuclear fuel to Iran's nuclear power
plant at Bushehr. Washington's primary concern about Bushehr
is the intended use of the plant's spent nuclear fuel. This
fuel can be discarded, reprocessed, or used in the manufacture
of weapons-grade plutonium. In an effort to assure Washington
that the last of these three possibilities will not come to
pass, Moscow has promised that all the spent fuel from Bushehr
will be returned to Russia.

Nonetheless, Washington continues to believe that Bushehr's
start-up will advance Tehran's supposed nuclear weapons
program. Though evidence of an Iranian weapons program is
sparse, the US remains convinced that Iran is working to
develop nuclear weapons with Russian assistance.

The new geostrategic alliance

Along with energy trade, investment and economic development,
the China-Iran-Russia alliance has cultivated compatible
foreign policies. China, Iran and Russia have identical
foreign policy positions regarding Taiwan and Chechnya. China
and Iran fully support the Putin government's war against the
Chechen separatists (Iran's self-described status as an
"Islamic republic" notwithstanding). Russia and Iran support
Beijing's one-China policy. The recent promulgation of China's
anti-secession law, aimed at making Beijing's intolerance of
Taiwanese independence explicit, was heartily commended in
both Moscow and Tehran.

The most compelling aspect of this alliance is revealed in
China's and Russia's support for Iran's much-maligned nuclear
energy program. The Putin government has consistently
maintained that Russia would not support UN Security Council
resolutions that condemn Iran's nuclear energy program or
apply economic sanctions against Iran. In February, Putin said
he was convinced Iran was not seeking to develop nuclear
weapons and announced plans to visit the country, in support
of Tehran, just prior to his summit with President Bush.

Beijing has echoed Moscow's opposition to UN action against
Iran. After concluding the historic gas and oil deal between
China and Iran in October 2004, China's Foreign Minister Li
Zhaoxing announced that China would not support UN Security
Council action against Iran's nuclear energy program.
Opposition in Moscow and Beijing to UN action against Iran is
significant because both countries hold UN Security Council
veto power.

The endorsement of Tehran's nuclear energy program by Moscow
and Beijing reveals the primary impetus behind the
China-Iran-Russia axis - to counter US unilateralism and
global hegemonic intentions. For Beijing and Moscow, this
means minimizing US influence in Asia, Central Asia and the
Middle East. For the regime in Tehran, keeping the US at bay
is a matter of survival.

The joint statement issued at the conclusion of Putin's state
visit to China in October 2004 was a clear indication of
Beijing's and Moscow's abhorrence of the Bush administration's
unilateral foreign policy. The statement noted that China and
Russia "hold that it is urgently needed to [resolve]
international disputes under the chairing of the UN and
resolve crisis [sic] on the basis of universally recognized
principles of international law. Any coercive action should
only be taken with the approval of the UN Security Council and
enforced under its supervision..."

Two weeks after this statement was released, and just prior to
the US presidential election, Beijing's position against US
unilateralism was again made explicit by China's former
foreign minister Qian Qichen - arguably China's most
distinguished diplomat.

In an opinion piece published in the China Daily, Qian ripped
Washington's unilateralism: "The United States has tightened
its control of the Middle East, Central Asia, Southeast Asia
and Northeast Asia." He noted that this control "testifies
that Washington's anti-terror campaign has already gone beyond
the scope of self defense". Qian went further, stating that:
"The US case in Iraq has caused the Muslim world and Arab
countries to believe that the superpower already regards them
as targets [for] its ambitious democratic reform program."

To China and Russia, Washington's "democratic reform program"
is a thinly disguised method for the US to militarily dispose
of unfriendly regimes in order to ensure the country's primacy
as the world's sole superpower. The China-Iran-Russia alliance
can be considered as Beijing's and Moscow's counterpunch to
Washington's global ambitions. From this perspective, Iran is
integral to thwarting the Bush administration's foreign policy
goals. This is precisely why Beijing and Moscow have
strengthened their economic and diplomatic ties with Tehran.
It is also why Beijing and Moscow are providing Tehran with
increasingly sophisticated weapons.

This article appeared in The Asia Times on June 4, 2005.
Jephraim P Gundzik is president of Condor Advisers. This
article was posted at Japan Focus on June 6, 2005.

© 2004 JapanFocus.org
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