Security of Energy in Asia and Anti-Iran Sanctions

Tuesday, January 15, 2013

Sakineh Babri-Gonbad
PhD Candidate of International Relations & Expert on Economic Issues

The announcement about a 15-percent fall in Iran oil imports by Japan and India on the eve of 2013, though considered by some analysts as a propaganda ploy to obtain waivers from US on Iran sanctions, shows that major oil customers of Iran are carefully assessing the risk of supplying their needed energy from the Islamic Republic.

China, Japan, India, and South Korea were respectively major importers of the Iranian crude oil before Western sanctions were enforced against Iran's energy and banking sectors last summer. According to the International Energy Agency (IEA), energy demand in Asia will soar by about 42 percent as of 2030. This forecast, if taken seriously, and also a thorough study of energy strategies of these countries in addition to energy resource diversification plans made by the major customers of the Iranian oil (China, India, Japan and North Korea) will depict a clear picture of opportunities and challenges facing both sides of this equation as a result of anti-Iran sanctions.

China is still the biggest Asian customer of the Iranian oil. However, after enforcement of large-scale sanctions by the United States and despite wavers granted to a number of countries, including China, to bypass anti-Iran sanctions, Beijing reduced oil imports from Iran in November 2012 by 31 percent compared to a year before. As the economic outlook of China seems promising, the country’s oil consumption is expected to rise 3.4 percent in 2013 compared to 2012. The Chinese officials have frequently pointed out in their remarks that the volume of oil imports from Iran in 2013 will not change compared to the preceding year. Of course, economic interests and the economic growth of this country have their own complications. Increased dependence on oil imports in parallel to emergence of new obstacles on the way of expanding relations with Iran as a result of anti-Iran sanctions, will remind Chinese politicians of strategic vulnerabilities of their country. In the meantime, the diversification strategy that China has adopted in relation to energy resources available in the Middle East, Africa, the Central Asia, Russia and the Latin America, is an alternative used by Beijing in order to find substitute resources for the oil that it currently imports from Iran. The strategic cooperation agreement signed between China and Saudi Arabia some 23 years ago also forms the basis of all joint energy projects implemented by the two countries, including those which are meant to replace Iran's oil with Saudi crude.

India is Iran's second biggest oil customer in Asia. The most optimistic forecasts put the country’s economic growth figure at 8 percent, thus making it highly possible that New Delhi will move to raise oil imports. India takes in about 80 percent of its needed crude oil through imports from foreign resources. Despite having rich coal resources, the country still needs low-pollution fuels for its development plans. India’s Hydrocarbon Vision 2025, is the road map which is to serve as India’s guide to ensure energy security in the country. The plan also lays out a framework for the supply of energy from other countries while ensuring security of energy transfer and delineating New Delhi’s active energy diplomacy. Although India’s oil imports from Iran have shrunk as a result of anti-Iran sanctions, the subsequent barter trade of the Iranian oil has been also beneficial to India. Obligating Iran to import 12 billion dollars worth of Indian goods in return for oil money is good for India, but restricts the latitude for Iran's maneuvering in the foreign trade.

Japan is the third biggest consumer of the Iranian crude oil in the world. Tokyo’s energy diplomacy consists of a number of important elements. Firstly, the country gives priority to maintaining and bolstering the tools it has at its disposal for rapid reaction to a possible crisis caused by sudden discontinuation of energy flow (which includes cooperation with ASEAN+3 or Asia-Pacific Economic Cooperation (APEC) forum). Secondly, Japan does its best to maintain and improve friendly relations with all energy-rich countries in the Middle East. The third component of Japan's energy strategy is to diversify energy supply sources, an example of which was investment in Russia’s Sakhalin project. Fourthly, Tokyo gives high priority to implementing plans to promote the use of alternative energy resources and develop energy saving methods. The latest Western sanctions against the Islamic Republic reduced Japan's oil imports from Iran by 19 percent in 2012 compared to 2011. Due to the existing barriers and limitations, Japan has been also negotiating with other major energy producing countries of the Persian Gulf in order to make sure about its energy supply. As such, share of other Persian Gulf countries in supplying needed energy to Japan has changed compared to the past and the country is currently importing the lion’s share of its energy needs from Saudi Arabia, the United Arab Emirates, Qatar and Kuwait with Iran ranking the last among countries supplying energy to Japan.

South Korea is the world’s fifth biggest consumer of crude oil following the United States, China, Japan and India. The country’s oil imports from Iran in 2012 fell by 39 percent compared to a year before. South Korea is the fourth biggest economy in Asia. About half of the crude oil that it imports is refined and converted to such oil products as gasoline, diesel fuel and other products before being exported to other countries. South Korea implemented a comprehensive energy saving plan in 1992 in order to restructure its large-scale energy consumption policies. That plan has given the foremost priority to maximum possible degree of energy saving and minimizing domestic demand for fossil energy. Subsequent visits by the South Korean officials to Saudi Arabia, Qatar and the United Arab Emirates were aimed at designing a mechanism which is meant to make up for the reduction in oil imports from Iran and also to change the composition of South Korea’s foreign energy resources. Signing a contract to lease out oil storage facilities belonging to Korea National Oil Corporation, which is South Korea’s national oil and gas company, with Abu Dhabi National Oil Company was just one result of those visits.

Iran, as an oil producing country is a player which gives the first priority to security of oil supply and transfer regardless of any limitation or sanctions which may be imposed on it. However, when power relations and international disputes resulting from the country’s nuclear energy program are added, that security will take on a few more layers and in this case, security of energy is just one of those layers. These days, they are talking about weaning the Iranian economy from oil revenues and argue that economic perks resulting from oil have been a major reason behind the country’s historical slow development. It would be, therefore, helpful to explore other sources of revenue for the country and also study various paths that future generations can take in this regard. Although many things have been said or written about the curse of resources, realities of the age of interdependence among countries, as well as necessities related to the supply and demand of strategic goods, double the need to take wiser decisions in this regard.

According to article 4 of the statute of the Organization of Petroleum Exporting Countries, if one or more state member(s) are subject to direct or indirect sanctions, other member states should never get involved in profiteering oil deals which would harm the country under sanctions. However, Saudi Arabia’s behavior following intensification of sanctions against Iran in recent years clearly proves that Riyadh has been exploiting anti-Iran sanctions in order to own those Asian oil customers which previously purchased their needed crude from Iran. The recent announcement by China of the high risk of participation in developing Phase 11 of Iran's huge South Pars gas field followed by withdrawal of the Chinese company from the development projects, was clear proof to psychological and financial problems that anti-Iran sanctions have brought to the country’s biggest Asian trade partner. On the threshold of renewed nuclear negotiations, the Islamic Republic of Iran is expected to appear as a regional power by focusing on its national interests. In this way, Tehran would be able to take the initiative like a powerful economic agent in order to outdo rival countries that covet a bigger share of the international oil market.

Key Words: Security of Energy, Asia, Anti-Iran Sanctions, Iran, Oil Imports, IEA, OPEC, Rival Countries, Babri-Gonbad

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