Last week, Iran's Fars News Agency announced that China National Petroleum Corporation signed a contract with the National Iranian Oil Company to develop part of the North Azadegan oil field. Fars called the deal "the first major oil sector contract finalized in recent years." The arrangement between China and Iran is a "buy-back," in which CNPC will develop the field, turn it over to NIOC, and receive payment from production. The North Azadegan field, near the Iraqi border, holds an estimated six billion barrels of oil.
European and Japanese companies have dropped energy deals with the Islamic Republic due to pressure from Washington, which wants Tehran to stop enriching uranium for fear it is developing nuclear weapons. Iran, however, has been able to attract Asian companies to take their place. CNPC is not the only Chinese energy concern to sign deals with Iran. In the middle of this decade, China became Iran largest purchaser of both oil and gas. The Chinese are the second largest consumers of energy in the world.
Beijing defends its oil and gas deals with Iran as "business acts." The Foreign Ministry acknowledges that Iran should not be permitted to develop nuclear weapons but maintains that the "actions to address this problem should not undermine normal trade and economic cooperation with Iran." Iran, for its part, says recent energy deals are proof the world does not support American efforts to isolate the country.
Iran's mullahs have horribly mismanaged their economy, which now relies on oil and gas revenues. They control the world's second largest proven natural gas reserves—after Russia—and have the world's third largest proven reserves of oil—after Saudi Arabia and Canada. Yet, for the most part, the Iranians need foreign help to get their energy out of the ground. The Chinese deals, unfortunately, have provided a critical lifeline to the mullahs.
Last July, Iran's OPEC governor said oil could go as high as $500 a barrel. That month oil hit its record mark of over $147. Since then, it has plummeted to around $43. The drop has ruined the mullah's calculations: their budget for the 2009-2010 year is predicated on oil prices ranging between $55-60. Last week, CIA director Michael Hayden said that low energy prices threaten the stability of the Iranian regime.
Yet the regime will be able to get through a prolonged period of low energy prices as long as Beijing supports it with more oil and gas development deals. Can we get the Chinese to abandon Iran? At this moment, China's economy is decelerating at an alarming rate, which means the country does not need all the expensive oil and gas it has agreed to buy in recent years. Therefore, Chinese leaders should now be especially susceptible to pressure from Washington.
The stakes for failing to wean China away from Iran will be enormous. After all, we can all guess what Tehran will do when it builds the most destructive weapon in history.