People's Republic of China and Iran relations: One of the main pillars of the relationship is oil and gas. China switched to petroleum primarily to get their energy supply off of coal. There was a rapid increase in oil importation from 1974 into the 1990s. Now, approximately 80% of China’s total imports from Iran are oil and the rest is mineral and chemical products. Because of this reliance on Iranian oil and gas, China is now investing in the modernization of Iran’s oil and gas sector to secure access to the resource. The China National Petroleum Corporation (CNPC) was granted an $85 million contract to drill 19 wells in the natural gas fields in Southern Iran and signed another similar $13 million contract. Then again in 2004, an agreement was reached where China would import 270 million tons of natural gas over 30 years from South Par fields which is the richest natural gas fields in the world for $70 billion.
Another Chinese company, Sinopec Group, gets half-share in Yardarvaran oil fields worth about 100 billion for the purpose of exploration. Later in 2007, CNPC signed a $3.6 billion deal to develop offshore gas fields in Iran and then signed another $2 billion contract to develop the northern Iranian oil field near Ahvaz. Not only is China helping to develop the oil and gas sector, but China supports Iran’s ambitions to bring Caspian Sea oil and gas to Southern Iranian ports through pipelines so the resources can be exported to Europe and Asia. Iran relies upon its oil sales to China to ensure its fiscal well-being. China also sells gasoline to Iran despite international pressures that have halted Iran’s ability to get gasoline from other suppliers.
In 2011, the group Green Experts of Iran reported that Beijing and Tehran had signed an extensive deal that would give China exclusive rights to several Iranian oil and natural gas fields through 2024. Under the terms of the deal, Iran will give Chinese oil companies exclusive rights to three large regions of Iranian land as well as the rights to build all necessary infrastructure for these regions, all of which sit atop of large oil and natural gas fields. In return, China promises to treat any foreign attack against these regions as attacks against its own sovereign territory, and will defend them as such. China will have no need for prior permission from the Iranian government to maintain and increase its military presence in Iran, and will control the movement of Iranians in and out of these territories. The Green Experts of Iran speculate that this agreement was the concrete basis for Major General Zhang Zhaozhong's statement that "China will not hesitate to protect Iran even with a third World War." [source: wikipedia]
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Reuters news
written by Chen Aizhu and Nidhi Verma
Tuesday February 21, 2012
China, India and Japan are planning cuts of at least 10 percent in Iranian crude imports as tightening U.S. sanctions make it difficult for the top Asian buyers to keep doing business with the OPEC producer.
The countries together buy about 45 percent of Iran's crude exports. The reductions are the first significant evidence of how much crude business Iran could lose in Asia this year as Washington tries to tighten a financial noose around Tehran.
The cuts would add to a European Union ban on Iran oil imports, which comes into effect on July 1, to restrict the flow of vital foreign exchange to Tehran under pressure over its nuclear program.
Japan is close to an agreement with Washington on the size of cuts needed to win waivers from the U.S. sanctions, two ministers said. The Yomiuri newspaper, citing unidentified sources, said the two sides would settle on an 11 percent cut.
The Indian government is pushing its refineries to cut imports by at least 10 percent, two sources said. India has said it will not abide by U.S. unilateral sanctions, so its response could indicate the increasing uncertainty of doing business with Iran.
China's Unipec, the trading arms of Sinopec Corp, is likely to cut imports by 10 percent to 20 percent under 2012 supply contracts, a Chinese industry executive with direct knowledge of the deal said.
China had already cut back sharply on Iran crude purchases in the first quarter of 2012 while it haggled over full-year supplies contracts. Taking those cuts and planned purchases by China's only other major importer -- Zhuhai Zhenrong Corp -- into account, Reuters calculates China's total cuts this year will amount to about 14 percent.
In a further blow to Tehran, East Asian purchases of Iranian fuel oil is set to slump to a six-month low in March, according to comments from Singapore-based oil traders and an examination of shipping reports.
JAPAN DILEMMA
U.S. financial sanctions imposed since the beginning of this year are playing havoc with Iran's ability to buy imports and receive payment for its oil exports. Washington is pushing ahead with the sanctions because it fears Iran might use its nuclear program to develop nuclear weapons.
The European Union has imposed an oil imports embargo on Iran. In response, Tehran ordered a halt of oil sales to Britain and France.
Iran, the biggest producer in the Organization of the Petroleum Exporting Countries (OPEC) after Saudi Arabia, denies Western suspicions that its nuclear program has military goals, saying it is for purely peaceful purposes.
For Japan, avoiding U.S. sanctions is essential to protect its financial sector's operations abroad, but cutting oil imports could pose a risk to its struggling economy.
Japan's reliance on oil imports has grown since a 2011 earthquake and tsunami triggered the Fukushima radiation crisis, leading to the shut down of most nuclear power reactors.
"We are closely negotiating with the United States and are moving forward towards mutual understanding, but it is not the case that we have reached a conclusion," Trade Minister Yukio Edano told reporters. His comments were echoed by Foreign Minister Koichiro Gemba.
The United States says it will punish financial institutions that deal with Iran's central bank, the main clearing house for oil revenues, by shutting them out of U.S. markets. A country can earn a waiver from the sanctions if it significantly reduces trade with Iran.
"Many countries have approached us to discuss their efforts to reduce purchases of Iranian crude which, by statute, could except them from sanctions," a senior official in President Barack Obama's administration said.
"We are discussing specific cases with specific countries. It would be premature to discuss any of them at this time."
INDIA AND CHINA CUTS
India is Iran's second-biggest crude buyer after China. Iran provides about 12 percent of India's demand, or 370,000 barrels per day (bpd).
New Delhi indicated refineries should cut their imports from Iran by about 10-15 percent in the year through March 2013, one source said.
Another source said the cut should be "substantial."
The government had indicated it did not intend to seek a waiver from U.S. sanctions by cutting Iran crude imports and that it intended to keep trade flowing with Tehran.
It is planning to offset some Iranian imports against India's corresponding exports via a rupee payments system to keep trade moving.
Still, sanctions are cutting off payments routes. India's refiners have used Turkey's state-controlled Halkbank for payments to Iran in euros since the middle of 2011, but are unsure how long that route will last given tougher EU sanctions. Turkey is seeking membership of the EU.
China has also rejected U.S. sanctions as overstepping the mark but has already made substantial cuts in Iran crude imports as it negotiated with Tehran over terms and prices for 2012 deliveries.
The industry executive said Unipec would import as much as 20 percent less crude in 2012 compared with 2011, although he said most of those cuts had been achieved in the first quarter.
Reuters calculates first-quarter cuts by China averaged for the whole year would be around 71,000 bpd, a 14 percent reduction from 2011 contract imports of about 500,000 bpd.
Even though China is to cut 2012 imports, it increased Iranian purchases last year by 30 percent.
Zhuhai Zhenrong and a much smaller buyer of Iran crude, Chinaoil, are maintaining the level of their purchases in 2012 compared with 2011, so Unipec will absorb the cuts.
In January, Washington imposed sanctions on Zhenrong for its dealings with Iran in what analysts interpreted as largely symbolic because the Chinese company has limited U.S. business exposure.
However, they said it did send a signal to other Chinese companies that have invested heavily in the United States, including Unipec's parent Sinopec.
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