Iranian oil poses Asian dilemma
By Sreeram Chaulia
The European Union's announcement of a ban on importing
Iranian oil has unleashed an economic war that is bound to
draw in Asia's booming economies in spite of their
reluctance to take sides and enter into the muddle.
The six-day sojourn through oil and gas-rich Arab countries
in the past week by China's Prime Minister Wen Jiabao was
clearly organized in this context of rising tensions over
fresh Western sanctions against Iran and its consequences
for energy security in Asia.
On Monday, EU foreign ministers decided to close off Iran's
second-biggest market for crude oil, responsible for a fifth
of oil exports over Iran's nuclear program, suspected in
some quarters - and denied by Iran - of being designed to
create nuclear weapons.
The EU and the United States are pushing major importers of
Iranian oil such as China, Japan, South Korea, India and
Turkey to join the economic embargo. Although China has
rebuffed Western entreaties to reduce oil imports from Iran,
the choice of Saudi Arabia, the United Arab Emirates and
Qatar as the only destinations in Wen's Middle East
itinerary told a tale of precautionary diplomacy.
These three Arab states are pro-Western, Sunni Arab
suppliers of oil and gas to Asia's growth engines, and they
are assaying the roles of Western accomplices in the
economic war by presenting themselves as substitutes to
energy products that Iran has been providing.
While China publicly plays down talk of forsaking Iranian
oil and replacing it with Arab alternatives, Wen repeatedly
raised the prospect of drastically increasing energy imports
from the anti-Iranian Arab regimes he just visited.
Chinese communiques during Wen's Middle East tour cited
"complicated regional trends" and shaky energy horizons due
to "geopolitical factors", codes for the growing chorus in
the West to compel Iran on its suspected nuclear weapons
Counter-threats from Tehran to shut down the Strait of
Hormuz, through which much of Asia's oil imports flow, and
the ever-present danger that Israel might unilaterally
attack Iran, have creased brows in Beijing as they coincide
with China's slowing economic growth.
Yet, China is confident that its size and economic leverage
over the US are such that ignoring Washington on embargoing
Iranian oil would not incur real damage.
When one Chinese oil firm, Zuhai Zhenrong, was recently
placed on the financial sanctions list for trading with
Iran, Beijing reacted furiously and conveyed "strong
dissatisfaction and adamant opposition". There is no
automatic trigger for closing American financial markets to
all foreign companies that trade in Iranian oil, and this
discretionary element in the sanctions architecture gives
China and other Asian powers scope to wiggle out of the
Moreover, none of the Asian states are certain that the
embargo on Iran will be long-lasting, given that
anti-Iranian Arab petro-kingdoms cannot fill in the supply
gap beyond more than one month. Barring a sudden fall of the
Iranian regime, the embargo's success through universal
participation would only mean a huge spike in the price of
crude oil and a big setback to the industrial machines of
Economic recessions have frequently followed "oil shocks"
and the embargo on Iran could usher one more cycle of
Despite their strategic closeness to the US, countries like
India, Japan, South Korea and Turkey are equally wary of
costly economic fallout from sanctions and war in the
Persian Gulf. New Delhi has decided not to heed the West on
abandoning Iranian oil imports, and it is proceeding to
negotiate alternative payment processing mechanisms to
continue trading with Tehran.
But since India is not in a position to prevent a violent
conflagration involving Israel and Iran, it is being
reported that India's Petroleum Ministry has instructed its
public sector oil refining companies to "reduce their
dependence on crude imports from that country [Iran]".
As with other Asian importers of Iranian oil who are on
tenterhooks because of the cold war between Iran and the
West, India will eventually have to diversify away from
(though not totally renounce) a politically unstable oil
exporter like Iran and the supply chain originating from the
Middle East as a whole.
With international sea freight rates declining steadily,
India can think of entering into long-term contracts to
raise oil imports from geographically more distant but
predictable countries such as Venezuela, Brazil and Angola.
Currently, India depends on the volatile Middle East for 70%
of its oil and gas imports, an unhealthy addiction laden
with grave international political risks.
While seeking to gradually free itself from Iranian and
other Arab energy producers, India and other Asian powers
must also factor in the larger structural implications - for
the Middle East as a region - of deserting Iran at a time
when the US and the EU are aiming at Tehran's jugular.
If the Iranian regime falls to a mix of economic woes and
US-Israeli sanctions or war, it could leave the Middle East
bereft of any counterbalancing force to the West. Democracy
in Iran through popular internal mass mobilization is more
preferable as the new regime that emerges is unlikely to be
a stooge of the West.
It is in the interests of Asian powers to avert a Middle
East entirely under the Western thumb simply because India
and its continental peers profess a desire for a multipolar
world where there is no single global hegemon. It makes
tactical sense to slowly retrench from Iranian oil, but it
would be a strategic disaster for Asian powers to become
reliant on Western approval to access Middle Eastern energy,
which will remain important in Asia's energy mix for at
least some more years.
This geopolitical balance-of-power imperative is often lost
in Indian strategic thought, which is prone to calculating
more narrowly about the benefits and losses from a supply
disruption in oil or inflation of barrel rates for crude.
China and Russia have the grand strategy of resisting
Western hegemony in the Middle East, and they try through
various developments, such as the imbroglio over democracy
in Syria, to deny the onset of West-friendly regimes in that
Indian lenses are less global and New Delhi does not see
itself as a counter-balancer to maintain multi-polarity on a
global scale. There is also an implicit consensus in India
that its only balance-of-power concern lies vis-a-vis China
and that being seen openly as entering into a troika with
Russia and China on issues in the Middle East would hurt
India's chances to assert its claim to be even-steven with
But the current standoff over embargoing Iran, which
supplies 11% of India's oil needs, is so vital to New
Delhi's national interests that it begs for more proactive
diplomacy on the question of hegemony in the Middle East.
Unlike China, which has a first-mover advantage, India is
also realizing the value of Africa and Latin America as
stable sources of energy and trade rather late.
The economic war via Iran's oil embargo should be a wakeup
call to redouble Indian diplomacy and foreign investment in
these two hitherto neglected continents, while not passively
turning one's back on the still pivotal Middle East.
Playing it safe and seeking more assured oil supplies is an
evolutionary process for Asian powers. The interregnum
period, until they tether their economies firmly to Africa
and Latin America, will require joint positioning for
maintaining a power balance in the Middle East.
Sreeram Chaulia is
Professor and Vice Dean of the Jindal School of
International Affairs in Sonipat, India, and the first B
Raman Fellow for Geopolitical Analysis at the strategic
affairs think-tank, The Takshashila Institution. He
is author of the recently released International
Organizations and Civilian Protection: Power, Ideas and
Humanitarian Aid in Conflict Zones.
(Copyright 2012 Asia Times Online (Holdings) Ltd. All rights
reserved. Please contact us about sales, syndication and
All material on
this website is copyright and may not be republished in any form
without written permission.
© Copyright 1999 -
2012 Asia Times Online (Holdings), Ltd.
Head Office: Unit
B, 16/F, Li Dong Building, No. 9 Li Yuen Street East, Central,
Thailand Bureau: 11/13
Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110