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Monday, February 8, 2010

China overtakes EU as Iran’s top trade partner

China has overtaken the European Union to become Iran’s largest trading partner, according to a new analysis of the commercial ties between the two countries.

The growing business links between Beijing and Tehran underline China’s reluctance to agree to any further economic sanctions on Iran as western countries escalate their campaign to contain the country’s nuclear ambitions.

The announcement by Mahmoud Ahmadi-Nejad, the Iranian president, that Iran will start enriching uranium to 20 per cent purity – a step closer to the 90 per cent required to build nuclear weapons – has given renewed impetus to western calls for the United Nations Security Council to impose more sanctions.

The Iranian atomic energy authority announced on Monday that further enrichment would begin on Tuesday.

While Russia has softened its opposition to placing more pressure on the Iranian economy, China has not done the same.

Official figures say the EU remains Tehran’s largest commercial partner, with trade totalling $35bn in 2008, compared with $29bn with China.

But this number disguises the fact that much of Iran’s trade with the United Arab Emirates consists of goods channelled to or from China. Majid-Reza Hariri, deputy head of the Iran-China Chamber of Commerce, said that transhipments to China accounted for more than half of Tehran’s $15bn (€10.9bn, £9.6bn) trade with the UAE.

When this is taken into account, China’s trade with Iran totals at least $36.5bn, which could be more than with the entire EU bloc. No definite conclusion is possible because it is unclear how much of Iran’s trade with Europe is channelled via the UAE.

Iran imports consumer goods and machinery from China and exports oil, gas, and petrochemicals.

Today, China depends on Iran for 11 per cent of its energy needs, according to the chamber.

In the past, China has allowed the passage of three UN resolutions imposing sanctions on Iran. But the country’s ambassador emphasised the need for talks.

“Our approach is that dialogue and negotiations always produce better results,” said Xie Xiaoyan, the Chinese ambassador to Tehran. “Sanctions will not produce the results set up [by the west], no matter how crippling.”

However, some analysts believe this stance may change. Yin Gang, a Middle East expert at the Chinese Academy of Social Sciences, said: “China is extremely cautious in dealing with Iran, even over trade and energy.

“China would not keep a very close relationship with Iran because this could damage its relationships with lots of other countries.”

If China were to prevent the Security Council from passing UN sanctions, the US and the EU would retain the option of imposing their own unilateral measures. The question is whether Iran’s links with China would cushion the blow.

Already, American and EU energy companies have withheld investment in Iran’s vital oil and gas industries. China has sought to fill the gap by signing multi-billion-dollar agreements to develop oil and gas fields.

But hardly any of these projects have gone on stream. A senior Iranian oil official has publicly complained about the poor quality of Chinese-made equipment.

A western diplomat in Tehran said: “If the international community is united, sanctions will be more effective, but nevertheless China is not the complete answer to Iran’s problems.”

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