(20 January 2012) — Despite American pressure tactics, Asia’s four largest economies appear set to continue business with Iran’s energy sector, prioritising national interests above diplomacy. The US last week announced embargoes against three Asian companies that have dealings with Tehran, which is overtly belligerent towards the West and Israel.
In recent years, the Islamic republic has alarmed observers by producing near-weapons-grade uranium that it claims is solely for its domestic energy industry. However, many suspect it is developing a covert nuclear weapons programme. Amidst these tensions, Tehran is now threatening to impose a naval blockade on the Strait of Hormuz, in retaliation against Western attempts to isolate it through economic sanctions. The strait is a vital artery through which a fifth of the world’s oil and gas exports are shipped.
Washington’s latest sanctions against the three Asian firms — from China, Singapore and the United Arab Emirates — have ruffled feathers and placed some of its allies on the spot.
China, which already bickers regularly with the US over a range of economic issues, reacted angrily to the American action against its firm, Zhuhai Zhenrong, which the US said is the largest supplier of refined petroleum products to Iran.
“Imposing sanctions on a Chinese company based on a domestic [US] law is totally unreasonable and does not conform to the spirit or content of the UN Security Council resolutions about the Iran nuclear issue,” foreign ministry spokesman Liu Weimin said on January 15.
Earlier in the month, China had refused to reduce its imports from Iran, despite a visit by US Treasury Secretary Timothy Geithner at the beginning of the year to discuss the issue.
In the same week, reports from India suggested that the South Asian giant would also continue doing business with Iran’s energy sector.
Japan, meanwhile, has distanced itself from reports last week saying that its finance minister Jun Azumi told Geithner during his visit to Tokyo that Asia’s second-largest economy would immediately seek to cut oil imports from Iran.
Speaking to reporters a day after the reports emerged, Japanese Prime Minister Yoshihiko Noda said that the comments made by Azumi were a personal opinion and did not reflect his government’s official policy.
Meanwhile, South Korea, which is Asia’s fourth-largest economy and an ally of Washington, sought a waiver from US sanctions on Iran, saying that while its “basic stance is to cooperate with the US”, its economy would be affected if it stopped buying oil from Iran.
The economic restrictions in the region are a result of a New Year’s Eve decision by US President Barack Obama to sign into law tough new sanctions against Iran’s central bank and financial sector, in an effort to force Tehran to abandon its nuclear program.
The sanctions require foreign companies to decide between dealing with Tehran’s oil and financial sectors or the US economy.
No easy alternatives
The responses of Asia’s four largest economies have illustrated how their political decisions are intertwined with their economic realities.
Oil industry analysts Argus Media reported that about 11% of China’s oil imports in 2011 came from Iran, or about 560,000 barrels per day, with the daily average for November increasing to 617,000 barrels — a quantum of supply that China would find difficult to replace in the short term.
Giving an idea of the massive surge in China’s demand for oil, global financial firm Goldman Sachs has forecast that the country will become the world’s largest importer of oil within the next one-and-a-half years.
Japan, the world’s second biggest importer of Iranian crude after China, purchased about 6.85 million barrels in November — or 6.4% of the country’s total imports for the month, according to Japan’s trade ministry.
Japan is also burdened by an increased demand for oil after the earthquake and tsunami last year. The twin disasters caused a number of nuclear power plants to shut down, forcing utility providers to turn to thermal power stations which require oil to operate.
India and South Korea too, are heavily dependent on Iran’s oil and receive 12% and 10% respectively of their overall requirements from the Islamic republic.
The extent of India’s dependence on Iran’s oil is reflected by its intention to send a delegation — including officials from the central bank and finance ministry — to Tehran this week to explore alternative methods of payment that could circumvent US sanctions.
The magnitude of Iran’s importance to the regional energy market is highlighted by the fact that it is the world’s fourth-largest producer of oil with 65% of its exports going to refiners in Asia.