Walker's World: Oil trumps sanctions By Martin Walker UPI Editor | February 14, 2005 http://www.wpherald.com/Viewpoints/storyview.php?StoryID=20050214- 075903-3618r European diplomacy is in a languid state that we might call post-Condi tristesse. The scent of her perfume has faded away, along with the delicious pleasure of having the new American secretary of state come to Paris to eat her own words: "forgive Russia, ignore Germany, punish France." And now Europe has to look forward to the rather less beguiling visit of her boss, President George W. Bush, who will next week be hoping to collect a bankable return for the pleasure of her company. Bush wants money and NATO support for Iraq, and he wants a firm understanding that the Europeans will stand with him in the next phase of the looming crisis with Iran. He will not get it, because the Europeans do not quite see what he is getting at. During her visit, Condoleezza Rice spoke of the next step being a report from the International Atomic Energy Agency to the United Nations, saying that Iran was in breach of its obligations under the Non-Proliferation Treaty. (At least Iran is still nominally observing the treaty; the North Koreans denounced the treaty, so its provisions -- and thus the threat of U.N. sanctions -- do not apply.) But nobody in Europe thinks for one minute that U.N. sanctions are going to be applied against Iran. One veto in the Security Council is all that will be needed to prevent that. And since China's oil giant the Sinopec Group signed a $70 billion oil and natural gas deal with Iran last October, the prospect of China authorizing sanctions against its main energy supplier no longer looks remotely possible. Under that deal, which locks China into a 30-year relationship with Iran, Sinopec will buy 250 million tons of liquefied natural gas and also develop the giant Yadavaran field. At the same time, Iran is committed to export 150,000 barrels per day of crude oil to China for 25 years at market prices once the Yadavaran field is commissioned. In March last year, another Chinese firm, Zhuhai Zhenrong, announced a "preliminary agreement" to purchase $20 billion worth of Iranian liquefied natural gas over 25 years. Iran is already China's second biggest oil supplier after Saudi Arabia, selling some 30 million tons in 2003, about 14 percent of China's total energy imports. But the relationship with Iran is far closer. Early last year, Sinopec drilled its first well in Iran's Zavareh-Kashan bloc, which it had been exploring since 2001. Even if by some miracle of American diplomacy the Chinese could be persuaded to abstain, and allow sanctions against their big energy partner to proceed, the Russians might not want to do so. They, after all, built Iran's Busheir nuclear reactor. And then there are the Europeans. The Europeans in general have good reason to want to reach a diplomatic agreement on Iran's nuclear ambitions. With almost 1,000 trillion cubic feet in natural gas, the world's second largest proven reserves after Russia, Iran looms large in European energy plans. Three years ago, Iran signed a $300 million agreement with Greece to extend the existing natural gas pipeline through Turkey for shipment to Europe through the Balkans (a memorandum of understanding was signed two years ago), or possibly via an undersea pipeline to Italy. And Austria's OMV group last year signed an MOU with the National Iranian Gas Export Co. on a proposed $4 billion "Nabucco" gas pipeline from Iran through Turkey to Austria. Moreover, the separate deals signed by France's Total and Elf- Aquitaine companies on the Sirri, Doroud, Balal and giant Bangestan fields are still in force now that France has combined them with Petrofina into one of the world's Big Five oil giants. And although Bangestan is shared with Britain's BP and Dalal is shared with Italy's ENI, that means very influential voices in Rome and London will be warning against any foolish talks of sanctions. The fact is, as Vladimir Putin in the Kremlin has also realized, that when the oil price approaches $50 a barrel, then the people who own the oil suddenly weild a great deal more clout and find they have many more friends in the corridors of power than they do when it costs less than $20 a barrel. One might have expected George W. Bush, as a Texan and former oil man, to appreciate this rather fundamental fact of life. Bush's old chums in Houston can hardly be indifferent to the intriguing developments now under way in the Asian energy markets. Certainly the Europeans are keenly interested. A month ago, on Jan. 6, India's Petroleum Minister Mani Shankar Aiyar hosted a meeting with his counterparts, the ministers from China, Japan, and South Korea -- as well as eight OPEC producers -- to propose a new "Organization for Oil Importing Countries." The goal is to avoid "the unpredictable effects of competition" and organize a secure and stable energy supply, on what seems to be an unstated principle of Asian energy for the Asians. For India, this could have the welcome effect of taking the strategic heat off the current rivalry that is gripping Asia's two potential giants over their energy supplies. China feels dangerously vulnerable to India's potential stranglehold over its energy supplies, whether transported by tankers that must cross the Indian Ocean from the Persian Gulf, or through the 6,000-kilometer pipeline from central Asia to China's coastal cities. An amicable agreement between China, India and Japan to carve up Central Asian and Gulf energy supplies makes sense -- so long as there is enough left over for the Europeans and Americans. The template deal is already under way, under which India and Pakistan (who came close to nuclear war just three years ago) have agreed to cooperate on a pipeline to bring Iran oil through Pakistan to India. There are two striking implications to be drawn from all this. First, that whatever else Iran wants from its nuclear development program, it can hardly be energy. The country is awash in the stuff. The second is that Iran's oil and gas might be just as potent a deterrent as a nuclear weapon. While the Bush administration has been pursuing its grand distractions in Iraq, the Iranians have astutely built up a vast and lucrative web of customers, partners and co-developers of their oil and gas, which means that at least one and probably two vetoes would oppose any U.N. sanctions, and that several NATO members, including Turkey, Italy, Greece and France, would be most unlikely to support any kind of NATO sanctions or threats. All the charms and diplomatic blandishments of Condi Rice, and all the Texan bonhomie of President Bush, will not change those hard realities. Money talks. And at over $40 a barrel, oil does more than talk; it shouts very loud indeed. ------------------------ Yahoo! Groups Sponsor --------------------~--> Has someone you know been affected by illness or disease? 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