Michael Richardson: Oil buys kid-glove treatment for Iran

As the United States and leading European powers tried this week to get the governing board of the United Nations nuclear watchdog to refer Iran to the UN Security Council for reprimand and possible sanctions, other key players, including China, Russia and India, were reluctant to do so.

This was in marked contrast to developments in Beijing, where some of the same major powers united to apply pressure on North Korea, which pledged to abandon its existing nuclear weapons programmes and rejoin the Nuclear Non-proliferation Treaty in exchange for energy aid and security guarantees.

The immediate spanner thrown into the works by Pyongyang's insistence that it would not give up its weapons programme until it had received civilian nuclear reactors does not obscure the fact that the talks, hosted by China and involving the US, Russia, Japan and North and South Korea, showed that Beijing, Washington, Moscow and Tokyo can co-operate on issues of mutual security.

But that convergence does not extend to Iran. One reason is that Iran remains in the treaty and insists that its nuclear activities are peaceful. North Korea withdrew from the treaty several years ago and in February declared that it had nuclear weapons.

China, Russia, India and Japan also have important energy interests in Iran that make them wary of moves by the US and Europe to confront or isolate Tehran. These interests put them at odds with the non-proliferation priorities of America and Europe.

As a result, China, Russia and India say US and EU suspicions that Iran is using a civilian nuclear power programme as cover to develop nuclear weapons should be handled by the International Atomic Energy Agency, the UN watchdog in Vienna, and not escalated to a Security Council-level concern. Japan's position is not so forthright because it is a US ally.

However, the attitude of China and Russia is especially important because they have veto rights on the Security Council should the other three permanent members - the US, Britain and France - insist that it consider the Iranian nuclear issue.

Russia is earning hundreds of millions of dollars for its cash-strapped nuclear power industry by helping Iran to complete a big reactor at Bushehr on the Persian Gulf. The plant is due to start generating electricity next year.

And there are expected to be follow-on construction contracts for other Russian nuclear power plants in Iran. Tehran says it aims to have another six units the size of Bushehr on line by 2020 generating 10 per cent of the country's electricity and freeing more oil and natural gas for export.

China and India, both hungry for energy to keep their economies growing fast, see Iran as a key source of supply. With nearly 126 million barrels of crude oil, or 10 per cent of the world's proven reserves, Iran has the second-largest untapped pool of oil after Saudi Arabia. It also has the world's second biggest natural gas reserves after Russia.

By contrast, impoverished North Korea is an energy black hole, bereft of significant oil and gas resources.

Major customers for Iranian oil exports include China, Japan, South Korea and Taiwan. Iran supplied 14 per cent of China's oil imports in 2003 and is expected to provide more in future.

With so much of Iran's oil and gas unexploited, and American firms barred by US sanctions from operating there, Asian and European companies have led the way in exploration and production.

Last October, Iran signed a contract worth US$100 billion ($144 billion) with China's state-owned Sinopec to ship up to 10 million tons of liquified natural gas (LNG) a year to China.

In January, the Government-owned Gas Authority of India Ltd signed a 30-year deal with Iran to buy some 7.5 million tons of LNG worth an estimated US$50 billion. India was also offered shares in two oil fields. In return, it will reportedly build three plants in Iran that would export an additional 5 million tons of LNG a year to India.

Meanwhile, despite US pressure to pull out of the plan, India is negotiating with Iran and Pakistan to finalise terms by the end of this year for building a pipeline to export Iranian gas through Pakistan to India.

This is straining the strategic partnership forged by India and the US this year, prompting warnings from Washington that Congress could reject the Bush Administration's offer to help India to develop its civil nuclear power industry, even though it has nuclear weapons and refuses to sign the non-proliferation treaty.

Japan, the closest Asian ally of the US, has also broken ranks with Washington over energy ties with Iran. In mid-2003, after American officials raised objections, Japan's Japex oil company said it would not sign a deal with Iran to develop the giant Azadegan field, the country's biggest oil discovery in 30 years, unless Tehran addressed concerns over its nuclear programme.

In February 2004, however, a Japanese consortium led by Inpex signed an agreement to bring Azadegan into production starting in 2007.

No wonder there is disarray in the international diplomacy to curb Iran's nuclear ambitions.

* Michael Richardson, a former Asia editor of the International Herald Tribune, is a visiting senior research fellow at the Institute of South East Asian Studies in Singapore.