KEY POINTS:
China and Russia are wary of backing US moves to tighten international sanctions on Iran. But China, a big oil and gas importer, and Russia, a major energy exporter, also appear to have divergent interests over Iran's nuclear programme.
The tensions this programme is generating with the US have fanned concerns about military conflict in the Persian Gulf.
This has helped drive oil prices to near record levels. Beijing should be worried. To fuel its turbocharged economic growth, China now imports about half the oil it consumes, and nearly 50 per cent of this is from the Middle East.
Oil imports cost China over US$60 billion in 2006. Following the strong price surge this year, the bill will be much higher in 2007.
Meanwhile, Russia profits mightily from ever higher oil and gas prices. It is using petrodollar income to rebuild its economic and military strength, and to extend its influence in Asia.
The increasing amounts of oil and gas that China wants to buy from Russia to ease dependence on the volatile Middle East will be based on global market prices.
Despite the Kremlin's interest in keeping energy prices high and China's interest in seeing them fall, it is Russia rather than China that has been more active in restraining Iran's nuclear ambitions.
Both countries have joined the other three permanent members of the United Nations Security Council - the US, France and Britain - in passing two resolutions calling on Iran to suspend uranium enrichment and other sensitive nuclear activities.
Beijing and Moscow insist that no further international sanctions should be imposed - at least until the UN watchdog, the International Atomic Energy Agency, reports later this month on whether it has been able to resolve outstanding questions about Iran's past nuclear behaviour.
In a recent meeting with Iranian leaders, Russian President Vladimir Putin reportedly proposed a time-out on further sanctions against Iran if it suspended uranium enrichment, which could be used to make fuel for nuclear reactors to generate electricity or nuclear weapons.
Tehran insists its intent is peaceful. But Mr Putin refused to set a time for finishing Iran's first nuclear nuclear power reactor, which Russia is building. The delay is seen as leverage on Tehran.
Moscow has also offered Iran access to a nuclear bank it has established in Russia to supply reactor fuel and other services to countries that agree not to enrich uranium.
Mr Putin told a European Jewish Congress in Moscow not long ago that Russia and Israel were the two countries most threatened by a nuclear Iran.
China, much further away than Russia or Israel from Iranian ballistic missiles, evidently sees Iran in a significantly different light. Iran, Iraq and Afghanistan are weakening America and pinning it down in the Middle East.
This gives Beijing a freer hand to expand its influence in Asia and the Pacific.
Iran also gives China a new foothold in the energy-rich Gulf. Beijing is cementing its influence through arms sales and trade, seeking to push itself ahead of Russia on both fronts. China could overtake Germany as the top exporter of goods to Iran as early as this year. Two-way trade between China and Iran was worth about US$16 billion in 2006.
Most of it is in Iranian crude oil sales to China. Iran provided nearly 12 per cent of Chinese oil imports last year, a fraction more than Russia.
They were the third and fourth largest suppliers, respectively, after Angola and Saudi Arabia, each with around 17 per cent. China has also signed outline agreements with Iran to develop oil and gas fields into major export projects.
Beijing may also see Iran as the best way into neighbouring Iraq after the US leaves. Iraq has the world's third largest proven conventional oil reserves, after Saudi Arabia and Iran. In June, the Iraqi Government revived a contract signed by the Saddam Hussein Administration allowing China's largest state-owned oil company to develop an oil field in Iraq.
Last month, Iraq agreed to award US$1.1 billion in contracts to Iranian and Chinese firms to build several power plants to generate electricity in Iraq. Chinese activity has not gone unnoticed in Washington.
Officials there have warned that Beijing is putting the US-China relationship at risk. They accuse Beijing of placing its economic interests ahead of the need to resolve a nuclear dispute that could rock the Middle East and make it even more difficult to prevent proliferation.
China's ties with the Shiite theocracy in Tehran are also being watched closely by Saudi Arabia and other Sunni Arab regimes on the western side of the Gulf. They are worried about Iranian expansionism and possible nuclear blackmail.
China draws nearly half its vital oil imports from the Middle East. While Iran accounts for nearly 12 per cent, the rest comes from Arab producers in and close to the Gulf.
As concerns rise in the region over Iranian nuclear ambitions, China will need to draw on all its diplomatic skills to maintain this balancing act in energy supply.
* The writer, a former Asia editor of the International Herald Tribune, is a security specialist at the Institute of Southeast Asian Studies in Singapore.
