Amid the snake-infested marshlands on Iran’s border with Iraq, the control room monitoring the North Azadegan Oil Field is manned entirely by Chinese technicians. In central Tehran, hundreds of Chinese pour out at noon from Huawei Technologies Co to its canteen. There are now so many Chinese expatriates in the country, some say they outnumber all other nationalities combined.
A decade of international sanctions aimed at blocking Iran’s nuclear program has left China the country’s dominant investor and trade partner. Now, with those restrictions formally lifted, a more pragmatic Iranian government has been trying to ease its dependence on China, only to find itself stymied by hard-line resistance and residual US sanctions.
“China has done enough investment in Iran,” said Mansour Moazami, who was deputy Iranian minister of oil until taking over as chairman of the country’s massive Industrial Development and Renovation Organization this year. “We will provide opportunities and chances for others.”
Illustration: Mountain People
The tension illustrates a more nuanced situation in post-sanctions Iran than is often presented. Many in the US, including Republican US presidential candidate Donald Trump, portray Iran as the big winner from last year’s nuclear sanctions deal as European companies rush into one of the world’s last big, untapped emerging markets. However, in Tehran the government is attacked for failing to deliver and pandering to a still hostile West.
Western investors have been slow to arrive, forcing Iran back into the arms of the Chinese. That is especially true in the energy sector, where pressure to increase production is intense. Elsewhere, Western clearing banks still refuse to do business with Iran for fear of falling foul of US non-nuclear sanctions that remain in effect, meaning Western companies cannot raise project finance.
People including Moazami are becoming frustrated. His state conglomerate wants to raise US$10 billion of foreign investment by the end of next year, for projects from shipbuilding to petrochemicals.
“We need investment. What we expected has not happened yet, and this is what we need the Americans to solve,” Moazami said.
It is unclear whether new US guidelines on sanctions published on Oct. 7 will change the situation.
A “sense of being cheated” by the West is slowly sinking in among Iranians, said Li Guofu (李國富) of the Chinese Ministry of Foreign Affairs’ Institute of International Studies.
“China sort of knows Iran is aware they actually don’t have a great deal of options,” Li said.
The sanctions period was a boon for China because other countries forced their companies to leave. From trading half as much with Iran as the EU before sanctions, China had five times as much Iran commerce as the EU by 2014, tailing off since due to the falling price of oil.
From oil to automobiles to communications, Chinese companies moved in, often gaining their first major international contracts, Iran-China Chamber of Commerce vice president Majidreza Hariri said.
For example, Huawei is building communications infrastructure in Iran, work that would otherwise have gone to Germany’s Siemens AG, he said.
China now wants to take the relationship further, hoping to rebuild its ancient Silk Road trade routes to Europe.
In January, Chinese President Xi Jinping (習近平) was the first world leader to visit Tehran after sanctions ended, promising US$600 billion of trade over 10 years.
However, the relationship has rarely been smooth. Although China has been one of Iran’s most important sources of weaponry and nuclear technologies since the 1980s, its leaders sacrificed those projects at key moments to protect relations with the US, according to a detailed account by John Garver of the Georgia Institute of Technology.
When it needed more oil, China turned first to Saudi Arabia, Iran’s bitter rival.
Iran has also proved ambivalent, as its relationship with the world’s rising superpower became entangled in battles between moderates and conservatives. China won many of its contracts under former Iranian president Mahmoud Ahmadinejad, at a time when he was expanding the role of the Iranian Revolutionary Guard Corps throughout the economy. Now the government of Iranian President Hassan Rouhani wants to rebuild investment ties with other parts of the world and reduce the military’s economic footprint.
Nowhere has this complex Chinese-Iranian relationship played out more clearly than in the marshes and deserts of the North and South Azadegan oil fields in southwestern Iran.
China National Petroleum Corp International (CNPCI) took over in 2010, after sanctions forced Japan’s Inpex Corp to leave, a pattern repeated at several other big Iranian oil and gas projects.
Things began well, but then the Chinese slowed down, especially at the larger southern field, said Karamat Behbahani, the Texas-educated director of the North Azadegan project.
The Chinese blamed pressure from the US among other factors, he said.
After Rouhani replaced Ahmadinejad in 2013, the government began to complain loudly of Chinese failures to deliver. An Iranian company replaced the Chinese at a US$4.7 billion offshore contract.
In 2014, Iranian Minister of Petroleum Bijan Zanganeh kicked the Chinese out of the South Azadegan Oil Field, one of the world’s largest greenfield projects with about 33 billion barrels in place. Other Chinese investments could also be at risk, he said.
China’s role hit a further low in 2014, when an environment official fined Chinese workers for hunting and eating soft-shelled Euphrates turtles, a protected species, in the sensitive wetlands that surround North Azadegan’s oil wells. On a recent visit, water buffalo waded in the shallows and a mongoose climbed out of the reeds to rip the head from a snake.
However, pressure to develop Azadegan was growing. Iraq had contracted a consortium led by Royal Dutch Shell PLC to tap the reservoir it shares with Iran from the other side of the border. In April 2014, the Iraqi side exported its first shipment of oil.
“It’s as though you have a nice cold drink with two straws in it,” said Behbahani, adding that Iraq was sucking on the other straw. “We should not lose any time.”
Behbahani said that while Western companies might have better technology than CNCPI, the Chinese were in place.
Shell’s team is now pumping more than 200,000 barrels per day, compared with a combined 125,000 barrels at the two Azadegan fields.
“We did what we had to do, based on our national interest,” Behbahani said in his Tehran office. “If Total had been here, it would be Total taking the oil out. If it had been Shell, Shell.”
At South Azadegan, without a foreign investor, the engineers in charge said they are still four years away from completing the surface equipment needed to produce at full capacity. It is lack of cash that is slowing progress, rather than technology, they said — even if they are envious of some Shell software that quickly maps out underground reservoirs, saving time and money.
Zanganeh in May said that he was in talks with Total to take over South Azadegan, which is expected to be put up for tender later this month.
However, contract delays and the electoral calendar mean it is likely to be at least 18 months before any big Western oil company starts work on an Iranian oil field, said Homayoun Falakshahi, of Wood Mackenzie energy consultants.
Total did not return telephone calls and e-mail requests for comment.
In the meantime, Iran has softened its stance on Chinese investment, announcing exclusive talks with Chinese firms to continue with the second phases of the North Azadegan and nearby Yadaravan oil fields.
Zanganeh also seems to have compromised with conservative factions at home. The new international oil contract passed by parliament requires foreign investors to choose from a short list of licensed partners, including a conglomerate belonging to the Revolutionary Guard and another associated with Iranian Supreme Leader Ali Khamenei.
“This says to the regime’s conservatives that they won’t be excluded from the new contracts,” Falakhshahi said.
Last week, the first of the new-style contracts — to exploit the Yaran fields, smaller neighbors to North and South Azadegan — went to an affiliate of the supreme leader’s conglomerate, Persia Oil and Gas Industry Development Co.
Iran’s Ministry of Oil did not respond to requests for comment. The head of CNPCI in Iran declined to be interviewed for this article, as did the Chinese embassy in Tehran. CNPCI’s headquarters in Beijing did not respond to e-mail and telephone requests for comment.
Since the nuclear deal was reached, CNPCI has upped the pace at North Azadegan, hitting its 75,000 barrel-per-day contract commitment four months ago.
That might be several years late, but “we aren’t holding our heads in our hands,” Behbahani said.
With the help of a Chinese, rather than Western, oil company, Iran has begun sucking on its straw.
With assistance from Golnar Motevalli and Ting Shi
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