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Iran and China Reach Strategic Agreement on Oil Resources

By Adam Gonn, The Media Line news agency

Iran and China have signed an agreement to allow China to set-up an oilrig in the Gulf despite increasing international calls to enforce tougher sanctions against Iran.

In a deal worth $143 million between the Iranian North Drilling Company and China Petroleum Technology Development Corporation, the latter will be allowed to drill for oil in the Gulf, according to the official Iranian news agency Press TV.

"In recent months with the Chinese U.S. bilateral problems, China is using Iran as a leverage against the U.S. and not complying with the [United Nations] Security Council in applying sanctions against Iran," Dr Mehrdad Khonsari, Senior Research Consultant, Centre for Arab and Iranian Studies in London, told The Media Line.

"The story is that in the field of oil China has become a vital part of the Iranian oil sector," he added. "China has previously signed deals for oil exploration on land that was taken over by Japan who backed out over Western pressure."

According to Press TV, China has commitments of more than $80 billion in the country's energy sector, receiving more than 15 percent of its oil from Iran.

"China seems to get along with Iran better than most Western countries," Gareth Leather, senior editor and economist with the Economist Intelligence Unit, told The Media Line. "While the U.S. want harsher sanctions, so far China has not allowed for it to happen. China needs the oil and natural resources for its industry."

"Iranian and Chinese relations have a primarily economic aspect," Khonsari explained. "Chinese export to Iran has largely ruined the domestic economy especially in the cloth manufacturing industry, which is now being talked about more publicly."

Iran' nuclear program has increasingly become a major source of tension between the U.S. and Iran. While Teheran claims the program is solely for power production, Washington says the energy program is being used as a screen for nuclear weapons development.

The U.S. has been pushing for stricter sanctions backed by the United Nations Security Council, following a report by the International Atomic Energy Agency (IAEA) in February 2010 outlining Iran's long history of clandestine nuclear weapons development.

Sanctions backed by the Security Council would add to those imposed by the U.S. and include all member states in the United Nations, but require both China's and Russia's support as permanent members of the Security Council and veto power holders.

Russia has extensive business ties with Iran. A failed deal for a planned nuclear plant in Bushear involved Russia offering Iran to provide and retain the plant's fuel but was rejected for unclear reasons by Iran.

Used nuclear fuel is the basis for producing weapons grade, or refined uranium, required in a nuclear weapon.

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