Domestic and foreign interests do not always converge. This is largely so with respect to these three countries’ energy policies. In general terms, whereas domestic factors involve economics and good governance, foreign factors involve such notions as community of nations and stakeholder responsibility. China, Japan and South Korea’s own social, economic and political conditions determine whether this interaction proceeds smoothly or not.
Apparently, energy security is not to be easily compromised. The U.S. benefitted greatly during the time of its rise as a world’s industrialleader from access to cheap energy resources in the Middle East in the mid-1930s. Similarly, the Chinese leadership understands that it is imperative for China to be able to access to reliable and secure energy markets. Given the fact that most of the world’s stable sources of energy have long been appropriated by Western companies, China is left with few options but to explore the least desired regions such as the divided Sudan and heavily-sanctioned Iran.
At the other end of the spectrum, Japan experienced a speedy industrial development from the mid-1950s to the late 1980s. Then it plunged into stagflation only to recover slowly in the past few years. Almost completely devoid of domestic energy sources, Japan is heavily dependent upon foreign resources to sustain its recovery. Therefore availability and accessibility are two crucial components of the Japanese energy policy.
Being reliant on foreign energy resources, these three countries are highly vulnerable to how international energy regime is regulated. Albeit in varying degrees, they all subject to certain internal and external pressures. Comparatively speaking, China comes under greater domestic pressure than the other two whereas Japan, due to its unique international situation, is faced with greater external pressure.
As opposed to Japan and South Korea, China is outside the U.S.’ security regime and hence is less constrained in its energy policy making. The fact that, in relation to its growing national power, China desires a greater and more independent say on the international stage regardless of U.S. demands also contributes to its sovereign posture as distinct from Japan and South Korea.
A RAND study identifies China as the key player in the success of Washington’s punitive measures against Iran. It is argued that the sanctions will not achieve the desired goals unless Beijing reshuffles its relations with Iran. However, garnering Chinese cooperation is a difficult task due to a number of economic and geostrategic reasons. Economically, Iran’s vast oil and natural gas resources are indispensable for China’s ever growing energy consumption. Furthermore, Iran offers opportunities for Chinese investors in the fields of mining, transportation and energy generation. Strategically, Iran may serve as a partner in counterbalancing the U.S. in the Middle Eastin response to Washington’s renewed commitment to Asia.
Economic ties between China and Iran grew stronger over the past three decades. Bilateral trade, which was a mere $1.6 billion in the 1980s, reached a significant $45 billion in 2011, registering a 55% increase over the previous year. In 2007 China became Iran’s top trade partner. Several large scale investment deals were finalized in the past ten years. For instance, in May 2011, China signed a $20 billion agreement to invest in Iran’s industrial and mining sector.
The most important component in China-Iran bilateral trade is oil. In spite of the comprehensive sanctions placed on Iran, the country with the world’s fourth largest proven oil reserves, China’s oil trade with Tehran has shown a positive growth. According to Energy Information Administration, China has become the top export destination for the Iranian crude oil and imported 426 thousand bpd of oil, 20% of the country’s total export, in 2010.
In December 2011, U.S. President Obama signed into law additional measures against Iran. According to the legislation, countries that import large volumes of oil through Iranian central bank might be subject to sanctions, including a cut-off from the U.S. banking system. In the first half of 2012, China’s energy import from Iran declined considerably, prompting many into thinking that Beijing might be observing U.S. demands. However, starting from April, China’s oil purchase rebounded. As a result, in June 2012, Obama administration announced that it would not exempt Beijing from the measures taken under the legislation signed in December.
Although China did not veto several Security Council Resolutions drafted against Iran, it often criticized unilateral actions endorsed by the U.S. and Europe. In the Position Paper released in September 2010, the PRC government made its stance clear on the Iranian nuclear issue. The document underlined that China favored non-proliferation in the Middle East and Iran, as a signatory of the Non-proliferation Treaty (NPT), was anticipated to fulfill its obligations. However, the report did not accuse Iran of non-conformity. Nor did it endorse punitive measures to force compliance; rather, it advisedflexible dialogue.
Furthermore, a 2010 Explanation for Votearticulates on the three principles that Beijing anticipates any international action against Iran must adhere to: First, it should reinforce international non-proliferation regime rather than targeting some select countries. Second, UNSC actions should contribute to peace and stability in the Middle East. Third, a UNSCresolution should not jeopardizethe daily lives of ordinary Iranians.
The Chinese government has been critical of excessive anti-Iran measures. As an example, China strongly criticized U.S. days after it imposed sanctions against the financial institutions doing business with the Iranian Central Bank, accusing the Obama administration of placing domestic law over international law. China alsolashed out at the EU for its imposing new penalties targeting major Iranian oil and gas companies. The Foreign Ministry spokesman, Hong Lei, commented that China opposed unilateral sanctions as they complicate the situation more rather than facilitate a solution.
In short, China supported UNSC resolutions which it considered conducive to constructive dialogue. However, it frequently criticized unilateral measures. Beijing pursued an independent policy and rejected punitive actions, including the comprehensive measures (The National Defense Authorization Act),signed into law in2011. Bilateral trade between China and Iran has grown over the years and China’s national oil companies made deals with their Iranian counterparts. Beijing sought new ways such as paying for oil with gold to by-pass the sanctions. Overall, bilateral relations have broadened in the past three decades. China maintained a balanced policy and acted on long-held principle of non-interference. In this process, its interests have often clashed with those of the U.S.
According to the Japanese Ministry of Foreign Affairs (MOFA), bilateral trade between Japan and Iran has shown some improvements over the past two decades. Due to the considerable weight of natural resources in the total trade, the export-import balance remained tilted largely toward Iran. In 2007, trade volume reached to $14.7 billion and has changed little ever since. As of 2007, over 96% of the Iranian export to Japan has been crude oil and 3%, natural gas.
Japan’s reliance on the Iranian oil has been declining consistently since the mid-2000s in line with the sanctions. Currently, Japan imports about 10% of its oil from Iran. According to the Ministry of Economy, Trade and Industry data, imports from Iran have been reduced by 40% since 2007. Previously the second largest customer of the Iranian oil, an 11% of annual reduction since 2007 brought Japan down to the third after China and the European Union. Obviously, of the three Northeast Asian countries, Japan has been the staunchest observer of the sanctions. As a resultit was exempt from the U.S. law against countries doing business with Iran.
Japan has cooperated with the U.S., often facilitating the effectiveness of the sanctions placed upon Iran’s banking, energy and other industrial sectors. As an example, following a number of UNSC resolutions, Japan froze the assets of 106 entities and 1 individual, and terminated correspondent banking relationships with the institutions subject to assets freeze in December 2011. Three months later, another set of measures put more Iranian financial institutions on Japan’s sanctions list.
World’s tenth largest consumer of oilin 2008, South Korea lacks in domestic energy resources and hence is the fifth largest importer of oil. Although the share of oil in the nation’s primary consumption has decreased from 66% in the mid-1990s to 45% in 2008, over 75% of the total import comes from the Persian Gulf, making the country highly dependent on a politically unstable region. In 2010, Iran accounted for 7% of Korea’s energy import, holding a fifth spot after Saudi Arabia, UAE, Kuwait and Qatar.
South Korean import of the Iranian crude has shown deep fluctuations over the years. According to data from Korea National Oil Corporation, compared to 2010, Korea imported 20% more oil from Iran in 2011. However, following EU’stougher measures that took effect in July 2012, South Korea halted its oil shipment in August and September. In line with the estimations, during the first 11 month of 2012, South Korea’s oil purchase decreased 41% compared with the same period last year. Consequently, South Korea was spared from the U.S.’ financial sanctions in June 2012.
In a policy overview released by the Korean Ministry of Foreign Affairs and Trade, the Korean government states that it supports Security Council decisions, including Resolution 1929 which expands the scope of financial sanctions on Iran. In line with the U.S. actions, Korea has cut down on its oil import and sought diversification. It is expected that Iran’s share in Seoul’s energy import will continue to drop in the coming years although, the Persian Gulf as a whole, will continue to weigh heavily in the country’s total energy purchase.
As the above brief analysis shows, it is not possible to mention a whole-hearted participation to the U.S.-led sanctions by any of these three Asian powers. However, Japan and South Korea have mostly adhered to Washington’s requests and consequently received exemptions from financial sanctions. Among the three countries, only China has been capable of ignoring Washington’s demands. Rather, Beijing has successfully separated the issue of non-proliferation from trade in energy.
Comparatively speaking, Japan seems to be the most compliant with the U.S. demands whereas South Korea falls in between. At times, Japan’s obedience comes at the cost of its national interests, as happened in the case of the development of the Azadegan Oil Fields that Japan won in 2003 but later had to withdraw under relentless U.S. pressure. Ironically, Tokyo’s loss became Beijing’s gain. In a 2011 deal, China agreed to invest $8.4 billion for developing the field which will have a capacity of 600.000 b/d of oil when fully operational.
Obviously, each government mentioned here has to take other regional and international variables into consideration when making policy decisions. Just as Japan’s contemporary foreign policy could not be explained satisfactorily if theUS-Japan Security Treaty (1960) is not factored in because it firmly places Tokyo under Washington’s sphere of influence by effectively regulating its foreign policy. By the same token, South Korea’s post-war diplomacy could be understood fully only if the North-South division is included in the picture. In both cases, the heavy presence of the U.S. in these countries’ policymaking stands out as one of the most consequential determinant. China, in this case, is an outlier rather than a norm for East Asia. This is largely due to the country’s growing national power as well as its independent and influential foreign policy; which disassociates the country from the US-led bloc in the region, and rejects a firm alliance with any major power. Consequently, unlike Tokyo and Seoul, Beijing prefers to separate the issue of sanctioning Iran from trade in energy.
*By Þerafettin Yýlmaz, Doctoral Candidate in Asia-Pacific Studies at National Chengchi University in Taiwan. He can be reached at firstname.lastname@example.org