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October 29, 2004: China Buys Oil Interests in Iran; Reduces US Leverage Over Iran

China and Iran negotiate a $70-$100 billion deal that gives China’s state oil company a 51 percent stake in Iran’s Yadavaran oil field, located near the Iraq border. The Yadavaran oil field, once thought to be two separate oil fields (Koushk and Hosseinieh), contains more than 3 billion barrels of recoverable oil and a total reserve of 17 billion barrels. [China Daily, 11/8/2004; Washington Post, 11/17/2004] China agrees to purchase ten million tons of liquefied natural gas (LNG) annually for a 25-year period once Iran has constructed plants to liquefy the natural gas, a feat that could take more than five years. The amount could increase to as much as $200 billion if an oil deal, currently under negotiation, is also agreed upon by the two nations. [Persian Journal, 10/31/2004] As part of the deal, Sinopec, China’s state oil company, will have the right to exploit Iran’s Yadavaran oil field, located near the Iraq border, on a buy-back basis in cooperation with another major international oil company. The Yadavaran oil field contains more than 3 billion barrels of exploitable reserves and comprises the Koushk and Hosseinieh oil fields, “which were recently found to be connected at various layers, forming an oil field with a cumulative in-place reserve of 17 billion barrels,” the Chinese Daily reports. [China Daily, 11/8/2004] Iran is estimated to have a 26.6-trillion-cubic-meter gas reservoir, the second-largest in the world. About half of its reserves are located offshore. Some observers suggest that the Iran-China agreement could establish a precedent that opens the way for other nations to do business with Iran. The US Iran-Libya Sanctions Act of 1996 (ILSA), which penalizes foreign companies for investing more than $20 million in Iran’s oil and gas industry, has so far discouraged many companies from doing a large amount of business with the Islamic state. [Asia Times, 11/6/2005] Additionally, the Iran-China deal dramatically reduces the Bush administration’s leverage over Iran, as its threat to bring Iran to the UN Security Council over its nuclear program is greatly weakened by the fact that China, as a permanent member, holds a veto at the council. [Washington Post, 11/17/2004]

Entity Tags: Sinopec

Timeline Tags: US confrontation with Iran

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