Editor’s note: The Peak Oil series by Dr. Joe Duarte continues. In this installment, Dr. Duarte looks at the relationship between China and Iran, and considers its implications for the global energy markets and the geopolitical situation. These analyses appeared originally at www.joe-duarte.com on February 13 and February 17, 2006.

China's Alternative Energy Moves (2-13-06)

China wants to double its exposure to alternative energy over the next fourteen years, echoing recent remarks by President Bush.

According to China Daily, the Chinese government " is working on a long-term plan to increase the use of alternative fuels to reduce the dependence on oil. Coal, gas and renewable energy sources such as biomass and solar power are expected to become "major alternatives," according to the National Development and Reform Commission (NDRC)."

The report added that eventually China would like to reduce the use of coal and oil and replace it with "nuclear, wind and solar energy."

China's use of solar energy has been increasing "at more than 25 per cent in China" making it "the highest in the world."

According to the paper "solar power consumption in the country accounted for 40 per cent of the global total at the end of 2004."

More important, "The government has decided to significantly raise the availability ethanol as vehicle fuel, which is currently being used in five provinces. Corn, wheat, potatoes and sugarcane are major raw materials for the alternative fuel."

China is also expected to spend $15 billion in the next 10 years to build plants that produce oil products from coal.

Iran: Global Expansion Of Nuclear Politics (2-17-06)

As the world's concern for Iran's nuclear program rises, China is using the opportunity to work out a massive oil deal with Tehran, as Iran begins to set up alliances with left leaning countries in Latin America, setting back any real chances of a unified global solution and creating an increasingly complex situation.

Sources close to the deal told the Wall Street Journal that both China and Iran are in a hurry to get the deal done before any international sanctions are put in place as a result of the nuclear program debate.

The Journal reports that the deal involves China's Sinopec "to develop Iran's Yadavaran oil field in exchange for agreeing to buy 10 million tons of Iranian liquefied natural gas annually for 25 years."

According to the Journal, the deal could be worth "tens of billions of dollars," and serious face to face talks could take place in Tehran as early as next month as a major Chinese delegation is scheduled to visit Iran.

European Surprise

Europe is perplexed by the developing situation. According to the Journal: "U.S. and European diplomats with deep involvement in the Iran standoff said they were surprised Iran and China were pushing ahead with the energy talks. One European diplomat said yesterday that the situation shows how complicated it is to deal with Iran, and that even within governments concerned about Iran there are different constituencies with different priorities."

France has continued its tough war of words with Tehran. According to Reuters: "France accused Iran on Thursday of pursuing a secret military nuclear program, drawing a swift rebuke from Tehran before talks next week on a Russian proposal for resolving the dispute."

China, remains "concerned" about the nuclear situation, but has a history of saying one thing and then cutting oil deals with controversial countries, such as Syria and Sudan.

Forty percent of China's oil supply is imported, with Iran among its top tier of suppliers.

According to the Journal: "Officials from Sinopec declined to answer questions about the deal yesterday. Royal Dutch Shell PLC, which has offered technical advice to Sinopec on the project, said that it remains interested in participating in the future development of Yadavaran."

The Latin American Card

Meanwhile Iran is touring South America with key stops in Cuba and Venezuela.

According to Stratfor.com: Iran is "busy gearing up its leftist allies to back Tehran's battle cry against the additional protocols of the Nuclear Nonproliferation Treaty, and Tehran is hinting none too subtly that it has no problem with helping countries develop peaceful nuclear programs. The Iranian regime has teamed up with the Venezuelan government to simultaneously argue against nuclear proliferation for military use and support the development of nuclear energy for civilian purposes. While Tehran is embroiled in its ongoing nuclear controversy with the West, the Iranian government has an interest in signaling to the United States that it can easily supply Venezuela with nuclear technology to cause trouble in Washington's backyard."

So far, it's all talk. Stratfor noted: "Chavez may be willing to finance and provide oil-production technology to Iran in exchange for nuclear technology, but he will be more interested in adding the threat of acquiring nuclear power to its arsenal of pressure tactics against the United States."

Still, there are other concerns for the White House as "another cause for concern for Washington is the presence of Iranian-backed Hezbollah operatives in the lawless tri-border area of Argentina, Paraguay and Brazil, where money laundering, arms smuggling and drug trafficking dominate the industrial scene to fund terrorist activities. Approximately 630,000 people live in the tri-border area; roughly 25,000 are Arabs or of Arab descent and make up a Shiite majority."

Stratfor notes that Hezbollah in Latin America has been quiet for several years. Nevertheless, the intelligence service notes that "Should Iran face a serious threat of an attack against its nuclear sites, Tehran would like to use its closer cooperation with Latin America to remind Washington that it still has militant assets in the region that could be reactivated. Iran's directive to recharge its Hezbollah cells overseas will quickly pop up on the United States' and Israel's radar, as the veteran militants will likely be forced to go out and recruit members from the younger generation. There have been no indications as of yet that these activities are taking place."

Conclusion

Iran is deftly putting together a complex, multilateral strategy to thwart the U.S. and Europe's plan to stop it from developing a nuclear program.

By bringing in elements of the left on one hand, and using its energy resources as leverage against China on the other, Tehran is showing that its brain trust has a significant and carefully planned out strategy, and that it is quickly putting it to work.

Hand wringing, and happy talk from Paris, London, Berlin, Brussels, and Washington is not likely to stop any of Tehran's plans at this moment.

The game is clearly afoot.

© 2006 Joe Duarte, M.D.
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