On 5 November in Beijing officials from Iranian and Chinese petroleum industry universities reached agreement over cooperation in oil and gas related issues in research, industrial, and academic fields.
The arrangement represents a potential breach in the carefully constructed “Great Wall” of U.S. sanctions against foreign investment in Iran’s energy industry, and assiduous Washington policy since the February 1979 revolution that drove Shah Reza Pahlavi, a stalwart U.S. ally, from power and brought about an Islamic republic there.
In discussing the agreement with reporters, Oil Industry University of Iran director Dr. Gholam-Reza Rashed said, "The Iranian side will try to fully implement the reached agreements with our Chinese partners up to October 2012. At that meeting it was agreed that a contract on cooperation between the two universities would be signed to serve as a means that would in the long run meet the demands of both countries' oil and gas industries. We have reached agreements with Chinese officials of this university over research works conducted in oil and gas fields and the related disciplines of this industry. It was agreed that the two universities would also cooperate in presentation of PhD courses in their oil and gas faculties. We will try to have a broader cooperation with this university than we have had thus far."
The agreement was signed by Rashed and the Chinese University of Oil Industry President Zhang Laibin. Zhang said after signing the letter of understanding that Iran is an important country for China in various fields, including the provision of energy for developing countries.
Iran's Oil Industry University is also working with similar universities in France, Canada and Australia and holds joint educational courses with them.
Why should this matter?
Simple - Iran is OPEC's second largest oil producer and holds the world's third-largest proven oil reserves and the second-largest natural gas reserves. National Iranian Southern Oil Company director Hormoz Qalavand stated that Iran’s current oil production is roughly 3.92 million barrels per day (bpd).
In January-June 2011 Iran was China’s third largest source of oil imports, exceeded only by Saudi Arabia and Angola, sending 650,000 bpd in June, a jump of 53 percent from May.
According to China’s General Administration of Customs, China’s oil imports from Iran increased by around 50 percent in the first half of 2011 compared to the same period the year before, reaching nearly 13.5 million tons. Furthermore, Iran’s liquefied petroleum gas (LPG) exports to China in the period January-June 2011 was 352,130 tons, an increase of 72 percent compared to the same period in 2010.
National Iranian Oil Company research and technological director Mohammad-Ali Emadi stated in a recent interview that while Iran’s crude oil reserves will end within the next 50 years, the country’s extensive natural gas reserves will last up to 100 years, all music to Beijing’s energy hungry ears. Iran’s Oil Minister Rostam Qasemi announced that Iran’s recoverable oil reserves stand at 154.8 billion barrels, but the country’s offshore Persian Gulf South Pars gas field has 14 trillion cubic meters of recoverable natural gas, about eight percent of the world's reserves and more than 18 billion barrels of liquefied natural gas (LNG) resources.
So, why would an arcane academic agreement matter?
Simple – under Iran’s ambitious Iran's fifth five-year development plan (2010-2015), according to Qasemi, speaking on 8 November, Iran's natural gas output will rise to 1.47 billion cubic meters per day by the end of the Fifth Five-Year Development Plan, and the nation’s daily output of oil is projected to reach 4.4 million bpd.
This will require two things – cash, lots of it, and technological expertise.
China can contribute both.
Furthermore, Beijing simply ignores Washington’s calls for sanctions and provides Iran a valuable third party conduit for both investment and expertise. In this context, the Oil Industry University of Iran- Chinese University of Oil Industry is hardly a minor bilateral agreement solely benefiting those in the Ivory Tower.
It serves utilitarian goals of both Iran and China, and should be regarded as such.
By. John C.K. Daly of Oilprice.com