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China Hedges Mideast Oil Bets Amid Iran Tensions

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China's premier, Wen Jiabao, was in the Persian Gulf this week talking about oil.

China has become increasingly concerned about all the threats of conflict with Iran in the Persian Gulf, which supplies China with a great deal of its oil.

In fact, China is Iran's biggest customer. But Iran was not a stop on the Chinese itinerary — Saudi Arabia and the United Arab Emirates were.

Saudi Arabia was the first stop — the first time a senior Chinese leader has visited the kingdom in 20 years. It's an important signal, says Djavad Salehi-Isfahani, an Iran expert at the Brookings Institution.

"I think the Chinese are trying to figure out as they plan their future how much to depend on Iran and how much to depend on Saudi Arabia," he says.

Though China is Iran's biggest customer when it comes to buying oil, Iran is far from China's biggest supplier, notes Hossein Askari, an expert on Iran's economy at George Washington University.

"Saudi Arabia is much more important to China than is Iran," he says.

Just how much more important? You might be surprised, says Jon Alterman, director of the Middle East Program at the Center for Strategic and International Studies in Washington.

"China gets almost twice as much oil from Saudi Arabia as it does from Iran," he says.

China Eyes The Region, U.S.

Beijing does not want the flow of that oil to stop. But there is increasing concern that could happen. With all the talk of economic sanctions, possible military strikes against Iran, threats to close the Strait of Hormuz — the choke point and entryway to the Gulf — anxiety is growing about Persian Gulf oil. China is not the only worried party, says Alterman.

"An increasing number of countries are concerned about relying on Iran's oil, because of a sense that in the event of a conflict, maybe you need to get oil from another supplier," he says.

If Wen, the Chinese premier, declined to visit Iran, he certainly wasn't ignoring it. In a press conference in Qatar, he sharpened China's opposition to Iran's possible acquisition of nuclear weapons. But he also said that China's purchases of Iran's oil were normal trade.

That's a hint, perhaps, that China does not intend to curtail its oil trade with Iran, as the United States wishes. A new law signed by President Obama in December could result in U.S. penalties against nations that buy Iran's oil or cooperate with Iran's central bank in financing oil purchases.

Many see Iran as a hedge in the oil market for China because, notes Askari, China's other suppliers in the Gulf are allies of the United States. And China has its eye on the U.S. as well.

"The last thing that China wants is the United States controlling or having influence over all of the countries that produce oil in that part of the world. And so it is in that sense that I believe Iran is important for China," he says.

Added Element Of Unpredictability

But Alterman argues that Iran has become a liability for the Chinese as they map out their future energy strategy.

"Iran isn't for China a hedge against the U.S. and its allies cutting off oil to China. Rather, Iran is this added element of unpredictability about the Chinese getting oil from anybody in the Gulf. Because who knows what the Iranians will do to try to fight their own battle with the West and with others over the nuclear program," he says.

The increased tension with Iran over its nuclear program has produced threats and counterthreats, but may also have sobered some in Tehran. Just a few days ago, Iran's government said it would like to resume talks over its nuclear program. Foreign Minister Ali Akbar Salehi suggested talks were on the way.

"Most probably, I'm not sure yet, but most probably the venue will be Istanbul, and the date is not yet settled, but it will be soon," he said.

Iranian leaders have offered but then withdrawn their offers of talks before. For the Chinese, the more reliable suppliers of oil right now are on the Arab side of the Persian Gulf.

Copyright 2012 National Public Radio. To see more, visit http://www.npr.org/.

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