Follow the Oil

***UPDATE***
12 Jan 06//1:30 p.m./PST

EU foreign ministers proclaim nuclear talks with Iran can go "no further," and have urged UN Security Council to take up the matter. Secretary of State Rice says she is "gravely concerned" and supports the European proposal. Russia is now indicating that it would abstain, rather than vote against efforts to move the matter to the security council.

But Beijing may have other ideas (below).

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Iran's resumption of uranium enrichment activity has raised a logical question: is the international community willing to coalesce against Tehran, and take steps to prevent it from acquiring nuclear weapons?

Let's assume for a moment that diplomacy remains the preferred approach. The next step in that process would be for the International Atomc Energy Agency (IAEA) to refer the matter to the U.N. Security Council, something that could occur at the next IAEA meeting in March. If the UNSC takes up the issue, they could impose economic and/or military sanctions against Tehran, or even approve the use of military force (but don't get your hopes up).

Of course, any action by the security council can be vetoed by one of the permanent members. And who might be willing to stand with Iran? My guess is China, which has recently signed a series of key energy deals with Tehran. While Russia has its own, considerable investments in Iran, China may have the most to lose if the UN imposes sactions against the Tehran regime.

As Bloomberg reported late last year, Iran is becoming an increasingly important source of energy for China's booming economy. Iranian oil exports to China jumped 16% last year, and Iran now ranks as Beijing's #2 energy supplier, behind Saudi Arabia. In fact, China's growing demand for Iranian oil and natural gas is said to be undercutting U.S. diplomatic efforts to reign in Tehran's nuclear program. It's hard to get other nations to get tough with Iran, when Tehran literally has them over an oil barrel.

Just last fall, Iran signed a $70 billion dollar energy deal with Beijing, promising to sell China at least 150,000 barrels of oil a day and millions of tons of liquefied natural gas over the next three decades. Beijing is also helping Iran developed new oil fields in that country, which (presumably) will result in even more exports to China.

Beijing's growing appetite for Iranian oil gives Tehran a powerful ally on the security council. More than two years ago, Chinese officials indicated that they did not want the U.S. to refer theIranian nuclear issue to the Security Council, and there is no indication that Beijing has changed its stance. Follow the oil, and you'll see another reason that Tehran has little to fear from on-going efforts at nuclear diplomacy.