FOR centuries now, crude oil has been a tool to further geopolitical objectives. The powers that be continue to exploit this — and indeed other resources — as per their whims and wishes. Interestingly, oil producers are rarely behind such moves. The US, the world’s largest consumer and sole surviving super power, is endeavoring to use the so-called black gold as leverage to further its geopolitical goals and objectives.

Iran is a major foreign policy concern to the US, as Washington continues to rein in Tehran’s nuclear ambitions. When George W. Bush was in the White House, Washington was definitely considering the option to wage war against Tehran. The Obama administration now seems to be conceding it cannot afford another war.

Washington has little option. It has to go the diplomatic route, using all the leverage it can muster. It is increasing pressure on a defiant Ahmedinejad to somehow defer to the US. The White House also knows it can not achieve its objectives diplomatically until the rest of the world and especially those who matter in the lobbies of the United Nations present a united front too.

There are problems with this. China and Russia, two countries with the biggest stakes in Iran’s natural gas sector, have been a thorn in the process.

The Russians had strategic reasons and Washington apparently took care of those by shelving plans to install a missile defense shield in Poland and the Czech Republic.

China, on the other hand, has pure economic reasons for not siding fully with the US on Iran. Although Beijing has underlined more than once and on various platforms that it wants Tehran to give up its nuclear ambitions, there are limitations to the extent Beijing can agree with Washington in imposing tough sanctions against Tehran.

The issue of energy security is a major foreign policy priority in Beijing. Its thirst for crude seems insatiable. Chinese people bought 9.66 million vehicles, almost two million more than US buyers, in the first nine months of the year.

The Chinese consumption of crude is projected to grow to about 20 million barrels per day by 2030 from a current rate of eight million. Iran is already the second largest crude supplier to China, shipping about 540,000 barrels a day in the first five months of the year. Nearly 14 percent of China’s oil imports come from Iran and Beijing has also pledged tens of billions of dollars in new investment in Iran’s oil and gas infrastructure in the future. Chinese firms are in line to secure lucrative gas contracts there, particularly in the South Pars field. They are also ready to invest $48-50 billion in oil and gas ventures, according to Iranian Deputy Oil Minister Hossein Noqrehkar-Shirazi. Trade between the two countries has been exploding in recent years, amounting to $28 billion in 2008.

Dampening US hopes for a strong joint message to Tehran, last week, Chinese Premier Wen Jiabao publicly praised Beijing’s “widened and deepened” relationship with Tehran after a meeting with Iranian Vice President Reza Rahimi.

Therefore, Beijing has vital strategic interests in Tehran and it cannot put that in jeopardy. And the realization is dawning in Washington too.

The Obama administration is now reportedly encouraging other oil rich states to boost oil exports to China in order to reduce Beijing’s reliance on Iranian energy and reduce the country’s resistance to tougher sanctions against Tehran’s nuclear program. By diversifying China’s crude sources further, Washington expects to gain the country’s support for sanctions on Iran, the Wall Street Journal reported last Tuesday.

“We are asking them to cut their reliance on Iran and we are having some success,” a US official reportedly told the publication. The United Arab Emirates has reportedly agreed to boost oil exports to China by between 150,000 to 200,000 barrels a day from a current rate of 50,000 over the next six months.

Saudi Arabia is already the largest oil exporter to China, shipping 740,000 barrels a day during the first five months of 2009. Sino-Saudi economic ties are on an upswing — with crude continuing to strengthen the relationship.

But despite Washington’s wooing, the strategy has definite limitations. Global supplies are limited and if China could somehow be convinced — and this remains a big if — to diversify its crude source away from Iran, it would be difficult for Washington to prevent others from lining up in Tehran.  

Indeed the large gap between the relatively low current global demand and oil producers’ ability to pump more potentially increases Washington’s leverage. In effect, it is easier to cut Iran out through sanctions or behind-the-scenes pressure when there is plenty of global supply than when demand and prices are at a peak. Only last month, Mohammed Al-Shatti, a member of Kuwait’s delegation to OPEC, signaled some oil producers would be willing to pick up Tehran’s slack if needed, telling a local newspaper that OPEC’s “spare capacity would lessen the negative effects on prices in case of any stoppage of oil supplies from Iran.”

Yet most analysts agree that with signs of the turnaround in the global economy and the expectation global crude consumption would too go up in tandem, Washington’s leverage seems to be diminishing with each passing day.

And indeed the oil producers are constrained by OPEC quotas too. It will be difficult for any producer to significantly boost exports to China without flouting quotas and flooding markets. Producers know very well the impact of disturbing the existing supply/demand balance and the impact on crude market prices. Producers cannot and should not be expected to be oblivious to their economic priorities. After all, most of them have a single product economy and this is their bread and butter. One has to bear in mind in case of such a move Tehran could also react in more than one way.

The strategy of unhooking Beijing from Tehran may ultimately fail to work.