China Offers Iran 24 “Chengdu J‑10” Fighter Jets for Development Rights to Massive South Azadegan Oil Field
On August 5, 2015, China‘s Want Daily reported a potential “oil-for-fighters” deal between China and Iran. The deal would involve the export of 24 Chinese Chengdu J‑10 fourth-generation, multirole fighter jets to Iran, in exchange for CNPC‘s 20-year oil production rights at Iran‘s massive (and yet undeveloped) South Azadegan oilfield. Each J‑10 has an estimated cost of $40 million, making the deal worth approximately $1 billion. Negotiations are reportedly ongoing and a bilateral agreement has yet to be reached.
This reported “oil-for-fighters” deal is notable, as it indicates a new direction that China is likely to pursue with regard to Iran (and possibly other countries), when facing the prospect of competition with more capable Western companies. Indeed, these kind of peripheral “sweeteners” are not new for China — or for Russia — as part of efforts to secure strategically significant contracts. Attention should be paid to the likelihood of this trend continuing in the future, including with regard to Iran.
China‘s state-owned Chengdu Aircraft Corporation (CAC) manufactures the J‑10 aircraft (whose export version is referred to as the J‑10 Vigorous Dragon jet). The multirole combat aircraft has thus far only been sold to one other country, Pakistan. In 2009 a contract was signed for the sale of 36 J‑10B fighters (known as FC-20 in Pakistan) for $1.4 billion, although the Pakistani Air Force has reportedly not received any of these aircraft yet.
CNPC, for its part, is not new to Iran‘s Azadegan oilfield. Currently the company operates in North Azadegan, based on a $2 billion agreement signed in 2009. Phase 1 is slated to begin operations in October, according to CNPC sources, although specific output amounts were not given. (Iranian media estimated output of North Azadegan at some 75,000 barrels per day.) Currently China is the largest single importer of Iranian oil.
China has actively been seeking to supplant Japan in South Azadegan ever since Tokyo exited a strategically important exploration and development deal covering this area to respect global efforts (including U.S. requests) to apply pressure on the country via its energy sector. In 2009, however, CNPC stepped into this project and signed a $2.5 billion, 25-year deal with the National Iranian Oil Company (NIOC). In the spring of 2014, however, Iran terminated CNPC‘s operations in South Azadegan due to frustration over repeated delays in actually developing the underlying assets. Although China has sought to fill the gap left by the exit of more risk averse (and conscientious) companies while sanctions and pressure was escalating against Iran, various Iranian oil officials expressed dissatisfaction with China‘s operating practices in Iran (including their ‘‘‘substandard quality and overcharging Iran for drilling equipment and services‘) and grew more assertive with China as nuclear negotiations with the West progressed.