In recent weeks, the process of negotiations has gained momentum and assumed urgency, given the fact that Presidential elections are due in Iran in the near future. Liberal cleric Mohammad Khatami will be stepping down this summer after two four-year terms. This is expected to open the gates for several candidates. Of them, the former President Akbar Hashemi Rafsanjani (1989-1997) appears to be the front runner.

Known as a pragmatic conservative, Rafsanjani's presidency initiated important steps related to economic re-structuring. Currently, he heads the Expediency Council (Iran's top legislative arbitration Council) which has contributed towards general privatisation within Iranian State Owned Enterprises. However, he is also known to be less flexible on state security issues compared to Khatami.

It is this possible development that has raised the stakes in Iran.

Tehran has already gone on record in the end of April that it has not seen enough incentives from the European Union to pave the way for a deal over its controversial nuclear activities. Senior Iranian negotiators have also warned that Tehran might even pull out of further talks with the EU3 representation if tangible progress is not achieved. Iranian officials have complained that European effort aimed at allaying international concern over Iran building a nuclear bomb has not been enough.

It may be recalled that Britain, France and Germany have been trying to 'secure' objective guarantees that Iran will not use its atomic energy ambitions to acquire weapons. In exchange, these three EU countries have been offering a package of trade, security, diplomatic and technology benefits for Iran. The IAEA, the USA and several other developed countries have viewed these steps as being on the right track and aimed at arriving at a 'logical and balanced solution', sufficient to guarantee Iran's strategic safety. Tehran has however alleged that such areas of assistance are not backed up by 'firm guarantees.'

This difference in perception has now assumed special significance given the consistent pressure created by the neo-con elements, who are formulating US foreign policy. Iran today finds itself facing a serious scenario. President Bush's re-election and recent changes in the equation and balance in the Middle East have both become critical factors for the Iranian leadership.

Iran agreed last November to suspend enrichment activities as a goodwill gesture for a maximum of six months. The Europeans want this suspension to become permanent. Washington and the EU3 have also tried to sweeten the pill by tempting Iran with the twin carrot of membership to the WTO and permission to access to spare parts for its civilian aircrafts. Israel, for obvious reasons has gone along with the idea. Nevertheless, this demands is being seen as 'absurd' by the Iranian authorities.

Any possibility of buckling in by Iranian officials has been reduced by the fact that changes are due in the forthcoming Iranian Presidential elections. Transformation of policy has therefore become that much more remote and unlikely.

In the meantime, several interesting steps have been taken by Iran. It would appear that these measures are aimed not only in achieving overall security for that country but also in assuring for itself a steady supply of critical foreign exchange over the next decade.

Oil and gas are dominating the world economy at this moment and future of Western industry is closely tied to this situation. This has created its own dynamics and need for policy alternatives -- not only for the USA and China but also for countries like Iran. It is this difficult factor that is polarising inter-state relations and creating new and unlikely bed-fellows.

During the past few months, China has arrived in force in Iran. This oil-rich nation of 70 million is finally set, after nearly a year of talks with China's Sinopac Group, to sign the biggest deal Iran has negotiated in a decade. This contract will have ripple effects over the next few years well beyond Iran balance sheet.

Under this gas agreement, China will import more than 270 million tons of natural gas over the next 30 years from Iran's South Pars field in the Persian Gulf. This, it may be mentioned, is the largest natural gas reserve on the planet, and Iran shares this with its tiny neighbour Qatar.

This will bring Iran about US dollar 70 billion in hard currency, and that is just for starters. The two part deal also gives Sinopac a half-share in one of Iran's most important new discoveries -- the Yadavaran field, an energy rich area in south-west Iran, allowing the Company to explore for more oil over the next few decades. With the field's oil reserves estimated at about 17 billion barrels, China's operations could be worth over another US dollar 100 billion.

One thing is clear. This long term alliance with the world's fastest-growing economy will give Iranian leadership greater international security than they have enjoyed since the Islamic revolution 26 years ago.

Through this Iran is also openly challenging the options open to its bitter foe-- the Bush Administration, which in more ways than one, have hinted that it might eventually consider a military strike against Iran, if that country is found to be pursuing nuclear weapons. Analysts agree that by opting for close cooperation with China, Iran is trying to guarantee its future security for the next thirty years.

The agreement with China has also been a great boon for Iran's energy industry. It has been labouring for decades with a creaking oil infrastructure resulting out of the US sanctions which were imposed more than a decade ago when Iran was beginning to recover from its devastating war against Iraq, which destroyed hundreds of oil facilities and killed about 300,000 Iranians.

These new deals will permit Iran to attract investors over the long haul.

Europe's big oil companies -- Total, ENI and Royal Dutch/Shell -- had re-started their operations in Iran, but were forced to remain within strict limits because of regulatory aspects of US sanctions. American major companies were also absent. These factors had contributed towards a crippling effect on the Iranian oil industry. New co-operation will now enable the Iranians to by-pass their structural problems and introduce modern technology.

Iran's move east has been popular within the country not only among its oil official but also with its population in general. The fall-out of this special relationship has been greater availability of cheap Chinese consumer items, particularly electronic goods which was previously lacking in the Iranian bazaars.

China's North Industries Corporation (Norinco) has also beat Siemens in its bid to build the Metro's first two lines in traffic congested Tehran. Chinese companies have also won major contracts to build a dam north of Tehran, a highway and an oil pipeline to the Caspian. China's economic invasion of Iran, in other words, has become a function in Iran's equation and quest for state security.

These elements will slowly, but definitely, shift Iran's economic focus away from the West.

Pakistan and India have been following this evolution in Iran very carefully. They are also now trying to conclude negotiations over a US dollar four billion pipeline that will ship gas from Iran across Pakistan into India. It is understood that discussion on this project figured prominently during the recent visit of the Pakistani President to New Delhi.

These energy deals are providing a toe-hold in Iran for both China and India as they scramble for minerals which Iran has in quantity -- coal, zinc, lead and copper. USA has been following these developments with great care and has not hesitated to indicate its anxiety to the Indians. New Delhi has however, till now, refrained from buckling down to pressure. They do not want to lose out to China -- their strategic rival.

Iran believes that its alliance with China, a permanent member of the UN Security Council, will help it to build links across Asia and enable it to break out of US imposed isolation, exacerbated that much more because of changes in Iraq and Afghanistan, its neighbours on both sides. This is a practical alliance where the lure of hydrocarbons is expected to provide Iran with the necessary insurance, at least for the moment.

Muhammad Zamir is a former Secretary and Ambassador -- any response to mzamir@dhaka.net