Old Friends Of Tehran.(World Affairs)

Byline: Roya Wolverson

Washington's economic sanctions have pushed Iran closer to trade partners like Russia and China.

President George W. Bush's charm offensive is paying off. After a slew of cozy visits in recent weeks with European leaders about the latest round of U.S. economic sanctions against Iran, European governments are taking a harder line in the hopes of quelling the threat of invasion. Already, Deutsche Bank, Commerzbank, Siemens, Dresdner and HSBC have backed out of Iran.

So much the better for their emerging market rivals. Hundreds of Chinese and Russian companies are working in Iran; few are expected to leave soon. In fact, the latest round of U.S. sanctions may have the opposite of their intended effect, driving Iranian business further into the hands of aggressively mercantilist Chinese and Russian firms in search of lucrative contracts once dominated by the West. In sectors like oil production, telecommunications, aerospace and automotives, the absence of Western mainstays is creating new opportunities for these emerging powers in one of the world's fastest-growing (half of Iran's population is under the age of 20) and most strategic markets.

Energy is the most obvious prize. So far, oil production in the Middle East has been closed to China and Russia due to tough Western competition. The big American and European oil majors, as well as service firms like the United States' Halliburton and France's Schlumberger, are far and away the most skilled players in energy. Take Russia's Tatneft, whose recent efforts to win larger oil- and gas-production contracts in Libya have been crushed by tech-savvy Western giants like Shell and Occidental. But in Iran, firms like Shell, Total and BP are now hesitant to move forward on new energy deals as geopolitical tension rises. "The Chinese and Russians are now going to get contracts they never would have gotten in oil exploration and production," says Vali Nasr, a senior fellow at the Council on Foreign Relations.

Already this year, Iran has cut deals worth more than $3 billion with China's national petroleum and petrochemical companies to develop up and downstream oil projects and to upgrade an existing field. China's Sinopec, which blazed ahead of retreating Western firms for ...