Leaders from China, Russia and four central Asian nations meet tomorrow in Shanghai to discuss security and energy as attention focuses on an observer: Iran's President Mahmoud Ahmadinejad.

The Shanghai Cooperation Organization, founded five years ago to combat terrorism, will gather in a cordoned-off area of China's financial center to talk about prospects for central Asia. Energy will be higher on the agenda than in the past. The six member and four observer countries in the group account for 23 percent of the world's oil reserves.

``Securing a steady energy supply is the top priority for China, it has everything to do with national security,'' Jin Riguang, an energy adviser to the Chinese government, said in a June 1 interview in Beijing. ``We also realize the U.S. is trying to secure footholds in central Asia.''

The U.S. has accused Iran, which has the world's second- largest oil reserves, of sponsoring terrorism and developing nuclear weapons. Ahmadinejad arrives in Shanghai today and will give a speech tomorrow.

The meeting will be attended by China's President Hu Jintao, Russian President Vladimir Putin, the leaders from the other member states, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan, and from observer-nations Mongolia and Pakistan. India is sending its oil minister.

Incentive Package

The United Nations Security Council's five permanent members -- the U.S., China, Russia, France and the U.K. -- along with Germany, on June 6 offered technology and trade incentives to Iran in return for the nation ending uranium enrichment. Iran's government is studying the proposal and may make a counter offer.

``There is new opportunity for peaceful resolution of the Iranian nuclear issue,'' Jiang Yu, a spokeswoman for China's foreign ministry, said at a briefing in Beijing yesterday. ``China appreciates Iran's expression that it is willing to give serious study to an international proposal.''

Nuclear Program

It would be ``strange'' and ``unusual'' for Iran to join the Shanghai group, given the country's history of supporting terrorism, U.S. Secretary of Defense Donald Rumsfeld said in Singapore on June 3.

The U.S. says Iran is striving to build a nuclear weapon in violation of the Non-Proliferation treaty, while Ahmadinejad insists the program is for energy production.

Iran is considering a proposal, including incentives and penalties, to give up its nuclear program. The plan was drawn up by Britain, France and Germany and approved by the U.S., China and Russia. Rejection may prompt Europe and the U.S. to push for United Nations-backed sanctions, a step China and Russia have resisted.

Security is a priority for the meeting. Much of China's financial hub, state-owned banks, schools and government departments will be closed during the event, and private companies have been advised to take holidays. The Lujiazui financial district surrounding the venue, where HSBC Holdings Plc and Citigroup Inc. have their local headquarters, will be cordoned off. Residents on the opposite side of the river have been told to stay away from their windows.

Energy Cooperation

``Energy cooperation will be discussed, along with other topics including politics and economic development,'' Li Hui, China's assistant foreign minister, said in Beijing on June 12.

The politics is likely to include Iran, whose president is resisting pressure from the UN Security Council to abandon his nation's nuclear program. The economic development may include oil and gas drilling.

``By focusing on a strategy of securing energy from central Asia and Russia, we can minimize conflicts with the U.S., which is dependent on the Middle East,'' said Jin, the Chinese government energy adviser, who is a professor at Beijing's University of Chemical Technology and a member of the standing committee of the Chinese People's Political Consultative Conference.

China's Acquisitions

China is stepping up acquisitions of overseas fields after oil demand more than doubled in a decade. In October, China National Petroleum Corp., the nation's biggest oil producer, completed a $4.18 billion takeover of PetroKazakhstan Inc., in the country's biggest purchase of overseas energy assets. A pipeline from Kazakhstan started delivering oil to China in May.

Kazakhstan is among the group's members looking to China to lower dependence on oil and gas export routes through Russia. The benefit for China is energy to fuel economic expansion exceeding 10 percent.

Cooperation with Russia is among China's strategies for energy security. Oil sales transported by railway from Russia are increasing. OAO Gazprom, Russia's largest gas producer, and China National Petroleum, are considering building a gas pipeline linking Russia and China, Russian Energy Minister Viktor Khristenko said on March 21. An oil pipeline is also being discussed by the nations.

The Shanghai Cooperation Organization in July last year underlined central Asia's importance by calling for the U.S. to set a timeline for the withdrawal of its military forces from the region. U.S. officials are negotiating the extension of a contract to use a base in Kyrgyzstan, after neighboring Uzbekistan closed a similar facility in November.

U.S. Bases

The U.S. has ``no intention'' of withdrawing from Afghanistan nor of leaving Central Asia, U.S. Secretary of State Condoleezza Rice said in a briefing in Beijing on July 10 last year after meeting China's leaders.

``China's search for energy and America's military expansionism and its requirement for oil puts the two nations in a competitive situation,'' said Laurence Brahm, a U.S. lawyer based in Beijing and author of more than 20 books on China, including ``China's Century: The Awakening of the Next Economic Powerhouse.''

The Shanghai Cooperation Organization's member states account for 23 percent of the world's population, according to data compiled by the organization. Including observer states would boost the figure to 44 percent. The member states account for 10.5 percent of all the soldiers in standing armies worldwide. Including observer states would boost the figure to 17.5 percent.