There is no question that if any country has experienced unprecedented economic growth over the past two decades, it is China. Since 2008, at a time when global economies recorded one of their slowest paces of growth, the People’s Republic of China single-handedly spearheaded a global economic recovery, one that is albeit weak but has laid a solid foundation for years to come. One such policy is securing its energy supplies globally and its crude oil and gas in particular. The International Energy Agency (IEA) forecast that 65 percent of China’s crude oil consumption will depend on imports by 2015.10 To sustain its growth, China requires increasing amounts of oil. Its oil consumption grows by 7.5 percent per year, seven times faster than the US.11
Growth in Chinese oil consumption has accelerated mainly because of a large-scale transition away from bicycles and mass transit toward private automobiles.
China’s ability to provide for its own needs is limited by the fact that its proven oil reserves are small in relation to its consumption. At current production rates, they are likely to last for less than two decades. Though during the 1970s and 1980s China was a net oil exporter, it became a net oil importer in 1993 and is increasingly dependent on foreign oil. China currently imports 32 percent of its oil and is expected to double its need for imported oil. A report by the IEA predicts that by 2030, Chinese oil imports will equal imports by the US. today. China’s oil imports mainly come from the Middle East, Africa, and Latin America with approximately half of these coming from the Middle East.12
9. Ibid.
10. Gal Luft, “Fueling the Dragon: China’s Race into the Oil Market,” Institute for the Analysis of Global Security available at: http://www.iags.org/china.htm.
11. itsjustS, “Oil Crisis,” August 2008, available at: StudyMode.com: http://www.studymode.
com/essays/Oil-Crisis-158601.html.
12. Luft, “Fueling the Dragon.”
Figure 6.3: China’s oil imports
China is the world’s second largest oil consumer and its second largest net importer of oil. In one of its major policy changes, the country has increasingly started to look to diversify its crude oil and natural gas import basket to hedge against potential supply disruptions from its concentrated dependence on Middle East oil.13 CNPC, Sinopec and CNOOC are the major national oil giants that are responsible for securing the country’s energy supply. They have massive investments in Africa, Brazil, and in Central Asia and usually have an advantage over other private oil companies. Ranging from building infrastructure, providing loans for the development and building of refinery and petrochemical complexes to the price they are willing to pay for rights to explore and buy assets in foreign nations, China has an advantage over would-be competitors in foreign markets. Not only do overseas investments provide a stable energy supply for China, they also help the government in maintaining and increasing its strategic influence across the globe. The Chinese government offers loans for exploration & production (E&P) activities and in return is guaranteed shipments of oil on an on-going basis. These
13. Aditya Malhotra, “Chinese Inroads into Central Asia: Focus on Oil and Gas,” Journal of Energy Security, November 20, 2012, available at: http://www.ensec.org/index.php?
option=com_content&view=article&id=387:chinese-inroads-into-central-asia-focus-on-oil-and-gas&catid=130:issue-content&Itemid=405.
Iran is China’s second largest provider of oil. China imports roughly 15% of its oil, or 544,000 barrels a day, from Iran.
loans have proven to be a decisive factor in many cases in successfully bidding for major oil contracts.
Hence, China is becoming a major energy player in global politics and its influence in the Middle East is on the rise. In fact, this will gradually emerge as a main cause in deciding how India shapes its Middle East policies over the long term. According to energy experts, the competitive relationship between China and India has become defining, and there are several areas of strategic interest which could potentially be conflict points in the future. Energy security is one such point, and while escalation between China and India is unlikely, it is important to note that the energy policies of each nation are largely based on geopolitical considerations.
The potential for the Malacca Strait to be blockaded by a rival is of great concern to China, since as much as 85 percent of its oil is shipped through the region. For India, Myanmar is of strategic importance due to its location. China is already on friendly terms with Pakistan and has been expanding its presence in the Indian Ocean, thus giving India a feeling of encirclement. India’s interest in Myanmar directly relates to the growing presence and influence of China in the region. China’s “string of pearls” strategy refers to attempts to negotiate basing rights along the sea route linking the Middle East with China, including creating strong diplomatic ties with important states in the region. Not only does this come in conflict with India’s naval projection of power, it also directly threatens India’s energy access and the regional balance of power. It is important to recognize that China and India’s energy policies revolve around traditional ideas of security, which highlight military and political balancing.
While oil will certainly continue to be the most central aspect of China’s relations with the Middle East, to see the Chinese relationship solely through such a prism will no longer be enough. One of the most obvious indicators of China’s increasing involvement in the Middle East is the explosion in economic activity.
From 2005 to 2009, the total trade volume between China and the Middle East rose 87 percent, to $100 billion, and the Middle East’s exports to China grew by 25 percent. In contrast, exports from the Middle East to the United States declined by 45 percent during that same period. As a result, last year China surpassed the United States as the top destination for the Middle East’s exports. On the other hand, China is also the top source of the region’s imports, most of them being low-cost household goods that increase purchasing power for the average Middle East consumer.
China’s diplomatic, economic, and security interests in the Middle East continue to expand commensurate with its energy interests and growing international clout.
Indeed, there is sufficient reason to look beyond the more immediate energy security question. While energy is the driving factor behind China’s growing attention to the Gulf region, the same can also be said for the GCC states and their increased focus on Asia as a whole and China in particular. China is seen by the Gulf States as a huge market for its oil exports. With oil demand has plummeted following the global economic crisis, and the outlook remains bleak for much of the industrialized world, more attention has been focused on securing access to the Chinese domestic market, which remains the fastest growing energy market in the world. In addition, the emphasis being placed on reducing reliance on oil and gas and the search for alternative energy sources by the Western world has also increased the pressure on Gulf oil producers to seek new markets and lessen old dependencies.
In the words of Abdulaziz Sager, “The GCC countries need a secure long-term market for their hydrocarbons, which make up for their main source of income.
However, one motivating factor in this evolving GCC-China relationship has been the intention to expand their non-oil revenues.”14 For this, China represents a potentially highly lucrative market. China’s steel industry, for example, has been a net exporter since 2004, which – given its competitive prices – is good news for the booming construction sector in the region. In the petrochemicals sector, China currently has 50 projects under way involving at $1 billion in investment.
It could also plug into the lucrative Islamic banking field in the region. China’s shift from exporter to consumer market is being seen as an opportunity for the GCC countries to sharpen their competitive edge and increase their share in the world’s largest market, as well as play a pivotal role in exporting Chinese goods to European countries. The region is already benefiting from access to cheaper Chinese production, with enormous demand for garments, fabrics, electronic and telecommunications products. The result is that the region’s petro-diplomacy is emerging as a crucial foreign policy tool aiding China’s economic modernization.
The growth in the non-oil economy is partly a product of the boom in the GCC stock markets, which grew by 64 percent in 2004 with a market capitalization of over $750 billion. As a result, Chinese investors and institutions can now hold stocks and shares in many companies in the GCC countries and also attract GCC capital.
However, as China’s influence grows in the Middle East, two contradictory points should be highlighted: on the one hand, the old “oil for security” paradigm of US-GCC relations could weaken as the United States get less oil from the Middle
14. Abdulaziz Sager, “GCC-China Relations: Looking beyond Oil: Risks and Rewards,” Gulf Research Center, November 1, 2005.
East and China’s economic and political influence grow over time. On the other hand, while there are concerns about the future of the US role, there is at the same time no alternative to it. It will hence be interesting to explore the various pieces of this jigsaw puzzle involving China and the various regional actors, i.e., Iraq, Iran, the GCC and the US.