Nation builds oil stocks as looming war pushes up prices - Imports rose 78 per cent to 8.36 million tonnes last month

china.scmp.com Wednesday, February 26, 2003 MARK O'NEILL in Shanghai

Oil prices surged last month as China rushed to increase imports ahead of a likely US-led war on Iraq, according to figures released yesterday.

However, a top transport official said the country could diversify its sources of supply to cushion the impact of an invasion.

Figures published in the Shanghai Securities News showed that last month imports of crude oil rose 78 per cent to 8.36 million tonnes, with the average price up 51 per cent, resulting in a net increase in payments of US$1.11 billion (HK$8.6 billion) as buyers rushed to secure supplies before the start of any war.

Domestic crude prices in January rose 42.7 per cent from a year earlier, while those of oil products rose 25 per cent, the report showed.

But Cui Zhenchu, the deputy general manager of the transport division of China International Oil and Petrochemicals Company - a unit of Sinopec, which accounts for two thirds of China's crude imports - said that a war would not have a great impact on imports.

Last year, China imported nearly 70 million tonnes of oil, against domestic production of about 170 million tonnes, of which half came from the Middle East, including Saudi Arabia, Iran, Iraq, Kuwait, Oman and the United Arab Emirates.

"If supplies of oil from the Middle East were cut, it would be a huge disaster for the world economy," said Mr Cui. "The United States is the biggest buyer of Middle East oil and would certainly use its military might to keep the supply lines open.

"Iraq has a limited ability to threaten these supply lines, because the range of its missiles is not long. Once the war breaks out, China can take shipments from ports far from the Gulf, such as Yemen and Oman, or Saudi ports on the Red Sea."

He said his company had a long history of co-operation with the big shipping companies that carried most of China's imports. They had been through the Iran-Iraq war and the 1991 Gulf War together, which gave him confidence that the contracts that had been signed would be honoured.

In the worst-case scenario, if oil transport was cut from the Middle East, China would increase imports from other suppliers, such as Nigeria, Angola and Sudan in Africa, Venezuela, Britain and countries in Southeast Asia, he said.

"A war between Iraq and the US would bring some risks to the shipping lanes for China's oil, but overall we can guarantee the stability and safety of the country's imports," he said.

The impact of a war on China's aviation will be limited. From February 13, Air China suspended the Karachi-Kuwait stretch of its Beijing-Karachi-Kuwait flight because of the threat of war. But other routes, a three-weekly passenger service by China Southern Airlines from Beijing to Sharjah via Urumqi and a once-weekly cargo service by China Southern from Beijing to Sharjah, are still running.

During the Iran-Iraq war, flights between China and Europe and North Africa were diverted from Middle Eastern air space to Russian air space, an arrangement that still exists.