Oil: The Next Conflict In Sino-US Relations?
<a href=www.menafn.com>Middle East Economic Survey - 26/05/2003
The following article was submitted for publication in MEES by Professor Wulei of the School of International Relations at Yunnan University, Kunming, China.
In the run up to the Iraq conflict, China's top leadership paid full attention to the developments in the conflict and the essence of Sino-US relations was illuminated by the diplomatic maneuvering that occurred in the days before fighting started. US Secretary of State Powell's late February visit to Beijing failed to win China's support with regard to the Iraqi question. On the contrary, Chinese leaders insisted that weapons inspection in Iraq be continued, adding that that was the consensus of the international community. Shortly after Powell's Beijing visit, China and Russia issued a joint declaration opposing a war on Iraq led by the US and Britain. China has, on various international occasions, stuck to the stance that the Iraqi issue should be settled by peaceful means under the UN framework. Yet China's position on this issue was and is more flexible than that of France, Ger-many and Russia. This indicates China's contradictory attitude toward Sino-US relations. China's policy on the Iraqi issue is backed by substantial international interests, one being China's interest in Middle East oil, which is rapidly becoming the core framing China's Middle East strategy.
The Iraqi issue has in fact affected China's oil security although China imports little oil from Iraq and no reports of oil imports from Iraq for the year 2002 are to be found in China's National Customs Administration. Yet, oil price rises related to Middle East tensions inevitably lift China's oil imports bill. According to customs statistics, China witnessed its first trade deficit in its foreign trade history in January 2003 due to the rise of the oil price. In January, China's import of crude oil amounted to 8.36mn tons, up 77.2% from the corresponding period last year1, with an average import cost up by 51% resulting in a net import cost increase of $1.10bn. The rapid growth of oil imports and the rise of oil prices are the major elements behind the trade deficit.
In recent years, Middle East oil exports to China have become more and more prominent even though China does not have any strategic interest in this area. Nevertheless, the Iraqi issue has posed an enormous test, the first of its kind in the new century, to China, a country attaching more and more importance to energy security. China imported a total 89.75mn tons of crude oil and oil products in 2002, out of which crude oil accounted for 69.41mn tons, up by 15.2% from the previous year with an import amount reaching $12.757bn. Oil products im-ports reached 20.34mn tons or $3.799bn. Statistical figures clearly show that nearly 60% of China's imported crude oil is from the Middle East with Saudi Arabia, Iran and Oman being the top three, or 11.53mn tons, 10.73mn tons and 8.31mn tons respectively, making it a total of 30.57mn tons accounting for 43.3% of China's import of crude oil1. In other words, China imports over 700,000 b/d from the Middle East. The war on Iraq ex-posed China's import of at least 700,000 b/d to direct war threats and exposed the country's sources and chan-nels of oil imports to war risks.
China was also concerned that the Iraq war would cut off oil shipments from the Gulf. Moreover, now that China's oil market is part of the international oil market, oil price rises have serious consequences for the Chi-nese economy. It is estimated by the government that the rise of the oil price by $10/B will cut China's economic growth by 1%. For example, the international oil price rise in 2002 reduced China's GDP growth by 0.5%.
In strategic terms, China had good reason to be opposed to or at least not in favor of the US-led war against Iraq. It is concerned that a US victory over Iraq would give the US a tighter grip on Middle East oil, with oil from Iraq, Saudi Arabia and Iran, another key source of China's oil import, all increasingly contained by the US. As China's reliance on Middle East oil increases, the Middle East gets more strategically important to China, hence China's worries and concerns. The observations above give rise to the theme of this paper: Will there be any conflicts over oil between China and the US? There have been too many differences, frictions and even conflicts between the two countries. Will oil be the next one? American political and academic circles have long been concerned about China's burgeoning "oil hunger", be-lieving that China's oil "prosperity" will have a tremendous impact upon international oil security and the na-tional interests of major Western countries. The US and other Western countries' concern about China's oil de-mand is twofold: one is that China's increasing demand for oil is likely to worsen international oil supply, stimu-lating oil prices to go up; the other is that China's unilateral energy diplomacy will result in the export of China's arms and military technology, thus creating regional tension and conflicts, which is harmful to international oil security. Amy Jaffe wrote in Survival that China's global pursuit of oil is affecting its attitude toward US foreign policy and, "the change to China interests and orientations also poses challenges for the West: in effect, the in-dustrialized oil-consuming countries of the US, Europe and north-east Asia must convince an ambitious, energy-hungry China that secure supply for all requires a cooperative foreign policy. So far, unfortunately, China is tak-ing a different tack. It is pursuing a decidedly bilateral approach to energy security, courting on its own behalf major oil producers such as Saudi Arabia, Iraq, Iran and the Sudan. The implications of such efforts are worry-ing. When oil markets are as tight as they have been in the past two years, bilateral deals can invite demands for political accommodations in exchange for stable supplies. At worst, this might mean increased demands of Chi-nese deliveries of weapons-of mass-destruction-related technology to these politically sensitive markets."2 Apart from this, China is speeding up its modernization drive, especially that of the navy, to ensure its oil transport security, causing the concern of the US and other Western nations. All these are related to oil.
In the eyes of some Chinese scholars, American scholars have exaggerated the so-called Chinese oil threat, pos-sibly to nurture the atmosphere needed by the US government to contain China in its energy politics in the fu-ture. Such a containment approach is more stealthy and effective and at the same time serves well Washington's overall foreign policy strategy toward China. In the early days of the George W Bush administration, US policy toward China was hard and strong and what Bush said against China was not merely repeated terminology. US politicians, congressmen and scholars, whether they are democrats or republicans, tend to push for a policy of watching and containing China. The anti-China force in the US is so strong that it will surely be reflected in the issues of energy. The 11 September events did draw the two nations closer together mainly because the US needed China's aid and assistance in its global counter-terrorist campaign, but the mutual cooperation is still limited and the fundamental and structural differences are still there.
Differences in political systems, ideology and values are just superficial and traceable to history. The American element affecting China's oil security is felt more in the geopolitical struggle. In essence, as China grows stronger and its demand for strategic resources (including oil) gets greater, a competitive relationship between China and the US will take shape first, making geopolitical struggle inevitable. Secondly, also because of the dif-ferences in political systems, ideology and values, geopolitical struggles would probably develop into some sort of "hot war" such as frictions and conflicts, rendering China's oil supply chain under direct US political and military threat. "In the short-run, Sino-American relations are unlikely to deteriorate and may even improve. In the longer term, however, the rivalry between the two powers will probably intensify, fed by the unforeseen consequences of recent, tragic events."3 In a relatively long period of time, China can not be a competent rival for the US and therefore the development of Sino-US relations in general will, to a large degree, affect China's oil supply security.
Since the end of the Cold War and the fall of the Soviet Union, while China's diplomacy has been aimed at en-suring and maintaining the stability and security of the Euro-Asia Continent (neighboring countries, former So-viet republics in particular), adequate attention is also diverted to the encircling trend resulting from the US con-tainment of China by establishing and fortifying its spheres of influence along China's borderline and coastline. As the curtain of the 21st century draws open, China's diplomatic achievement is remarkable in terms of its friendly relations with its European and Asian neighbors. Taking the advantage of the Shanghai Cooperation Organization (SCO), China has established political, economic and security relations with Russia, Kazakstan, Tajikistan and other former Soviet Republics. Meanwhile, China's relationship with India has also improved without hurting its traditional friendship with Pakistan. Nonetheless, after the 11 September events, China's se-curity environment is more symbolic than realistic The US-led anti-terrorist war in Afghanistan brought US in-fluence into Central-Asian nations; agreements reached between the US and Russia on energy and other areas seem to indicate that a more cooperative relationship between the two countries has been built up with regards to issues like NATO's expansion eastwards, anti-ballistic missiles and the transfer of sensitive technology. The US has set up a bridgehead in China's southwest backyard, posing a serious direct threat to China's political, economic and military security and a potential threat to China's energy security. Under this circumstance, oil supply to China from Central Asia is much affected by the US.
The Chinese government is well aware that some American scholars and congressmen are keen on advocating such a "China Threat" to incite Asian countries, creating tension in northeast Asia and at the same time, oblivi-ous to China's opposition, amending the US-Japan Defense Guidelines, and expanding the sphere of US-Japanese military cooperation. All these are detrimental to China's reunification program and the stability in east Asia. After the accomplishment of containing China by the two wings, eastern and western, the US turned to strengthen its diplomatic antenna in southeast Asia in an attempt to ensure an absolute control over the oil in this area. The logical deduction is quite evident: to control oil in the Middle East and Central Asia, you have to control South Asia first because it is an important doorway to Central Asia and a sideways door to the Middle East. The control of India is the control of the throat of oil import by Asian and Pacific countries; the control of Pakistan is the control of the entrance of Central Asian oil into the Gulf. Now, the US has succeeded in seizing the initiative of the geopolitical struggle in the two important regions.
To the US, the control of the Middle East and Central Asia means the control of world oil; the control of oil means the control of the world. So therefore, it is of vital importance for the US to control shipping routes from the Gulf, southward to the Arabian Sea, westward to the Indian Ocean, through the Strait of Malacca and the Strait of Taiwan and finally to China and other oil-consuming countries. The US-Japan "Defense Cooperation" has already included China's Taiwan in its coverage as a peripheral area. China, once at a loss to control the de-velopment of the Taiwan issue, will be at a loss to control entry points into the sea even within its own sover-eignty, being once again thrown into an island-rim encirclement. On the other side of the issue, the US has taken a series of military measures to ensure oil security in the Middle East and Central Asia: keeping a large army permanently in the Middle East; maintaining military bases in the Gulf for military demonstration, deterrence and peace-keeping in peace time and for military operations in war time. If needed, enforcement from troops stationed in Europe and East Asia is quickly available. Readjusting theatre command systems is another impor-tant step of the US military. Early in October 1999, the US Defense Department transferred the commanding power of the US forces in Central Asia from the Pacific Theatre to the Central Theatre. This symbolizes the trans-formation of the US strategic focus. Today, after the US-led war on Iraq, China is more concerned over its oil security. Once the Sino-US relationship is out of control, China's oil supply will have to face up to the possibility of being cut off by the US. The fact that China's oil import has to be undertaken in the eyes of the American mili-tary forces in the Middle East and Southeast Asia worries China most.
Ever since China became a net oil importer, it has been gravely concerned over its oil security. Both being oil importers, China and the US are finding more common interests with regard to energy security. Both countries face similar problems: the exhaustion of domestic oil supply; domestic oil production falling short of demand, increasing need for oil imports and external oil security environment. Both countries hope for a stable supply and price in international oil markets. The two countries have a lot in common in terms of maintaining a reliable, safe and constant oil supply globally and preventing international oil supply from being disrupted and oil prices from going up too sharply. Nevertheless, a huge disparity lies between their respective oil security environ-ments as viewed from such perspectives as energy structure, degree of reliance on foreign supply, security envi-ronment and related insuring measures. Generally speaking, China's oil security environment is no better than that of the US and this is one of the key reasons why China has to take a contradictory attitude toward the US.
Difference In Energy Structure
China is a developing country with coal as the number one option, although oil is playing an increasingly im-portant role both politically and economically in the country. At the moment, coal accounts for as much as 67% of China's energy consumption while oil accounts for less than 20% and natural gas under 3%; whereas in the US, the proportion of oil and natural gas in the energy structure are 48% and 27% respectively. Even though by 2020, China's oil consumption is expected to slowly rise to 24%, coal will still take at least 60% of market share. Little change is expected of US energy structure in 20 years to come. The conclusion is that the US is more de-pendent on oil than China is and consequently it receives more pressure in the field of oil security.
Difference In Oil Consumption And Import Dependency At present, China's consumption of oil is around 3.8mn b/d, 36% of which is imported from outside the country. In the US, oil consumption is as high as 19.70mn b/d and 60% of it is dependent on imports. Based on these fig-ures, it can be inferred that the US now has more of a reason to be worried about oil security than China does. But, according to the scenarios of the International Energy Agency (IEA), in 20 years' time, China's consump-tion of oil will reach 11mn b/d, pushing the dependence on imported oil up to 76.9%. In the corresponding pe-riod, US oil consumption will spiral up to 26mn b/d but its dependence on imported oil will remain almost what it is today4. That is to say, in 20 years, China will have more of a reason to be worried about oil security than the US or at least equally so.
Difference In The External Environment For Oil Security
Though there exists a huge disparity between the US and China in terms of the levels of economic development and oil dependence, it is difficult to say which one is better than the other in this area. As a matter of fact, in the near future, China will find itself at least equally perplexed by this problem. At present, China is getting more and more dependent on oil from the precarious Middle East and it has to continue to do so in the foreseeable future. The US case at the moment is that of all the oil it imports, 80% is from its neighboring counties (Mexico and Venezuela, for example) and West Africa (an area also known as the Atlantic Basin) and only 20% is from the Middle East (mainly Saudi Arabia). In the future, the US can still rely on oil imported from the countries in the Atlantic Basin. It is estimated that by 2020, the percentage of US imported oil from the Middle East will re-main almost the same as what it is now (around 20%) while for China, that percentage will rise to over 80%5. Obviously, China's external environment for oil security will be much more serious than that of the US.
Difference In Oil Security Guarantees
Oil security is guaranteed by a range of political, economic, military and diplomatic measures applied compre-hensively and these are of vital importance in the present-day world. In this endeavor, China lags far behind the US. US oil security is built upon a strong state power supported by its extensive alliance with major Western industrialized countries and important oil producers in the world (Saudi Arabia, for example). These allied na-tions take common measures, policies and strategies to guarantee the oil supply needed for their social and eco-nomic development. The IEA is a long-term project of international cooperation in this field. Apart from this, the US keeps military forces permanently in oil-producing and strategically sensitive areas, as a guaranteed meas-ure. Furthermore, the US enjoys a comprehensive system of laws and regulations in dealing with oil crises. The establishment and development of strategic oil reserves is the cornerstone for the guarantee of US oil security and this practice has been a great success. It should be mentioned that the US is quite efficient in collecting, ana-lyzing and processing information concerning the international oil market and making scenarios about oil prices. In contrast, China either lacks such institutions or falls short of the necessary guaranteeing measures in this key issue.
The fact that China's oil supply is more and more dependent on shipment by the sea and the possibility6 that the US might cut off China's marine routes as a result of the deterioration of Sino-US relations are attributable to China's modernization drive of its navy and air force. Every country will follow this path to ensure its oil trans-portation, not least China, a rising power. The question is: What will happen to Sino-US relations once there is an outbreak of conflicts over the oil issue? One thing must be made clear: China is not like Iraq and Korea. It will, when confronted with serious threats to its oil security, mobilize all its military and political resources to ensure its oil supply security, or to interfere in the oil supply of the US and its allies like Japan and the Republic of Korea in key transport routes such as the South China Sea, the Strait of Malacca or even the Strait of Taiwan. China's operations would consist of "containment and threats". Actually, the compromise and commitments China made in arms control and technology transfer are conducive to the stability and security of Middle East oil. The US and its Western allies should continue to encourage China to do so because only by strategic coop-eration can the two sides avert frictions and conflicts.
On the other hand, China should actively rather than passively maintain and expand its coordinative relations with the US. In fact, as long as the US does not embarrass China on the Taiwan issue, it is possible for the two sides to carry out all-round dialogue and even cooperation. After all, common interest in stabilizing oil supply and price makes it necessary for the two countries to exercise strategic cooperation and diplomatic coordination.
It is true that China has not given serious consideration as to whether it should carry out multilateral coopera-tion with other major oil consuming countries, namely, the application for membership of the "oil club" consist-ing mainly of Western oil consumers. Since China's entry into the WTO, it has found more and more common interests that can be shared with the Western nations by strictly fulfilling the commitments made under WTO agreements. The US, accordingly, should gradually lead China on to the right track in a sense of creating a se-cure international oil environment with substantial institutions and organizations by, for instance, inviting China into the "oil club", the IEA, in order to turn China's unilateral energy policy into a multilateral one. This may help eliminate US distrust about China on the issue of energy security and commit China to more interna-tional obligations and observation of the IEA Charter as required of the full members: 1) Under the IEA frame-work, China will have to set up strategic oil reserves as specified by IEA to minimize, in case of emergency, a state's political and economic vulnerability; 2) Through effective cooperation with the IEA, China will be able to prevent or curb the incidence of oil crisis; 3) China's membership in the " oil club" will enable China to obtain or share oil market information , which is helpful for China to coordinate with the US and Western countries in oil matters; 4) Cooperation with the West facilitates China with energy-tapping technology and energy investment knowledge and environment protection knowhow and, more importantly, through international energy coop-eration, China and the US can reduce their frictions and conflicts over oil and eventually, for the sake of interna-tional oil security, put the importance of energy security on the agenda, all for a better future of Sino-US rela-tionship.
- See monthly statistics of China's national customs (in Chinese), February 2003.
- Amy Myers Jaffe and Steven W. Lewis, Beijing's Oil Diplomacy, Survival, Vol 44, No 1, Spring 2002, p 115.
- Aaron L. Friedberg, 11 September and the Future of Sino-American Relations, Survival, Vol 44, No 1, Spring 2002, p 45.
- IEA, World Energy Outlook 2000, OECD/IEA, Paris, 2001.
- AEI, Annual Energy Outlook 2001: With Projections To 2020, December 2002.
- Jonathan Rynhold, China Cautious New Pragmatism in the Middle East, Survival, Vol 38, No 3, Autumn 1996, p 111.