China's Mid-East Oil Diplomacy: Increasingly Dependent on Middle Eastern Oil, Beijing Is Courting Saudi Arabia and the Gulf States for Energy Security. (Asia)

By Blanche, Ed | The Middle East, January 2003 | Go to article overview

China's Mid-East Oil Diplomacy: Increasingly Dependent on Middle Eastern Oil, Beijing Is Courting Saudi Arabia and the Gulf States for Energy Security. (Asia)


Blanche, Ed, The Middle East


Last November, China's first Middle East peace envoy, Wang Shijie, wrapped up a groundbreaking swing through Israel, Syria, Egypt, Jordan, Lebanon and Palestine, underlining a shift toward a more robust, hands-on policy in a region that has become of vital economic and political importance to Beijing. The tour also indicated that China, a permanent member of the United Nations Security Council, is eager to assert itself as a major power with global influence. Indeed, many believe it will eventually replace the United States as the dominant power in Asia.

These two events illustrate key strands of Chinas emerging strategic plans--challenging US and European oil giants around the world to secure energy supplies for its burgeoning economy and industrialisation, and a longer military reach, designed in part to eventually protect its energy supply routes from the Middle East in the event of future disruptions.

In the Middle East, the driving force behind the change in Beijing's policy has been Chinas transformation from self-sufficiency in oil to net oil importer in 1993, exposing it for the first time to the vagaries of the world oil market. Although it has the world's largest coal reserves, it is now importing 30% of its current consumption, two-thirds from the Middle East. According to Chinese projections, oil imports will reach 100m tons a year by 2005, or 45% of the country's total requirements. Some western analysts believe that by 2020, China will be importing as much as 75% of its oil, a large part of it from the Middle East. Thus Beijing now finds itself with vital strategic interests in a region that until a few years ago was only of marginal concern.

One of the ways China has sought to minimise its concerns about energy security was to internationalise its oil industry. Since 1996, it has been investing in oilfields as far apart as Sudan, Venezuela, Kazakhstan, Nigeria, Canada and Indonesia. Regionally, the state-run China National Petroleum Corp. (CNPC) and the Northern Industries Corp., the state-owned weapons and industrial conglomerate, have an agreement with Baghdad to develop the Al Ahdab oilfield in central Iraq once UN sanctions have been removed and has been negotiating for a similar deal on the Halfayah field.

On 22 August, CNPC announced it had won a $230m contract to build twin 520km oil and gas pipelines in Libya to link southern fields with refineries near Tripoli. It is also expected to secure a major oilfield-refinery contract in Algeria in the next few months.

Beijing has been mulling over oil investment deals with Iran and has an agreement with Saudi Arabia under which Saudi companies can invest in Chinese refinery projects while Chinese firms can pursue oilfield activities in the kingdom. Although the prospects for Chinese investment in this sector remains limited, these could expand as the Saudis open their doors to foreign investment in natural gas fields and move forward on long delayed privatisation plans. Saudi Arabia opened diplomatic relations with China in 1990, but the relationship was only cemented in 1999, when then-President Jiang Zemin visited the kingdom. Relations have steadily improved and are likely to develop further as the Saudis reassess their foreign policy in the aftermath of 11 September. Chinese concerns about energy security have been heightened by the likelihood of a US war against Iraq, as have those of other major consumers. This has accelerated efforts to diversify its energy sources away from those in the Middle East. But, as with the Americans who are seeking to do the same thing, the hard fact is that the Middle East, which sits on 65% of the world's proven oil reserves and 35% of global gas deposits is going to be primary source of energy for decades to come.

Even as China seeks to diversify its oil and gas imports in Asia, after 2010 there will be few countries in that region still able to export. Indonesia and Malaysia, long the region's largest exporters, are expected to become net oil importers themselves between 2005 and 2010.

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China's Mid-East Oil Diplomacy: Increasingly Dependent on Middle Eastern Oil, Beijing Is Courting Saudi Arabia and the Gulf States for Energy Security. (Asia)
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