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CHINA AND THE WORLD / It's all about the oil
HOME > PAST ISSUE > FOCUS > Q&AApril 2006
The Middle East has gone from being an ideological battleground in Beijing's eyes to one of its key energy suppliers. But where oil is concerned, politics usually follow.
Few regions reflect the sea changes that have taken place in China's foreign policy over the last 50 years as strongly as the Middle East. While Beijing's seesaw perspective of the region is certainly outdone by the turbulence in the Middle East itself, China has still managed to play a variety of different roles: disinterested outsider; ideological agitator, first for and then against Soviet Union policies; and finally the pragmatic player willing to do business with anyone, increasingly in the name of oil.
"It's ironic that as little as 20 years ago China was trying to spread its political issues but now everything is driven by economics," said Professor Barry Rubin, director of the Global Research in International Affairs Center in Herzliya, Israel.
China's journey to this point has delivered a history of tangled relationships as countries flitted in and out of favor according to the state of ties between Beijing and Moscow. It took Deng Xiaoping's economic reforms to introduce a degree of diplomatic stability and since 1992 China has enjoyed warm official relations with all Middle East countries.
"They have managed to say and do the right things and therefore have managed to avoid taking sides or being perceived as having taken sides on real combustible issues," said Dr. John Calabrese of the Middle East Institute in Washington.
China's trade figures with the Middle East express just how important oil is to this particular relationship. It enjoyed a US$6.68 billion trade surplus with the United Arab Emirates last year, largely because the member states have become a commercial hub for Chinese products both for domestic consumption and re-export. Apart from this, though, it is mostly one-way traffic.
Saudi Arabia and Iran are China's biggest oil partners in the Middle East, accounting for around 30% of the nation's total oil imports. In 2005 Saudi Arabia and Iran sold China 22.15 and 14.29 million tonnes of crude respectively. China's total imports from Saudi Arabia reached US$12 billion last year, a 63% rise on the 2004 figure of US$7.5. This created a trade deficit of US$8.4 billion in 2005, 78% more than in 2004.
Meanwhile, it is running a US$3.5 billion deficit with Iran, as 2005 imports climbed 51% on the previous year to US$6.8 billion.
Energy demands on this scale rarely come without geopolitical consequences. China imports 40% of its crude, and with this expected to rise to 75% by 2025, Beijing has already displayed its willingness to do business in diplomatically sensitive areas. It is here where its energy needs clash with its responsibilities as a permanent member of the UN Security Council. Iran is the latest warning sign on the radar.
With the UN threatening sanctions against the Islamic Republic over its commitment to a uranium enrichment project that could be used to manufacture nuclear weapons, China and Russia find themselves in an awkward position. Both want to be seen as responsible global players, yet neither is happy about the prospect of losing a large proportion of its oil supply should UN action be taken.
"China is working hard behind the scenes, pushing for a more conciliatory approach to Iran and trying to thwart the imposition of any serious sanctions relating to the energy sector," said Calabrese.
Despite concerted efforts from Russia and China to broker a compromise deal, though, Calabrese is convinced that Beijing and Moscow are looking for alternative energy sources to volatile Iran in the long term. "It is becoming increasingly clear to Russia and China that there is more to the Iran situation than is being let on," he said. "There is growing concern at the Iranian government's appetite for a confrontational approach."
Given that bilateral trade with Iran accounts for just 0.6% of China's total, a shift in the balance of its oil demands and relations with Tehran could eventually become a footnote. And Saudi Arabia may well fill the void.
The significance of Saudi King Abdullah bin Abdul Aziz's choosing China as the first destination on his Asia tour in January was lost on no one. The September 11, 2001 terrorist attacks and the war in Iraq have exposed holes in once-strong Saudi-US ties and the world's leading oil exporter is now seeking to expand its customer base. Fast-growing China and India are the obvious choices.
Saudi firm Aramco has already invested US$750 million in a US$3 billion oil refining joint venture with Exxon Mobil and Sinopec. There are also plans for a number of OPEC states, including Saudi Arabia and Kuwait, to build a US$8 billion refinery in Guangzhou. Sinopec has secured a deal to explore for gas in Saudi Arabia's "empty quarter" region.
Here, just as with Iran, events take place against the larger backdrop of Sino-US ties. Exploiting the weakness in US-Saudi ties is one thing, but Beijing's past habit of sweetening deals with weapon-sales agreements has caused Washington considerable irritation. China's energy demands appear to have trumped its commitment to non-proliferation on numerous occasions.
Professor Yitzhak Shichor of the Department of East Asia Studies at Israel's University of Haifa argues that the end of the Iran-Iraq war and the collapse of the Soviet Union have deflated demand for Chinese weapons in the Middle East. But not everyone is convinced. "China is willing to sell anything to anybody unless it is brought up short and pressured not to do so," said Rubin.
Beijing must bear some responsibility for the current problems in Iran, as it is widely believed to have supplied the country with both nuclear technology and conventional weapons. The US-China Economic and Security Review Commission's 2005 report to congress concluded that China was still involved in the sale of WMD and missile-related equipment to Iran despite the imposition of sanctions on 14 Chinese companies.
Nearly every Middle Eastern nation is reported to have been involved in arms trade with China over the years, while Israel has been second only to Russia in volume of arms sold to Beijing.
Weapons sales have provided China with revenue and political clout. But more recently, Beijing appears to have concluded that investing in its oil suppliers offers just as much political influence and considerably less hassle. Where it once supplied large amounts of cheap labor to the Middle East, it now also offers the capital to fund the projects themselves.
"What China brings to the picture is a fusion between government and business," said Calabrese. "The government can provide things that perhaps western businesses cannot - physical infrastructure in return for access to mining areas - and this makes it a very attractive partner."
China National Petroleum Corp began operations in Sudan in 1995, buying a stake in the consortium that manages the country's oil reserves. China is believed to have invested US$3 billion in the Arab nation, its largest overseas investment project, developing oilfields and building a 930-mile pipeline, a refinery and a port.
The argument is that China is delivering oil revenues to a country unable to realize them on its own, but shadows of the old system still remain. As the Sudanese civil war raged nearby, it is claimed the Chinese oil workers were protected by government troops armed with Chinese-made weapons. Beijing was also accused of using its UN influence to prevent action against a Sudanese government widely believed to have allowed genocide in the Darfur region.
China appears keen to develop its domestic oil assets as well as those of Russia and the Central Asian countries but this is very much a long term goal. "In the mid-term at least, there is no substitute for the Gulf and China knows this," said Shichor. With this comes an acceptance that the Middle East's energy resources will play just as big a role in the Sino-US relationship as currency confrontations and trade deficits.
Beijing views Washington as a strategic rival and is therefore uncomfortable that the sea lanes by which its oil imports travel from the Middle East to China are secured by the US navy. The product of these fears is a string of naval bases under construction in Pakistan, Myanmar and Cambodia, allowing China a stronger presence along the delivery route.
The needs are economic but the strategies being put in place are overtly political. And even these plans are ultimately dependent on an ever more fractious Middle East not going into meltdown.
"If there is some degree of stability in the Middle East coupled with growth in China, then the prediction I made 15 years ago will probably come true," said Calabrese. "China will emerge as the second-most important player in the region."
"It's ironic that as little as 20 years ago China was trying to spread its political issues but now everything is driven by economics," said Professor Barry Rubin, director of the Global Research in International Affairs Center in Herzliya, Israel.
China's journey to this point has delivered a history of tangled relationships as countries flitted in and out of favor according to the state of ties between Beijing and Moscow. It took Deng Xiaoping's economic reforms to introduce a degree of diplomatic stability and since 1992 China has enjoyed warm official relations with all Middle East countries.
Major partners
"They have managed to say and do the right things and therefore have managed to avoid taking sides or being perceived as having taken sides on real combustible issues," said Dr. John Calabrese of the Middle East Institute in Washington.
China's trade figures with the Middle East express just how important oil is to this particular relationship. It enjoyed a US$6.68 billion trade surplus with the United Arab Emirates last year, largely because the member states have become a commercial hub for Chinese products both for domestic consumption and re-export. Apart from this, though, it is mostly one-way traffic.
Saudi Arabia and Iran are China's biggest oil partners in the Middle East, accounting for around 30% of the nation's total oil imports. In 2005 Saudi Arabia and Iran sold China 22.15 and 14.29 million tonnes of crude respectively. China's total imports from Saudi Arabia reached US$12 billion last year, a 63% rise on the 2004 figure of US$7.5. This created a trade deficit of US$8.4 billion in 2005, 78% more than in 2004.
Meanwhile, it is running a US$3.5 billion deficit with Iran, as 2005 imports climbed 51% on the previous year to US$6.8 billion.
Energy demands on this scale rarely come without geopolitical consequences. China imports 40% of its crude, and with this expected to rise to 75% by 2025, Beijing has already displayed its willingness to do business in diplomatically sensitive areas. It is here where its energy needs clash with its responsibilities as a permanent member of the UN Security Council. Iran is the latest warning sign on the radar.
With the UN threatening sanctions against the Islamic Republic over its commitment to a uranium enrichment project that could be used to manufacture nuclear weapons, China and Russia find themselves in an awkward position. Both want to be seen as responsible global players, yet neither is happy about the prospect of losing a large proportion of its oil supply should UN action be taken.
"China is working hard behind the scenes, pushing for a more conciliatory approach to Iran and trying to thwart the imposition of any serious sanctions relating to the energy sector," said Calabrese.
Despite concerted efforts from Russia and China to broker a compromise deal, though, Calabrese is convinced that Beijing and Moscow are looking for alternative energy sources to volatile Iran in the long term. "It is becoming increasingly clear to Russia and China that there is more to the Iran situation than is being let on," he said. "There is growing concern at the Iranian government's appetite for a confrontational approach."
Relations with Riyadh
Given that bilateral trade with Iran accounts for just 0.6% of China's total, a shift in the balance of its oil demands and relations with Tehran could eventually become a footnote. And Saudi Arabia may well fill the void.
The significance of Saudi King Abdullah bin Abdul Aziz's choosing China as the first destination on his Asia tour in January was lost on no one. The September 11, 2001 terrorist attacks and the war in Iraq have exposed holes in once-strong Saudi-US ties and the world's leading oil exporter is now seeking to expand its customer base. Fast-growing China and India are the obvious choices.
Saudi firm Aramco has already invested US$750 million in a US$3 billion oil refining joint venture with Exxon Mobil and Sinopec. There are also plans for a number of OPEC states, including Saudi Arabia and Kuwait, to build a US$8 billion refinery in Guangzhou. Sinopec has secured a deal to explore for gas in Saudi Arabia's "empty quarter" region.
Here, just as with Iran, events take place against the larger backdrop of Sino-US ties. Exploiting the weakness in US-Saudi ties is one thing, but Beijing's past habit of sweetening deals with weapon-sales agreements has caused Washington considerable irritation. China's energy demands appear to have trumped its commitment to non-proliferation on numerous occasions.
Professor Yitzhak Shichor of the Department of East Asia Studies at Israel's University of Haifa argues that the end of the Iran-Iraq war and the collapse of the Soviet Union have deflated demand for Chinese weapons in the Middle East. But not everyone is convinced. "China is willing to sell anything to anybody unless it is brought up short and pressured not to do so," said Rubin.
Beijing must bear some responsibility for the current problems in Iran, as it is widely believed to have supplied the country with both nuclear technology and conventional weapons. The US-China Economic and Security Review Commission's 2005 report to congress concluded that China was still involved in the sale of WMD and missile-related equipment to Iran despite the imposition of sanctions on 14 Chinese companies.
Nearly every Middle Eastern nation is reported to have been involved in arms trade with China over the years, while Israel has been second only to Russia in volume of arms sold to Beijing.
Weapons sales have provided China with revenue and political clout. But more recently, Beijing appears to have concluded that investing in its oil suppliers offers just as much political influence and considerably less hassle. Where it once supplied large amounts of cheap labor to the Middle East, it now also offers the capital to fund the projects themselves.
"What China brings to the picture is a fusion between government and business," said Calabrese. "The government can provide things that perhaps western businesses cannot - physical infrastructure in return for access to mining areas - and this makes it a very attractive partner."
Sudanese interests
China National Petroleum Corp began operations in Sudan in 1995, buying a stake in the consortium that manages the country's oil reserves. China is believed to have invested US$3 billion in the Arab nation, its largest overseas investment project, developing oilfields and building a 930-mile pipeline, a refinery and a port.
The argument is that China is delivering oil revenues to a country unable to realize them on its own, but shadows of the old system still remain. As the Sudanese civil war raged nearby, it is claimed the Chinese oil workers were protected by government troops armed with Chinese-made weapons. Beijing was also accused of using its UN influence to prevent action against a Sudanese government widely believed to have allowed genocide in the Darfur region.
China appears keen to develop its domestic oil assets as well as those of Russia and the Central Asian countries but this is very much a long term goal. "In the mid-term at least, there is no substitute for the Gulf and China knows this," said Shichor. With this comes an acceptance that the Middle East's energy resources will play just as big a role in the Sino-US relationship as currency confrontations and trade deficits.
Beijing views Washington as a strategic rival and is therefore uncomfortable that the sea lanes by which its oil imports travel from the Middle East to China are secured by the US navy. The product of these fears is a string of naval bases under construction in Pakistan, Myanmar and Cambodia, allowing China a stronger presence along the delivery route.
The needs are economic but the strategies being put in place are overtly political. And even these plans are ultimately dependent on an ever more fractious Middle East not going into meltdown.
"If there is some degree of stability in the Middle East coupled with growth in China, then the prediction I made 15 years ago will probably come true," said Calabrese. "China will emerge as the second-most important player in the region."
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