Appetite for oil

May 07, 2005 02:00 AM

by Mark Christopher

Earlier, ChevronTexaco obstructed an attempt by the China National Offshore Oil Corp. to buy Unocal, America's ninth-largest oil company. The CNOOC bid brought China's energy needs to America's doorstep for the first time.
It won't be the last.

China's exploding oil demand is sparking competition with the United States. Perhaps more important than PRC ownership of a US oil company, China's willingness to cut deals with nasty regimes has already begun undermining American policy priorities. Because Beijing has been a friend in the war on terror, Washington has thus far turned a blind eye to Beijing's questionable energy practices. This lack of foresight is ill-advised: America's China policy must address that country's energy needs now, while competition represents a challenge but not necessarily a threat.
Chinese oil demand growth over the last two years has been larger than that of any other country. In 2003, China passed Japan to become the world's second largestpetroleum consumer. The International Energy Agency predicts that by 2030 China will import 10 mm bpd, equal to the current US total and almost twice Japan's current level. This demand spike is one of the factors nudging oil toward $ 60 per barrel.

Yet, more is at stake than just a jolt at the gasoline pump. To secure its supply, Beijing shuns the spot oil market in favour of long-term contracts and investments in producer countries. When it does so in pariah states that Washington is trying to isolate, China's actions contravene efforts to stop nuclear proliferation and promote human rights. And in oil exporting capitals where Washington's policies are unpopular, Beijing may be supplanting the United States as customer-of-choice.
Last year, as American diplomats tried to respond to reports of an Iranian nuclear weapons program and state-sponsored genocide in Sudan's Darfur region, they consistently found their hands tied by Chinese obstructionism. China has signed a 25-year, $ 100 bn contract to buy Iranian natural gas, and the China National Petroleum Corp. is the largest investor in Sudan's oil industry. These countries account for almost 20 % of annual PRC oil imports.

Beijing was never going to let UN sanctions turn off the tap. Working quietly, Chinese representatives repeatedly moderated American initiatives. They helped keep the Iran issue out of the Security Council, preferring the lower-profile International Atomic Energy Agency, and they removed the threat of sanctions from the Sudan resolution. These were merely the first examples of China's wielding its UN power to shield oil-supplying friends.
With some of the world's most unsavoury regimes ramping up oil sales to China, the stage is set for more diplomatic face-offs down the road. Equally alarming are Beijing's moves in Angola and Venezuela. Last April, European giant Shell was set to sell its 50 % stake in a small Angolan oil field to an Indian company. Then the Angolan government swooped in, killed the deal and forced the Europeansto sell to China's Sinopec. Behind this sudden turnaround: a gargantuan $ 2 bn Chinese line of credit.

China's generosity may be commendable, but dangling free money before dishonest governments kills programs that link development aid with things like free elections and good governance. Why bother with President Bush's Millennium Challenge Account and its anti-corruption rules when you can get a couple billion just for cozying up to Beijing?
The pattern has been repeated in Venezuela, currently America's fourth-largest oil supplier. There, President Hugo Chavez has declared that strengthened ties with China provide the market he needs to carry out his threat of halting sales to the United States. Beijing doesn't go slumming for oil because it likes supporting rogue states. The Communist Party needs oil for economic development and economic development for political legitimacy. China's leaders are therefore unwilling to turn away any country that can help slake their thirst for oil.

This doesn't mean, however, that the United States has no leverage. Washington must understand that Beijing's need for domestic stability is paralleled by its hunger for international status. This hunger presents a ready-made set of sticks and carrots.
Willingness to castigate Beijing loudly and publicly for shady oil deals, combined with lavish praise for conscientious prospecting, will nudge the PRC toward cooperating with US initiatives. China's recent move to buy oil from Canada, formerly the sole purview of US consumers, presents a perfect example.

Hard-liners will invariably see this as another intrusion on American turf. Actually, it's a welcome sign to be applauded. The only way to discourage China's destabilizing habit of doling out cash and favours to petroleum corruptocracies is to keep Beijing from signing long-term contracts with crooked regimes. Unsettling as it may seem, Washington's best tactic is to encourage China to compete with the United States and, in the case of the Unocal bid, in this country.
Of course, even peaceful competition is not a permanent solution. Eventually, by definition, non-renewable resources must run out. Averting resource conflicts will ultimately mean cooperating with other large oil importers -- China, Japan, the European Union, India and Brazil -- to decrease fossil fuel dependency.

In the meantime, however, direct US-China oil competition is a given. The key is to make that competition a force for stability.
If President Bush is serious about stopping proliferation, spreading freedom and maintaining America's status in the world, dealing with China's ravenous energy appetite must be part of the plan.

Mark Christopher, a Houstonian, works in the Asia Studies Department of the Council on Foreign Relations in New York. He can be e-mailed at mchristopher@cfr.org.

Source: Houston Chronicle
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