China turns to the gulf

On September 23rd, two Chinese Navy ships, the guided missile destroyer Qingdao and a support vessel were greeted by a cheering crowd when they docked at the eastern port of Qingdao after completing a four-month, round-the-world voyage.

It was the first such cruise undertaken by the Chinese military. The small flotilla visited eight countries on five continents. The route of its 132-day voyage included the Arabian Sea, where during the Ming Dynasty in the first half of the 16th century, a mighty 62-ship imperial fleet under Admiral Cheng Ho wielded China's maritime power over seven great expeditions into the Indian Ocean.

Centuries later, Beijing is seeking to rebuild its naval power, in part to return to the Arabian Sea and the shipping lanes that link it to China, the better to protect the oil it gets from the Gulf, upon which it depends for its economic expansion.

On November 14th, 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 China's emerging strategic plans: challenging US and European oil giants around the world to secure energy supplies for its burgeoning economy and industrialization, 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 China's 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 percent of its current consumption, two-thirds from the Middle East.

One of the ways China has sought to minimize its concerns about energy security was to internationalize 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 have been negotiating for a similar deal on the Halfayah field.

On August 22nd, CNPC announced it had won a $230 million contract to build twin 520-kilometer 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 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 privatization 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 9/11.

Chinese concerns about energy security have been heightened by the likelihood of a US war against Iraq. 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 percent of the world's proven oil reserves, 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.

For Beijing, the Middle East's remoteness creates strategic vulnerabilities. The prospect of terrorist attacks on oil installations and tanker traffic has only heightened security concerns and caused dilemmas for China. The United States, the main military power in the region, guarantees the security of oil supplies, and Beijing is thus dependent on Washington in this regard.

Given the strained relations between them, this is not a position that gives China's leadership much comfort.
This rivalry is intensifying as China moves towards becoming East Asia's dominant power, challenging the Americans while increasingly competing for energy supplies. 'China's increased dependence on Middle Eastern oil is bound to affect its attitude and behavior in the region, as in East Asia,' according to Wu Lei of the School of International Relations at Yunnan University.

'However, if the US continues to dominate the Middle East, there may be little room there for the Chinese to gain a political and military foothold. Because its ambitions are more limited than those of the US, Russia, and even Iraq, Iran and Turkey, China has the advantage of a lack of political baggage, which has helped to broaden its involvement with a few oil producers in the Middle East,' Wu wrote in a recent paper.

'Although concerns about oil security have brought China's interests closer to those of the oil-dependent West and Japan and Korea, there are many reasons to believe that China will have to take a different tack from them. Firstly, China is a new actor in Middle Eastern and international oil markets. Secondly in the Middle East the influence wielded by Western powers led by the US is so great that there is little room for China to secure a beachhead.

'On the one hand, China wants a peaceful, stable Middle East and to avoid entanglement in regional conflicts or crises. On the other hand, it also has to maintain good relations with Iran and Iraq, as well as the economic advantages resulting from these relations, including arms sales.'

Nonetheless, Wu concluded: 'Everything indicates that China has adopted more pragmatic policies toward the Middle East to foster stability in the Gulf. The International Energy Agency believes that China has recently tended to stress energy security more and diplomatic adventures less.'

According to analysts Amy Myers Jaffe and Steven W. Lewis, China 'is likely to face pressure to accept some sort of linkage between oil supply from the Middle East and provision of military assistance. Beijing is being considered a prime alternative for countries seeking ballistics weapons technology that the US is unwilling to provide.'

For the Gulf states, this could lead to an erosion of their links with the West and a shift eastward. Saudi Arabia and Kuwait are already seeking to increase their exports to Asia. In November, the Saudis slashed premiums for several grades of fuel by 38-53 percent for this year. This appears to be because refineries have increased production for electricity generation, but it underlines how the Gulf producers now have their eyes on the East.