China Revamps Scene in Persian Gulf

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By Behzad Shahandeh ,
The rapid, almost unfathomable growth in the Middle Kingdom’s energy demand is creating dynamics in global energy markets with broader security implications.

Although China has its own fields, its production nowhere near meets its demand of 6.5 million barrels a day in late 2005.

China is already the world’s second largest oil consumer after the United States replacing Japan in the number two position. A net importer since 1993, China now purchases close to three million barrels per day from abroad.

In the last two years, 35 percent of the increase in world petroleum consumption of has been China’s. Its automobile population is expected to be the world’s largest market within a decade. China’s very survival depends on procuring oil and gas to fuel its development. Beijing has no alternative, any slow–down even temporarily will deal a heavy blow to the legitimacy of the state, and usher in the dreaded Tianamen syndrome. The rising expectations created in China by colossal growth over a period of more than two decades will be severely jeopardized if the industry stalls even for short time from lack of energy.

To meet this demand, China has embarked on developing and expanding ties with Persian Gulf giants _ Iran and Saudi Arabia. Beijing is seeking to secure access to the Persian Gulf oil and gas by concluding exclusive supply and equity deals and by expanding its political influence in the region. Because the Persian Gulf holds 65 percent of the world’s reserves, and China has been encountering United States obstruction of Beijing’s equitable operation of the global energy markets (as demonstrated by the recently failed bid by China’s CNOOC to acquire UNOCAL), the Middle Kingdom has become an aggressive player on the Persian Gulf scene. And as a region that will remain as the primary source of energy, with reserves dwindling rapidly in other regions, the Persian Gulf will be the most vital region in the global economy, and for its most important beneficiary the United States. Abundance in oil explains US involvement in the region’s security during the past half a century. But Washington, which regards its presence in the Persian Gulf as its national interest, is being challenged by China’s thirst for oil, especially to sustain its booming manufacturing and transport sectors.

The eruption of China as a key energy player is already affecting security in the Persian Gulf. In the backdrop of the crisis over Iran’s nuclear program, and despite US concerns, China is developing stronger ties with Tehran, which has problematic relations with Washington. China’s second largest oil company, Sinopec, has recently signed a deal worth 100 billion dollars with Iran to develop the giant Yadavaran gas field.

On a somewhat different tone, China is cultivating relations with Saudi Arabia, which has the biggest oil reserves in the world at 263 billion barrels (Iran comes second with 137 billion barrels, also being number two in gas reserves after Russia). Saudi Arabia has become China’s main supplier of energy.

Riyadh is expanding relations with Beijing to include exports of Liquefied Natural Gas (LNG). China has recently signed an agreement with Saudi Arabia to build a refinery for natural gas in China’s province of Fujian. Sinopec also won the right to explore for natural gas in Saudi Arabia’s Rub al–Khali Basin. In return Chinese firms will also explore for bauxite and phosphate deposits in the Saudi Kingdom.

These deals will open the way for a productive relationship with Saudi Arabia, and even more so with Iran. With the former depicted as the Kernel of Evil (Washington has since the September 11 tragedy, floated regime change scenarios under the banner of democratization in the Middle East…. 15 of the 19 hijackers on the 9/11 tragedy were of Saudi origin ), and the latter as part of the Axis of Evil (together with North Korea and the then Saddam Hussein regime in Iraq ) by the United States, the two Persian Gulf giants are making best of the alternative that China is offering them, an alternative which challenges US hegemony in the region. Saudi Arabia for its part is cultivating China as the consumer of its oil and gas to hedge against further deterioration in US Saudi relations. While Iran is seeking to lessen the US pressure of sanctions by moving closer to China, which is a more than willing partner due to her need for energy supplies

There is a certain logic for both states to say we need a good relationship with a country that is a permanent member of the United Nations Security Council, and is a strong growing market for our main product, oil. Is a nuclear power that can ease the ever-mounting U.S. pressure on us a good and sound investment? And China’s escalating energy needs and sense of its own rising economic power is making it harder for Washington to influence Beijing’s Middle East (Persian Gulf) policy, and is in itself creating a breathing space for both Iran and Saudi Arabia.

In conclusion we must assert that China is a huge contributor to the oil exporters collective surpluses that in 2005 are amounting to $400 billion. In 2004, when the oil price averaged $40 per barrel, oil exporters ran a collective saving surplus of $270 billion, almost three times as much as 2001, and that gives the major producers Saudi Arabia and Iran tremendous opportunity to strengthen their political clout. Both countries now have Oil Stabilization Funds into which the windfalls from increase in oil prices flows and China is more responsible for the colossal earning than any other country.



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