ENERGY: Oil Guzzlers Thwart China’s Diplomatic Overtures

By IPS Correspondents Reprint | | Print |

Antoaneta Bezlova

BEIJING, Oct 19 2004 (IPS) - China’s thirst for oil is jeopardising the country’s ambitious drive to be seen as a trustworthy world power and Beijing’s recent performance at the United Nations Security Council in a bid to thwart sanctions against Sudan has only made matters worse.

Beijing is already at pains fighting accusations that its explosive economic growth is partly to blame for the run-up in world oil prices. Now, the growing threat of United Nations sanctions on Sudan and Iran, which between them supply 20 percent of China’s oil imports, puts Beijing in an awkward situation of having to choose between safeguarding its investments and protecting the country’s international image.

Last month, the Chinese government barely managed to water down a U.N. Security Council resolution, which threatened to halt Sudan’s oil exports if it did not stop the atrocities in the Darfur region where pro-government Arab militias are terrorising the region’s population.

Some 70,000 have died as a result of Darfur’s conflict – many starving or succumbing to illness, the U.N. says.

The Security Council is committed to reviewing the situation in Sudan on a monthly basis and could therefore take action in the near future.

The European Union issued a renewed threat of sanctions against the African nation as a EU delegation led by Dutch Foreign minister Bernard Bot, whose country holds the rotating EU presidency, visited Khartoum last week.

China’s ambassador at the U.N. Wang Guangya has indicated that Beijing would veto any future resolution that imposed sanctions. But the stream of negative reports from Sudan suggests that Beijing will soon find itself isolated.

”China is out on limb on this one,” noted one Beijing-based diplomat. ”Russia and Pakistan are far behind it. Beijing cannot be seen blocking a solution to major humanitarian crisis being investigated for genocide.”

China, together with Russia, Pakistan and Algeria abstained from voting on the U.N. Security Council resolution of Sep.18.

However, western diplomats in Beijing think that if China is forced to choose between preserving its oil investments and damaging its larger efforts to be seen as a responsible world player, it will take a long-term view and protect its international image.

But the conundrum is a difficult one. To keep its economic engine running at high speed, China needs ever-increasing amounts of oil. Any significant interruption in supply would put growth at risk, with consequences not only for the country but also for its web of trading partners and investors.

Recent power blackouts that have hit Chinese factories underscore the need to maintain supplies.

By itself, Sudan represents an important piece in China’s oil puzzle.

China obtains 6.9 percent of its oil imports from the African country. In the past five years, Beijing has developed several oil fields, built a 930-mile (1,512 kilometer) pipeline, a refinery and a port. By far, Sudan represents China’s largest overseas investment, worth three billion U.S. dollars.

The government in Khartoum is believed to have a grip on Africa’s greatest unexploited oil resources, even greater than those of the Gulf of Guinea.

Sudan’s crude production is set to hit 500,000 barrels a day in 2005 but oil analysts say this represents only 15 percent of Sudan’s total reserves.

With China’s oil imports expected to rise by about 35 percent this year, a failure of the Chinese oil enterprise in Sudan could seriously undermine its efforts in becoming a major global player in the petroleum business.

Securing overseas oil resources is seen by the Chinese leadership as an effective strategy to wean the country away from its heavy reliance on imports.

But another vital source of oil resources for the country could be cut off if the United Nations imposes sanctions on the regime in Iran. The International Atomic Energy Agency will consider in November whether Teheran is in breach of the nuclear Non-Proliferation Treaty and if it needs to be referred to the Security Council for possible sanctions.

Iran supplies 13.6 percent of Beijing’s oil imports, and China is competing with several other countries to develop its big Azadegan oil field. China Petroleum and Chemical Corporation (Sinopec), in partnership with Shell, is also bidding for substantial flows from Iran’s oil.

A recent U.S. Central Intelligence Agency (CIA) report, too, does not augur well for China.

The CIA report singles out China as one of the countries that breached U.N. sanctions against Iraq and subverted the oil-for-food programme.

Chinese leaders are anxious to secure overseas supplies for the long term but they don’t want the country to be seen as supporting states that may be in breach of international law.

Image-conscious, China has also sought to fight off global market accusations that its soaring domestic demand is to blame for record high oil prices. This week, Chinese officials pledged to slash crude oil imports to 25 percent of the country’s total consumption by 2020.

”China should and has the ability to keep its oil dependency rate to the level of 25 percent of total oil consumption,” Wang Tao, a former senior Chinese oil official said recently.

Projections for future Chinese oil demand vary significantly. Chinese economists say Beijing’s imports of crude will jump to 50 percent of its consumption in 2020. On the other hand, the U.S. Energy Information Administration forecasts that by 2020 China would import two-thirds of its crude oil for its energy requirements.

If oil from Iran and Sudan were cut off by sanctions, China would have to increase its demand on other overseas suppliers. But this would be tricky to achieve given the delays and problems that have dogged China’s major projects for oil pipelines from Kazakhstan and Russia.

Following Russian President Vladimir Putin’s visit to Beijing last week, China now has to grapple with the possibility that a ten-year project for a pipeline carrying Russian oil from Siberia to China’s oldest oil field in Daqing might just never materialise.

While in Beijing, Russian officials hinted that Moscow seemed to favour a competing project from Tokyo for a pipeline to run from Russia’s Pacific port of Nakhodka to Japan.