China's reliance on Mid-East oil a strategic vulnerability

Feb 14, 2011

By Michael Richardson
THE prospect of continuing political instability in the Middle East is widely portrayed as a geo-strategic problem for the West, particularly the United States.
For years, the US has worked with a de facto coalition of authoritarian Arab regimes to contain Iran and protect Israel. The 'people power' protests in Tunisia, Egypt and other parts of the region challenge this arrangement.
The rippling unrest in the Middle East also exposes the heavy dependence of China, Japan, India, South Korea and other leading Asian economies on the flow of oil from the volatile Persian Gulf. After 30 years in power, Egyptian President Hosni Mubarak resigned last Friday, following 18 days of street protests. But this has done little to reduce fears that tensions in the Middle East will keep oil prices high and may lead to disruption of key oil supply routes.
The narrow Strait of Hormuz between Iran and Oman is the only way into and out of the Gulf by sea. It is ranked by the US Energy Department as 'the world's most important oil chokepoint'.
The average daily oil flow through this strait, which Iran has threatened to close if its nuclear facilities are attacked by the US or Israel, was 15.5 million barrels in 2009, approximately one-third of the worldwide trade in seaborne oil.
More than 75 per cent of crude oil exports from the Gulf went to Asia, not the West. Many of the giant tankers carrying the oil crossed the Indian Ocean and passed through the Malacca and Singapore straits on their way to refineries in South-east and North-east Asia.
Asia has become the mainspring of global economic growth. Its surging energy demand and reliance on oil imported from the Middle East have contributed to the forces pushing the price of oil up by 25 per cent since last September, feeding inflation. Oil now costs more than US$100 (S$128) a barrel because of tensions in the Middle East and rising global demand, chiefly from China and other Asian importers.
The International Energy Agency reported last Thursday that world oil demand last year had risen more than previously thought, and would increase to exceed 90 million barrels per day for the first time by year end.
All the Asian oil-importing economies, including Singapore, are hostage to developments in the Middle East, but none more so than China, given its size and ambition to surpass the US as the world's biggest economy later this century.
Much of China's oil comes from volatile suppliers in the Middle East and Africa. Its demand for oil, mainly to fuel its transport system, has more than doubled in the past decade, far outstripping home production.
As a result, China has gone from being a net oil exporter in the early 1990s to the much more precarious position of having to import 55 per cent of its oil last year. Half came from the Middle East and 30 per cent from Africa, nearly all of it via the Malacca and Singapore straits.
Realising the strategic importance of the straits to China and other users, the coastal states - Indonesia, Malaysia and Singapore - have increased surveillance to keep the waterway safe for international shipping.
China's dependence on foreign oil is forecast to reach 72 per cent by 2035.
It is already second only to the US as an oil consumer and third in imports, after America and Japan.
However, US reliance on imported oil has been declining since 2005. Its dependence on oil from abroad is projected to fall to 45 per cent by 2035, from 51 per cent in 2009, as domestic production expands, biofuel and coal-to-liquids output increases and energy efficiency improves.
Moreover, the majority of US oil imports come from its own hemisphere, with next-door Canada supplying more than 23 per cent. Only 17 per cent of US oil imports came from the Persian Gulf in 2009, while 22 per cent were from Africa.
Rapidly growing dependence on imported oil is a strategic vulnerability for China. Supply concerns now underpin issues in its foreign and defence policies.
As China seeks to secure oil in the Middle East and Africa, it finds itself at odds with the US, which has the leeway to promote non-energy interests.
'Indeed, the risk for Washington is that China's growing dependence on imported oil will increasingly prompt Beijing to give higher priority to oil than to international issues such as the protection of human rights, nuclear non-proliferation and good governance,' says China energy fellow Erica Downs from the Brookings Institution.
[It would seem that petro-dollars would continue to fuel petro-dictators, even if the US weans itself off imported oil. China is key to the solution of petro-dictators and islamist terrorists and fundamentalism.]
China is increasing oil production abroad and diversifying suppliers. At home, it is improving energy efficiency, expanding renewable and nuclear power, and building a US-style strategic petroleum reserve targeted to total 85 million tonnes by 2020 - equivalent to 90 days of oil imports, up from 14 in 2009.
On the negative side, China's quest for energy security is being extended offshore in Asia into actual or prospective oil and gas maritime zones that are also claimed by Japan and some South-east Asian states. If backed by China's increasingly strong armed forces, this push will heighten the potential for conflict.

The writer is a visiting senior research fellow at the Institute of Southeast Asian Studies.