China's Middle East energy strategy

China is one of the countries most dependent on oil import given its increasing energy consumption, and thus is working to further its economic interests in oil-producing Arab states.

al-monitor A China Shipping Line container ship crosses the Suez Canal near Ismailia, May 1, 2014. Photo by REUTERS/Amr Abdallah Dalsh.

Topics covered

population, oil, natural gas, middle east, interests, gulf states, energy, china

May 6, 2014

China’s increasing energy imports expose its economy to the fluctuations of the global market, according to a report by the Oxford Institute for Energy Studies. Today, China is the most energy-consuming country and the most dependent on energy imports, especially from the Middle East, while the United States is moving toward energy independence. As was the case for the United States, China’s energy policy will have an impact on global energy markets, climate change and Beijing’s foreign policy. It is worth noting that the average annual increase in demand for oil in China ranges between 4% and 5%, the overall demand in 2012 reached about 11 million barrels per day (bpd) and China’s refining capacity is approximately 10.7 million bpd.

For a long time now, China has been relying on coal, which is available in abundance in its territory. But due to its cost of transportation for coal over land compared with that of oil or gas, and most importantly given the environmental pollution hazards resulting from the use of coal, China decided to reduce its dependence on coal and set for itself the target of reducing carbon emissions to the lowest possible rate.

China’s economy has witnessed a high and unprecedented rate of growth for 10 years now, without any significant decline. The population reached an estimated 1.341 billion people in 2010 and is expected to reach 1.375 billion by 2015. This means that the energy consumption market in China is huge, especially during the period of economic growth.

In 2010, the unemployment rate reached 4.1% and during 2011-2015, it is expected to settle at 4%. Just like the periods of recovery in other countries, China's economic leap failed to eradicate extreme poverty in the countryside, it even increased environmental pollution — especially in large cities — and led to the spread of corruption among the ranks of senior officials, whether members of the [Communist] Party or civil servants.

The growth in the Chinese energy market is an opportunity to develop Sino-Arab relationships. In light of the stability or even the decrease of crude oil consumption and imports in the Western industrialized countries, the Asian markets, particularly China, are becoming the most important oil importing area. If it were not for the increasing Asian-Chinese demand in recent years — especially since 2000, after the Asian economic setback started improving in the late 1990s — the crude oil prices would have hit rock bottom in light of increasing supplies and the scarcity of demand in the industrialized countries following the US and European financial and economic crises.

With the increasing oil consumption, China had to rely on the import of oil through its oil exploration and prospecting investment companies in different parts of the world. The Chinese companies are investing in most, if not all, oil-producing Arab countries as well as Iran. The China National Petroleum Corporation (CNPC) finally signed an oil exploration agreement with Abu Dhabi National Oil Company (ADNOC) to explore oil in the emirate where giant Western oil companies have dominated oil production over the past decades. The Chinese oil companies obtained a very large share of the long-term engineering service contracts concluded with the Iraqi government after 2003, and they are the largest investors in Sudan’s oil fields.

China could have imported oil through Western companies, but it decided in recent years to directly invest in the Middle East, Africa and the Caspian Sea region. This is normal for major states, especially for the largest energy-consuming nation in the world. China has the same role as major states in terms of providing oil supplies for its markets. The country does so by relying on its own companies, whether governmental or private. For instance, the state-run company PetroChina obtains 68.8% of its oil from fields in which it is a partner.

It is only normal that Chinese oil companies compete on a global level like Western companies, either by seeking to obtain contracts, by committing to execute the contractual obligations on specific production rates, by realizing profits or by ensuring oil supply against political risks. The first step in this regard was the investment of billions of dollars for a short period during the recent global economic recession, which allowed China to be awarded numerous contracts.

In the Arab world, the interest in China remains confined to the Arab national oil companies trying to export the largest possible quantities of crude oil and natural gas to China, to consumer companies importing a significant part of their goods from Chinese factories or to foreign companies that have built factories in China. It is worth mentioning that China has played an important, yet limited, role in several Arab countries, especially Sudan.

There is flagrant disinterest by the Arab side in Chinese studies, from history to culture, language and economy. Arab universities, lacking specialized institutes for Asian studies and in particular Chinese studies, bear the largest share of responsibility. At best, we acquire our information on Asia and China from Western media or Western researchers’ studies. Arab universities must keep up with the changes in their society and country. They must give scholarships to graduate students to specialize in fields that are vital to the economy of their country.

It is not tenable to continue to study the Middle East policies of major countries through the works of foreign researchers usually subject to the interests of their country. However, it is worth mentioning that some of the major Arab national oil companies became aware of this shortage, and years ago started sending their young employees to study and obtain their major in China, and before that in Japan. Will Arab universities become aware of the situation, follow the lead of national oil companies and establish institutes for Asian graduate studies and research?

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