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Why China is beating America to Middle Eastern oil. Or not.

Why China is beating America to Middle Eastern oil. Or not.
Published 5 Jun 2013 

A few days ago the New York Times ran a rather breathless story about how China has emerged as the biggest beneficiary of Iraq's post-Saddam oil boom. The story prompted a bit of commentary on Twitter and a few follow-up pieces, including this one in the Washington Post which argued that China was indeed beating the US in an Iraq oil competition, but that this was not a bad thing.

The flavour of much of the commentary was summed up in a tweet by the usually sensible James Fallows: 'Would be crude & reductionist to say U.S. fought Iraq, and China won. But wouldn't be wrong.'

Fallows' comment fits within a view that US influence and power in the Middle East declining, while China's is rising. The problem is that while the former is undoubtedly true, the latter doesn't necessarily follow. There are at least three reasons why the NY Times' old-world strategic logic does not stack up.

First, the supposed competition for Iraq's oil is not much of a competition at all: put simply, China needs more of Iraq's oil than the US does. American oil imports from the Gulf have fallen from almost 900 million barrels in 2000 to just under 800 million barrels in 2012 – and not because the US cannot get the oil, but because it does not want it. In coming years, America's domestic shale oil production will reduce these imports further.

So there is a very good reason why, as the NY Times article concedes, American oil companies are not prepared to invest in Iraqi oil fields for minimal profits. These companies are not losing to China, they are simply making decision based on different economics. [fold]

Second, there is not much competition for oil anywhere else in the Middle East either: by focusing narrowly on the gains Chinese national oil companies have undoubtedly made in Iraq's oilfields, the article gives the impression that this kind of competition is happening elsewhere in the region. But Iraq is one of the few Middle East oil producers that allow foreigners to have a stake in its fields. Saudi Arabia, by contrast, prevents any upstream investment, by China or anyone else.

This has not stopped Saudi Arabia from becoming China's single most important source of oil in the last decade. But it has been less a function, as some have argued, of a post-9/11 strategic turn by Saudi Arabia towards China and away from America than simple supply and demand. As this analysis noted a few years ago, in the 2000s there was a rapid and unexpected increase in Chinese oil demand. And as a Saudi oil ministry official told me, this forced China to turn increasingly to the one country that had the volumes to quickly meet that demand.

Third, Chinese foreign policy and energy policy remain disconnected in one important way. The NY Times article refers to Chinese oil companies as 'tools of Beijing's foreign policy' for securing energy supply in a new 'great game' sense. In fact, it is often the other way around. In Sudan, for example, CNPC invested heavily because of a lack of competition from Western oil companies, forcing Chinese diplomats into the uncomfortable position of defending Sudanese atrocities in Darfur.

China's position on the conflict in Syria is an even better example of the way China's foreign policy and its energy policy are not always in lock step. China has taken a position on Syria that is fundamentally at odds with its key Gulf suppliers. In fact, as Dr Abdel Aziz Aluwaisheg, Assistant Secretary General of the Gulf Cooperation Council, noted in his recent Australia-Gulf lecture here at the Lowy Institute, tension over this issue has caused the suspension of a number of political consultations between the GCC and China.

I am not suggesting that there are no strategic consequences of China's growing reliance on Middle Eastern oil. But it is a far more complex story, and frankly a more interesting one, than the increasingly dated, zero-sum, oil-and-realpolitik paradigm suggested by the NY Times.

Photo by Flickr user iAMiAN.

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