Middle East Oil Fuels Fresh China-
U.S. Tensions
Beijing Depends on U.S. Military to Secure Middle East Imports
China is overtaking the U.S. as a buyer of Middle East oil, adding fuel to diplomatic tension between the nations over security in the region.
China surpassed the U.S. as importer of Persian Gulf crude several years ago, by some measures. Now it is on track to overtake the U.S. this year as the world's No. 1 buyer of oil from the Organization of the Petroleum Exporting Countries, the largely Middle Eastern energy-exporting bloc.
China is on track to become the world's top buyer of oil from the Organization of the Petroleum Exporting Countries. Deborah Kan talks to Wood Mackenzie's President of Global Markets William Durbin about China's growing demand for Middle East oil and its commercial and geopolitical consequences.
The turnabout has added to tensions because it leaves the U.S. military securing China's growing oil shipments in the region at a time Beijing resists U.S. pressure on it to back American foreign policy in the Middle East.
U.S. Navy
The U.S. dominates military security of Mideast-oil exports. U.S. warships plied the Persian Gulf in March 2012.
For years, China and other oil-consuming nations have benefited as Washington spent billions of dollars a year to police chokepoints like the Strait of Hormuz and other volatile parts of the Middle East to ensure oil flowed around the globe.
But the rise of North America's shale oil and gas industry has put the U.S. on track to pass Russia this year as the world's largest combined producer of oil and gas, if it hasn't done so already, according to a recent analysis of global data by The Wall Street Journal.
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That rise, combined with flat U.S. oil consumption, is making America far less dependent on imported oil, including from the Middle East, even as China's reliance on the region's oil grows.
China's OPEC-crude imports during this year's first half averaged 3.7 million barrels a day, versus 3.5 million for the U.S., according to Wood Mackenzie, a consulting firm. At that rate, its OPEC imports will surpass America's on an annual basis for the first time this year, Wood Mackenzie said. India ranked No. 3, at about 3.4 million barrels a day.
In 2004, the U.S. imported about 5 million barrels a day from OPEC, and China imported about 1.1 million, Wood Mackenzie said. An OPEC official declined to say whether China is now the bloc's top customer.
China's imports have surged in recent years from OPEC nations such as Saudi Arabia, Iraq and the United Arab Emirates, according to Chinese customs data.
China is trading places with the U.S. by some other measures as well. The U.S. is still No. 1 in crude imports from all the world. But new data from the U.S. Energy Information Administration show China has slightly overtaken the U.S. in net oil imports, defined as total liquid-fuels consumption minus domestic production.
China's net imports were 6.30 million barrels a day in September, versus U.S. net imports of 6.24 million, the EIA data show; the U.S. energy-production boom has helped push down its net-import figure.
And China will soon import more from the Persian Gulf than the U.S. did at its 2001 peak, according to EIA and Chinese customs data. It surpassed the U.S. as a buyer of Persian Gulf crude in 2009, according to the data.
China's rise as a dominant buyer of Middle East oil presents a conundrum for it and the U.S. For China, it means its economy depends in part on oil from a region dominated by the U.S. military. When tankers depart Persian Gulf terminals for China, they rely in significant part on the U.S. Fifth Fleet policing the area.
For Washington, China's oil thirst means justifying military spending that benefits a country many Americans see as a strategic rival and that frequently doesn't side with the U.S. on foreign policy.
Signs of tension are surfacing. Beijing has asked for assurances that Washington will maintain security in the Persian Gulf region, as China doesn't have the military power to do the job itself, according to people familiar with recent discussions between the countries.
In meetings since at least last year, Chinese officials have sought to ensure U.S. commitment to the region isn't wavering, particularly as the Obama administration has pledged to rebalance some of its strategic focus toward East Asia, said people familiar with those discussions.
In return, U.S. officials have pressed China for greater support on issues such as its foreign policy regarding Syria and Iran. U.S. officials in private discussions have pressed China to lower its crude imports from Iran, for example, according to a person with knowledge of the discussions.
Meanwhile, China faces criticism from senior U.S. leaders who complain that Beijing has obstructed tough action against the Syrian regime at the United Nations. Current and former U.S. officials have told the Chinese that stable energy flows from the Middle East will need greater cooperation from Beijing going forward, said the people familiar with the discussions.
China's Foreign Ministry, in a statement responding to questions for this article, said China's oil trade with the Middle East was "mutually beneficial and in accordance with international business norms," adding that China wanted political inclusiveness, economic prosperity, and peace and stability for the region.
At an April Brookings Institution conference in Washington, D.C., when the former head of China's National Energy Administration, Zhang Guobao, was asked whether China could assume a greater role in protecting the region's shipping lanes, he responded: "Why don't the Americans do the job for now."
"The U.S. has invested time, energy and resources into creating a global system," said Jon Alterman, director of the Middle East program at the Washington-based Center for Strategic and International Studies. "China is becoming a global power and does not seem at all invested in the idea of creating a global system."
The U.S. has other interests in keeping a big presence in the region, including protecting Israel and shoring up shipping lanes for allies such as Japan and South Korea. And it isn't clear whether the U.S. would soon welcome greater Chinese military involvement in the Mideast, which could challenge America's role in the region.
The U.S. has dominated Gulf security since the 1970s, after Britain pulled its resident military from the region. It has more recently used weapons sales to bolster regional partners, such as Saudi Arabia, to share security responsibility.
Allies have added military bases in the region: Japan's Self-Defense Forces in 2011 opened a base in Djibouti to help police shipping lanes, and France in 2009 opened a base in the United Arab Emirates.
China's ability to project power in the region is constrained. It doesn't have the military firepower or expertise to actively police conflict zones or shipping lanes. Its biggest military deployment in the region has come during modest antipiracy operations off the coast of Somalia.
A picture of China's strategy in the region can be seen in Iraq, a growing source of its crude imports. Chinese imports from Iraq have more than doubled since 2009, according to Chinese customs data.
In the southeast region of Maysan, China National Petroleum Corp. is building a fortified desert oasis for its workers in a region blighted and pocked by the U.S.-led war.
At the CNPC-operated Halfaya oil field, workers' villas line a newly-built artificial lake, which the company has outfitted with sailboats for employees.
A pair of stone lion statues—believed by the Chinese to ward off bad spirits—stands guard at the company's oil-field command center. Nearby, CNPC recently finished renovations on an airstrip, which will be used to ferry in Chinese oil workers.
China's political footprints in Iraq are small. In Baghdad, its presence is a modest embassy with about 10 Chinese staff not far from the sprawling American embassy, where thousands of diplomats and others remain tied up trying to win Iraq's stability.
CNPC declined to make officials available for an interview and didn't respond to a request for comment.
"Commercial is commercial and politics is politics," said Du Ming, a political attaché at the Chinese embassy in Baghdad. "We're not going to try to influence Iraqi politics just because our oil companies need to stay here."
This isn't the first time an Asian nation has faced Washington pressure over the Persian Gulf sea lanes. Japan took U.S. criticism around the first Gulf War—sparked by Iraq's 1990 invasion of Kuwait—for what some viewed as Tokyo's reluctance to contribute to the American-led military effort, even though much of Japan's oil originated in the Persian Gulf.
More recently, Japan has escaped such criticism as it has more closely hewed its foreign policy to Washington's. Tokyo has been a major financial contributor to U.S. strategic initiatives, such as rebuilding Iraq.
To mitigate growing tensions over energy security and other matters, Washington and Beijing last year set up an annual meeting of senior U.S. and Chinese diplomats called U.S.-China Middle East Dialogue.
U.S. officials hoped that Washington's and Beijing's shared desire for stable energy flow from the Middle East would help them find common ground and persuade Beijing to more closely cooperate with the U.S. on issues such as Syria and Iran, said a person familiar with the meetings.
But the closed-door gatherings have produced limited results, this person said. A State Department news release from the second of the annual meetings, in June, said the U.S. welcomed China's playing "a more active and positive role in the Middle East region."
President Obama at the United Nations in September said the U.S. remained committed to the region's energy flow. "Although America is steadily reducing our own dependence on imported oil, the world still depends on the region's energy supply, and a severe disruption could destabilize the entire global economy," he said.
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