American journalist Matt Taibbi employed a grotesque analogy last summer to
describe the Wall Street titan Goldman Sachs as a "great vampire squid wrapped
around the face of humanity, relentlessly jamming its blood funnel into
anything that smells like money".
In the energy industry, a similar phenomenon has arisen to invite respect,
admiration and fear - China's appetite for oil. No survey of the oil sector's
present and future can now afford to omit the China factor and its multiple
ramifications.
This major new reality in geo-economics has just been underscored by a report
from the International Energy Agency
(IEA) that reveals that China has overtaken the United States as the world's
largest energy consumer. With a total usage of 2.25 billion tons of oil
equivalent in 2009, China has forged ahead of the US, whose figure stands at
2.17 billion tons, according to the report. Zhou Xi'an, an official with
China's National Energy Administration, later rejected the IEA report,
according to the Shanghai Daily.
Even allowing for the economic slump since late 2008, which considerably
reduced US oil demand, China's continued growth means the country is well
placed to stay on top of the energy list of customers.
The IEA's disclosure marks a second major milestone in contemporary energy
history since 2003, when China left Japan behind to become the second-biggest
oil consumer. Clearing the field of even the US is testimony to the fast growth
of China's economy, which is poised to supercede Japan soon in size of gross
domestic product (GDP).
The "rise of China" genre of opinion has rightly been focused on China's
exports, its record foreign exchange reserves and its fast modernizing
military, but the flip side is the power that China is accumulating by virtue
of the scale of its imports of raw materials and commodities.
Consider China's equation with Australia, which is now defined by the utter
dependence of the latter's mining multinationals like BHP Billiton, Rio Tinto
and Xstrata Coal on the former's demands for minerals.
Had China not maintained galloping economic growth based on extractive
commodities at home, Australia would have struggled to escape the great
recession after 2008. This is the same Australia that once assumed that it
would catch a cold if the US sneezed. However unpalatable it might sound in
Canberra, China's gargantuan demand has made it an arbiter of Australia's
destiny.
Despite China's environment-friendly pledges that it is going to invest nearly
$738 billion in the next decade to develop cleaner sources of energy, its
high-octane economic machine is not yet an efficient user of fossil fuels.
Chinese heavy industry recorded some energy efficiency improvements between
2006 and 2009, but the first quarter of this year witnessed a 3.2% increase in
the use of energy per unit of GDP. This is great news for energy exporting
companies around the world whose revenues and profit margins thrive on wasteful
but thirsty Chinese demand.
But it is not reason for complacency from a national security standpoint of an
exporting state whose fate is tethered to China's economic vicissitudes and
policy shifts. China, the demander, gains too much leverage on exporting
countries that have not managed to diversify their clientele.
With a grim scenario of minimal economic growth and decreased energy
consumption in store for the US, the European Union and Japan for some time to
come, energy exporting states dominated by a single sector hope to spread their
risks by selling fossil fuels in Africa and Latin America, not to mention
non-Chinese Asian players with robust growth like India.
But economies of scale and the instant attraction of a bottomless Chinese
market imply that Beijing has the power to become kingmaker for many energy
supplying countries, with far-reaching political and diplomatic consequences.
For instance, Saudi Arabia - the world's second-largest crude oil producer -
used to rely on the US as its single-largest customer for petroleum liquids up
to 2008, averaging 1.53 million barrels per day.
In 2009, this figure fell to 989,000 while Saudi oil exports to China surged to
above 1 million barrels a day. With overall net crude imports of around 5.4
million barrels a day and a projected uptick of 900,000 more barrels a day in
the next two years, China is set to keep the US displaced for good as Saudi
Arabia's number one destination.
Until now, the domestic politics and foreign policy of the kingdom bore a
distinct American influence, which in turn was linked to oil interests in the
US. This whole political economy of a US-Saudi special relationship is now
being upended by the entry of China. The day China develops a more interested
and active policy position on Middle Eastern conflicts and alignments will be
momentous because the two oil-producing arch-enemies of the region - Saudi
Arabia and Iran - are both predominantly dependent on the Chinese market for
their economic fortunes.
Repeatedly sanctioned Iran exported 460,000 barrels per day of crude oil to
China in 2009, an amount exceeding exports to Iran's previous top market,
Japan. While energy or resource exchanges are not the sole determinants of
foreign relations, it is logical to expect that China will seek to convert its
hold over oil-selling countries into strategic advantages that matter for its
oft-stated goal of sustaining a "multipolar world" (read challenging American
hegemony in every region).
While it is reasonable to believe that both the US and China can coexist as
equally influential powers in shaping the foreign and security policies of
Saudi Arabia and smaller authoritarian Arab sheikhdoms, the dice is loaded
against Washington in Latin America.
The fastest-growing destination for Venezuela's crude oil exports is China,
which now buys 460,000 barrels a day from the former, up from 120,000 in 2008.
For the staunchly anti-American President of Venezuela Hugo Chavez, China is a
massive alternative market that will reduce his country's dependence on the US
(which still consumes around 60% of Venezuelan crude exports). After China
pledged a record $20 billion for a joint venture in Venezuela's oil sector,
Chavez thundered that "this is a mutating world in transition".
Venezuela presents the best model for an energy exporting country that is
flying towards China's demand-pull magnetism but is still capable of
maintaining its own self-reliance in foreign policy. The high level of popular
mass mobilization and radical independence that Chavez has imbued in
Venezuela's body politic leaves little room for China, if it attempts, to
meddle in the country's strategic or diplomatic affairs.
In Africa, Angola is another example of a proudly anti-imperialist country that
is reliant on China's oil demand but impervious to Chinese big-brother tactics
that critics have decried as a form of Asian neo-imperialism. All is therefore
not lost for energy exporting countries that find themselves yoked to China's
fuel demands.
As a great power with a strong emphasis on energy security, Beijing may have
patented a checkbook diplomacy of its own to tap into oil-producing channels
and, by extension, play politics with authorities controlling the fuel flows.
But energy sellers need not despair about losing their independence in a new
Chinese global dominion, because there are proven non-economic means by which
societies and states can defend themselves against the "vampire squid" of the
commodities world.
Sreeram Chaulia is associate professor of world politics at the OP Jindal
Global University in Sonipat, India
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