(PINR)A New Cold War: China's Quest for Energy Security

[nosmokes]

_______________________________________
Power and Interest News Report (PINR)
http://www.pinr.com
[e-mail]
------------------------------
25 February 2005
Today's new analyst is a Researcher for Civic Exchange, a Hong Kong-based political think-tank. He has been a Researcher for the London-based International Institute for Strategic Studies and a Risk Analyst for a New York-based risk management company. He has a graduate degree in International Relations from the London School of Economics and an undergraduate degree in Economics and Government from Wesleyan and Oxford Universities. His areas of interest include energy security, terrorism and asymmetrical warfare and political, economic and military developments in China, India, as well as Central, South, East and Southeast Asia.

To see the biographies of all of PINR's analysts, please visit http://www.pinr.com/bios.php.

------------------------------
Setting the Stage for a New Cold War: China's Quest for Energy Security
Drafted By: Chietigj Bajpaee
http://www.pinr.com

A notable feature of 2004 was its volatility in oil prices -- New York light sweet crude prices reached a peak of $55.67 on October 25 ending the year up 33.6 percent at $43.45 per barrel. While a number of supply-side and supply-chain factors have contributed to this situation, the most significant long-term factor contributing to rising oil prices is an increase in Asian demand, most notably from China. China's unprecedented growth not only makes it a driver of a long-term increase in energy prices, but also the most vulnerable to rising oil prices.
~snip~
.
.
.

Sino-Japanese Energy Competition

While Sino-Japanese trade has reached unprecedented levels in recent years, the economic progress could be unraveled by political and military confrontation and by energy competition. China continues to have tense relations with Japan as a result of a number of issues. These issues include, but are not limited to, Chinese opposition to a Japanese permanent seat on the U.N. Security Council, former Taiwanese President Lee Teng Hui's visit to Japan at the end of 2004, and Japanese Prime Minister Junichiro Koizumi's annual visits to the Yasukuni Shrine that honors war-dead including 14 Class A war criminals.
There has also been discussion in Japan about cutting its overseas development assistance to China in the presence of China's improving standard of living, high growth levels and confrontational relations with Japan. These tensions are likely to be further enflamed by both states' quest for energy security. Both states are net oil importers with Japan importing as much as 80 percent of its oil needs.
~snip~
.
.
.

Securing Sea Lanes in the South China Sea and Southeast Asia

To China's south, another long-standing maritime territorial dispute in the South China Sea over the Spratly and Paracel islands threatens to be further enflamed by China's quest for energy security. The 130 islands making up the Paracel islands, which have been occupied by China since 1974, are also claimed by Vietnam and Taiwan. The 400 islands of the Spratly islands are claimed partially by the Philippines, Brunei, and Indonesia, and are fully claimed by Vietnam, Taiwan and China. Relations between China and the Association of Southeast Asian Nations (A.S.E.A.N.) have improved with China signing up to A.S.E.A.N.'s Treaty of Amity of Friendship and Cooperation in 2003 and all sides signing the Declaration of the Conduct of Parties in the South China Sea in 2002. Nevertheless, tensions remain. In violation of the 2002 agreement, five states have permanent military garrisons on the atolls in addition to surveillance facilities under the guise of "bird watching" towers, weather huts and tourist facilities. The fact that Taiwan is not a signatory to any of these agreements is also a cause for concern.
~snip~
.
.
.

Central Asia: The New Great Game

On its western borders, China has been an active player in the new great game. As part of its "Go West" development policy, China's longest pipeline, the 4200 km Tarim Basin to Shanghai gas pipeline, came online in August 2004. China's west-to-east pipeline could potentially be extended to Kazakhstan and Turkmenistan and even further to Iran and the Caspian Sea. In October 2004, construction began on a 988 km pipeline from Atasu in northwestern Kazakhstan to Alataw Pass in China's Xinjiang province, which will carry ten million tons of oil a year once it is completed in 2005. The Chinese are also helping to develop oil fields in Uzbekistan and hydroelectric power projects in Kyrgyzstan and Tajikistan.
~snip~
.
.
.

Middle East: China Expands Relations While the U.S. Pulls Back

China has also attempted to improve relations with its already-established oil suppliers, such as Saudi Arabia and Iran, by selling them military technology, investing in their industries and energy infrastructure and looking the other way with respect to their human rights records. Currently, China derives 13.6 percent of its oil imports from Iran. In March 2004, China signed a $100 million deal with Iran to import 10 million tons of liquefied natural gas over a 25-year period in exchange for Chinese investment in Iran's oil and gas exploration, petrochemical and pipeline infrastructure. Growing Sino-Iranian relations are undermining U.S. sanctions against Iran. The Bush administration has sanctioned Chinese companies 62 times for violating U.S. or international controls on the transfer of weapons technology to Iran and other states. The U.S. Central Intelligence Agency has submitted a report to the U.S. Congress stating that Chinese companies have "helped Iran move toward its goal of becoming self-sufficient in the production of ballistic missiles." In the ongoing controversy over Iran's uranium enrichment program, China has also opposed bringing the issue before the U.N. Security Council and has even threatened to veto any resolution that is brought against Iran.
~snip~
.
.
.

Russia: Revival of the Strategic Triangle

Russia is China's fifth largest crude oil supplier with Lukoil now replacing Yukos as China's main supplier of Russian oil. China is expected to import at least 10 million tons of oil from Russia in 2005 and 15 million in 2006 while Russian rail shipment capacity is expected to increase from 20 million tons in 2004 to 60 million tons by 2006. The controversy over the sale of Yugansk, which produces 60 percent of Yukos' oil output and pumps 11 percent of Russia's oil, has also highlighted the increasing presence of Chinese energy companies in Russia. While the mysterious buyer, Baikal Finance Group, ended up selling its stake in Yugansk to Rosneft in December, which may be acquired by Russian state-owned Gazprom, this does not preclude the possibility of Yukos' assets being acquired by China. China's C.N.P.C. has allegedly been offered a 20 percent stake in Yukos and provided a $6B loan to Rosneft to purchase Yugansk.
~snip~
.
.
.

Africa and the Americas: Entering the U.S. Sphere of Influence

As China has made limited progress in accessing energy resources on its doorsteps due to poor relations with neighboring states, it has shown growing interest in accessing energy resources further afield. For example, a consortium 40 percent owned by China's C.N.P.C. pumps over 300,000 barrels per day in Sudan. China is also a major supplier of arms to the Sudanese government, which has just concluded a peace agreement with the main rebel group in the south, the Sudan People's Liberation Movement (S.P.L.M.), ending 20 years of conflict sparked over the allocation of oil revenues. The Sudanese government is still engaged in a conflict in the Darfur region of western Sudan using proxy militias. China is also vying for energy resources in Angola and other energy-rich African states by offering arms and aid for oil.
~snip~
.
.
.

Conclusion: Energy Takes Center Stage as the Catalyst for Conflict

Friction between China and the West has so far focused on the question of China's undervalued exchange rate, its human rights record and relations with "rogue" states. However, the competition over energy resources is now becoming an additional area of contention. China's growing presence on the international energy stage could ultimately bring it into confrontation with the world's largest energy consumer, the United States. While China and the U.S. have launched the U.S.-China Energy Policy Dialogue, both states are also engaged in a competition for energy resources in Russia, the Caspian, the Middle East, the Americas and Africa. This competition could potentially combine with other areas of friction. For example, in the event of China engaging in a conflict with Taiwan, Japan or India or internal repression such as a repeat of the Tiananmen Square massacre of 1989, the United States could censure China's actions by an oil embargo or by blocking vital sea lanes in the Straits of Malacca, thus sparking a wider conflict.
It is not by coincidence that China has made progress in resolving its border disputes with India and Russia, while failing to make progress on territorial disputes with Japan in the East China Sea and in the South China Sea given that the latter involve access topotential oil and gas resources. In this context, China's claim to pursuing a "peaceful ascendancy" policy and putting aside areas of disagreement in favor of creating a stable environment for economic development is limited to areas where China's vital strategic interests are not threatened.

complete report available at http://www.pinr.com
---###---


Report Drafted By:
Chietigj Bajpaee
------------------------------

The Power and Interest News Report (PINR) is an independent organization that utilizes open source intelligence to provide conflict analysis services in the context of international relations. PINR approaches a subject based upon the powers and interests involved, leaving the moral judgments to the reader. This report may not be reproduced, reprinted or broadcast without the written permission of [e-mail]. All comments should be directed to [e-mail].

If you would like to unsubcribe, click here