China’s Oil Initiatives Signal International Cooperation

By 2030, China will have to import 77 percent of its crude oil in order to meet its rapidly increasing energy demands. Where China will get the 10.9 billion barrels it requires and how it negotiates the global oil market is the subject of a new paper by Henry Lee, director of the Environment and Natural Resources Program at the Belfer Center, and Dan Shalmon, research associate at the Center. "Searching for Oil: China's Oil Initiatives in the Middle East" explores China's relationships with oil-producing countries and the possible geopolitical implications of its widening market reach.

China is the world's second largest consumer of oil after the United States and its demand for energy is increasing. Despite its size, no substantial oil reserves have been discovered within its borders. Lee and Shalmon's paper discusses China's evolution from being an example of energy self-sufficiency to becoming a sophisticated player in the world oil marketplace.

After the mid 1990s, China restructured its state-owned oil and gas companies in response to its growing energy needs into two major companies: China National Petroleum Corporation (CNPC) and the Chinese National Petrochemical Corporation (Sinopec). Lee and Shalmon describe the evolution of China's oil companies as "an unusual agglomeration of modern entrepreneurial talent striving for earnings growth and ever greater profitability, while at the same time remaining arms of a government, increasingly focused on shaping energy policy to meet national strategic and economic goals."

China's quest for oil is not so different from the United States' experience 55 years ago when Middle East oil markets were dominated by European interests, according to the authors. In order to make inroads into the market today, China must develop mutually beneficial relationships with oil-producing nations in the region such as Saudi Arabia, Iran, Yemen, and, most controversially, Sudan. By leveraging its engineering expertise and large market for Middle East products, "China has shown a sophisticated understanding of the Gulf countries' desire to be seen as strategic trading partners as opposed to simply suppliers of crude oil," say Lee and Shalmon, who note that trading with China gives these countries "greater political flexibility and less dependence on the U.S."

Taking into consideration all these factors, Lee and Shalmon conclude that China is gradually embracing an oil strategy characterized by cooperation and depoliticization-not by choice, but by necessity.

The full report is available at http://bcsia.ksg.harvard.edu/publication.cfm?program=CORE&ctype=paper&item_id=557.