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China turns on demand power
By Sreeram Chaulia
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
(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights
reserved. Please contact us about
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