ManagingChina-USEnergyCompetitionintheMiddleEast

YAOLixiaBackground:competitionforstrategicinterestsinMEChina’sbidforUnocalin2005ChinawillintensifyemphasisonMEtosecureenergyresources.China:anewcompetitortotheUSinME2China’srisinginvolvementinME1960sand1970s:nationalliberationmovements---BeijingalignwithradicalelementsoftheArabworld;1980s:engagementmainlytosupportChina’smilitarymodernizationandeconomicdevelopment.Since1990s:rapidlyrisingdemandanewcompetitorforinfluenceinME3China’srisingenergydemandBy2004:oildemand6millionbarrels/dayBy2030:oildemand10millionbarrels/day(80%willbeimported)HugedemandDomesticreservesIndustrialexpansionTransportationgrowth4China’snewengagementinMEsince1990sImportlightcrudefromOmanandYemenOtherGulfproducers:KuwaitandUAEIraq:AgreementtodevelopIraq’ssecondlargestoilfield(1997)Iran:Chinasuccessfullyconcludedanumberofagreements;investmentexpectedtoexceed$100billionovernexttwodecadesSaudiArabia:“strategicoilpartnership”---China’sleadingsupplierofcrudeoil5China’snewengagementinME:beyondenergyRegularhigh-levelofficialvisitsbetweenBeijingandtheregionImportantexporterofmanufacturedgoodsandcapitaltotheregion

↓China:along-termcustomerforoilexports6China’s‘GoingOut’StrategyWhatis‘goingout’strategy?Why‘goingout’?What’stheimplicationsofthestrategy?DeeperengagementinME:MEprovidesabout60%ofChina’soil.7MiddleEasternPerspectives:IranForgestrategicallianceswithChinaBenefits:Int’lpressureoverIrannuclearactivities:Chinaprovidesint’lpoliticalcoverPremiums:DealswithChineseNOCshelpIranlittleinobtainingadvancedexplorationandproductiontechnologies.Theyaretobolsteradevelopingpoliticalrelationship.8MiddleEasternPerspectives:

SaudiArabiaSaudiwasdisturbedbyUSless-than-goodperformanceonitsMEpolicies.Developarobuststrategicrelationship

Benefits:Supplierofadvancedweaponsandrelatedtechnology;Asafehavenfortheiroilwealth(recycleitsliquidity).Premiums:Notclearaboutwhetherthe2004agreementbetweenChinaandSauditodevelopSaudinonassociatedgascongruentwithSaudi’soriginalgoal;TechnologiestransferredfromSauditoChina.9ImplicationsforUS:

SourceoftensionThwartedUSeffortstoimposesanctionsonSudanoverDarfurgenocide;ComplicatedUSattemptstoreferIrantoUNsecuritycouncilforviolatingnonproliferationobligations;ProvideIranstrategicbacking(challengeWesterninterestsmoreassertively).10ImplicationsforUS:ChineseinvestmentinIranILSAinhibitsWesternenergyinvestmentinIran.TheBushadministrationfailedtoanticipatethepossibilityofChinese-Iraniancollaboration.Chineseinvestmentfilledthevacuum.ChineseinvestmentexceededthelimitstotriggersanctionsunderILSA.TheBushadministrationnotsuccessfullyisolateIraneconomically.11ImplicationsforUS:WeakenstrategiccooperationbetweenUSandSaudiBothSaudiandChinahavesoughttodrawdowntheirdollar-denominatedassets.↓↓PavingthewayforOPECtoacceptpaymentofoilinabasketofcurrenciesratherthanexclusivelyindollars.12Managethechallenges:EnergysecurityReduceChina’’sdemandforhydrocarbonsby:*FacilitatethetransferofnucleartechnologytoChinabenefitUSsuppliers&reduceChina’sdemandforoilimports;*HelpChinausecoalmoreefficiently.PersuadeChinatorelymoreonint’lmarketsratherthanexclusivesupplydeals.13Managethechallenges:Energysecurity---diplomaticapproachesAssureChinathatUSwillkeepsealanesopentoChinafromPersianGulf;EncourageUSoilcompaniesparticipatinginjointventureswithChinesecounterparts;EncourageandfacilitateChinesemembershipinIEA.14Managethechallenges:SharedinterestsBothChinaandUShavetheinterestsinpreventinggenocideinSudanandnuclearweaponsproliferationinIran.USneedstoforgearegionalsecurityframeworkandgiveBeijingaclearstakeincontributingtoMEstability.15DiscussionQuestions1.WhatcharacteristicsdifferMEfromotherregionswhereChinahasbeenkeepinggoodrelationshipsforitsenergysecurity,suchasRussiaandCentralAsia?2.WillChina’spoliticalpresenceinMEbefur