Yet Another Great Game

[China, US & Oil]

by Stephen Glain

Newsweek International, 12/20/04



If a report circulating among senior members of America's defense establishment is any guide, the Sino-American war for future petroleum supplies has already begun. According to the 80-page study, Beijing has identified the United States as "a paramount threat to its energy security and economic stability" and is busily establishing a "string of pearls"-forward deployments of surveillance stations, naval facilities and airstrips-to safeguard the petroleum-transport route from the Persian Gulf to the South China Sea. Once it controls Asia's vital sea lanes, the report goes on, China may then move on some of the world's key oil reserves-perhaps by replacing the United States as Saudi Arabia's patron and protector, or by seizing a strategic oil pipeline in the Russian Far East. The Chinese, the report says, "equate energy security with physical possession or control of energy supplies" and "have a tendency to see securing their energy security as a zero-sum game."

Nowhere is that more clear than in sub-Saharan Africa, where Chinese oil and natural-gas companies have over the past several years inked deals with regimes such as Sudan's, ostracized by the West for its complicity in atrocities committed against villagers in Darfur. "It's very effective and farsighted diplomacy," says John Tkacik, a China expert at the Heritage Foundation in Washington. "They look to where their opponent is not and discreetly place their pieces in unclaimed areas of the map, which in this case is Africa."

In staking out Africa, however, Beijing is setting itself up for a seismic rivalry with the -United States, which has identified the region as key to its efforts to diversify its oil sources away from the unstable Middle East. In the aftermath of 9/11, a U.S.-Israeli study group recommended that Washington prevent "rivals such as China" from horning in on Africa's natural resources, while the Pentagon study says, "Chinese companies are investing in East, West, and North Africa and [the Chinese Army] has sent troops to protect its energy investments in Sudan" -an assertion long rumored by human-rights groups and other Africa experts but never confirmed. In turn, American oil companies have raised their profile in Africa amid rumors that the United States is planning to build a military base in the oil-rich Gulf of Guinea. "In Africa," says Jamal Qureshi, an oil-markets expert at PFC Energy in Washington, "you've got new players, with China as a possible counterweight to the U.S. There could be elements of confrontation."

Before 9/11, U.S. oil companies generally kept their distance from such countries as Sudan, the Democratic Republic of the Congo and Libya, due to political risk, concerns over human-rights violations, sanctions or all three. True, U.S. firms have done business with autocracies like Nigeria, despite the Bush administration's public snubbing of President Olusegun Obasanjo. But until now, such deals have been cut on a piecemeal basis-unlike those recently struck by state-owned China National Petroleum Co. (CNPC) as part of an official policy of nurturing diplomatic ties in exchange for oil concessions.

During the cold war, China reached out to Africa in political solidarity with its nonaligned nations, and to block them from having relations with Taiwan. Indeed, Africa accounts for a dwindling share of the 27 or so countries that still recognize the island state over China. Now China is supporting developing countries as part of a transparent bid for economic gain, and its petrodiplomacy extends worldwide.

In October Beijing agreed to buy up to $100 billion in Iranian petroleum and gas and to help develop a major Iranian oilfield near the Iraqi border-evidence of an evolving Sino-Iranian alliance that is featured in the Pentagon report. Earlier this year Beijing signed a 25-year deal to develop natural-gas reserves in Iran-despite U.S.-led sanctions-and it is increasingly active in the Gulf states. Iranian Oil Minister Bijan Zanganeh recently said that the strengthening Tehran-Beijing link was "neutralizing" U.S.-imposed sanctions. "Japan is our No. 1 energy importer for historical reasons... but we would like to give preference to exports to China," said Zanganeh.

Africa, though, remains the new oil frontier for both China and the United States. Since Chinese President Hu Jintao's February goodwill mission to oil-producing states, Beijing has signed agreements with Algeria, Gabon and Nigeria, and is discussing similar deals with Niger, Chad, the Central African Republic, Congo and Angola. In return for access to raw materials in Africa, China is financing and building roads, dams, airports and energy grids, signing free-trade agreements and even promoting Africa at home as a tourist destination. Within the next half decade, according to energy analysts, Africa is expected to account for nearly a third of the oil China purchases overseas, up from 25 percent today.

Once oil-independent, China has over the last decade become increasingly reliant on imports, which now account for 60 percent of its oil consumption, up from 6.4 percent in 1993. Within the next five years, according to Beijing, China will be importing 50 million tons of oil and 50 billion cubic meters of gas annually. Even for a country more concerned with human rights, those kinds of numbers would remove many inhibitions.

In 2001 Beijing identified Sudan as the springboard for its campaign to triple its overseas oil production within four years, despite U.N. sanctions against the Sudanese regime. CNPC now dominates a consortium of Asian companies drilling Sudan's fields under license by Khartoum. Through a subsidiary, CNPC took a lead role in building a 1,500-kilometer-long pipeline from the main oilfields to the Red Sea and built a refinery near Khartoum with a 2.5 million-ton processing capacity. Safely distanced from the chaos in southern Darfur, these facilities have helped swell Sudan's oil output to 345,000 barrels per day, up from 270,000 in 2003, and provide an estimated 8 percent of China's total oil consumption.

The sales have also helped finance Khartoum's arms purchases from Beijing; the government is thought to be nurturing a Sudanese arms industry with Chinese technology. "Khartoum is emboldened and encouraged by China's assistance," says Jemera Rone, a Sudan specialist for Human Rights Watch. "It is using petrodollars to manufacture arms, many of them knockoff versions of Chinese weapons."

The Sino-Sudanese ties are complicating U.N. efforts to isolate Khartoum for its alleged complicity in massacres and rapes in southern Darfur. Beijing has blocked or diluted several U.S.-sponsored draft resolutions condemning Khartoum, and has signaled it will veto further sanctions. Washington, which needs Chinese support in Security Council matters regarding Iraq, is unlikely to push Beijing on Sudan.

While the United States appears to have conceded Sudan to China, it is active elsewhere in Africa. U.S. President George W. Bush has made a point of meeting with leaders of such countries as Chad and Congo, which in the past barely registered on Washington's foreign-policy map. The African Oil Policy Initiative Group, a confederation of oil executives, members of Congress, White House officials and consultants, has recommended that the United States work openly with Nigeria to secure Africa's oil-rich areas and enhance the prospects for foreign investment. It has also urged the Pentagon to build a naval base at the oil-rich islands of So Tome and Principe, and to permanently deploy a large force of U.S. troops there. Some analysts even suspect that the deliberate way in which the United States lifted sanctions on Libya earlier this year was a move to check China's growing influence in Africa. If China sees energy security as a zero-sum game, so, it appears, does its American rival.

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