Oil, the Middle East and the Middle Kingdom

The rapid, almost unfathomable growth in China’s energy demand is a key element in Beijing’s growing interest in exclusive deals with Middle Eastern energy producers for oil and gas. The recent, ultimately unsuccessful bid by CNOOC to acquire Unocal has reinforced perceptions in Beijing that China cannot rely on the equitable operation of the global energy market to meet its energy needs because US policy will not allow China reliable access to that market.

These developments, if not managed intelligently by Beijing and Washington, have potentially profound implications for critical US interests in the Middle East and US-China relations.

China is already the world’s second largest oil consumer, after the US. A net importer since 1993, China now purchases from abroad close to 3m barrels per day. In the last two years, 35 per cent of the increment in the world’s consumption of petroleum has been China’s. Its automobile population is expected to be the world’s second largest market within a decade.

To meet this demand, China has been working to expand ties with Middle Eastern oil-producing states, including Iran and Sudan, which have problematic relations with the US. China is seeking to secure its access to Middle Eastern oil by concluding exclusive supply and equity deals and by expanding its political influence in the region.

Middle Eastern energy producers, meanwhile, are looking to China as an alternative to unchallenged US hegemony in the region. Even the staunchly anti-communist Saudi regime is cultivating China as a consumer of its oil and gas to hedge against further deterioration in US-Saudi relations, and the newly inaugurated Iranian president Mahmoud Ahmadinejad has expressed interest in forging a strategic partnership with China and India.

Even before its recent energy focus, China’s involvement in the Middle East had been frequently problematic for US interests. Starting in the 1980s, China established its position in the region through arms sales to rogue regimes, including Saddam Hussein’s Iraq, and transfers of ballistic missiles and associated technology.

In the past, China responded to high-level representations about US security concerns and reined in some of its more troublesome activities in the Middle East - for example, terminating its most dangerous nuclear co-operation with Iran in the 1990s. Now, however, China’s escalating energy needs and sense of its own rising economic power may make it harder for Washington to influence Beijing’s Middle East policy. Already, China’s Middle Eastern push is colliding with US policy goals in the region. Beijing, for example, is the principal non-African supporter of the Sudanese government, blocking the imposition of international sanctions on a state that has become an important oil supplier to China. Beijing is in a position to block UN Security Council sanctions against Iran should the EU and US seek such action. Chinese exclusive supply or equity deals also could distort markets beyond the already considerable natural upward pressure that Chinese energy demands are generating.

While America’s interests in the region diverge in significant ways from China’s, it would be a mistake under current conditions to seek to exclude China from the Middle East, or to isolate it more broadly. Middle Eastern energy producers will not follow exhortations from Washington to cut off China. The better policy, with a better chance of success, is to try to work with China to give it a sense of energy security and shared interest in a stable Middle East. This would entail assuring China that, short of a conflict that Washington is not seeking, the US will keep sea lanes open to China from the Persian Gulf. This also would entail drawing China into discussions with key Middle Eastern countries and other parties about developing effective security arrangements for a region undergoing massive shifts in its internal balance of power.

Such an approach could help persuade China to rely more on international markets and less on exclusive supply deals, and would also increase chances that China would ultimately respect US national security and humanitarian goals in places such as Iran and Sudan. Hu Jintao, China’s president, will visit the US next month. It is an opportunity for the Bush administration to lay out a path of co-operation with China on energy and the Middle East. Without such an approach, the clash of interests could be damaging not only to the US and China but could also feed a more general and unwelcome antagonism between the world’s only superpower and the world’s fastest growing power.

Jeffrey Bader is director of the China Initiative, Flynt Leverett is senior fellow at the Saban Center for Middle East Policy, both at the Brookings Institution