Big Shift in China's Oil Policy

China's thirst for petroleum is increasing, prompting the nation to make deals such as Cnooc Ltd.'s proposed purchase of Unocal Corp. Above, traffic clogs a major thoroughfare in Beijing.
China's thirst for petroleum is increasing, prompting the nation to make deals such as Cnooc Ltd.'s proposed purchase of Unocal Corp. Above, traffic clogs a major thoroughfare in Beijing. (By Claro Cortes Iv -- Reuters)
By Peter S. Goodman
Washington Post Foreign Service
Wednesday, July 13, 2005

SHANGHAI -- Until recently, China's view of the global energy map focused narrowly on the Middle East, which holds roughly two-thirds of the world's oil. Special attention was directed toward one well-supplied country: Iraq.

Through cultivation of Saddam Hussein's government, China sought to develop some of Iraq's more promising reserves. Beijing advocated lifting the United Nations sanctions that prevented investment in Iraq's oil patch and limited sales of its production.

Then the United States went to war in Iraq in 2003, wiping out China's stakes. The war and its aftermath have reshaped China's basic conception of the geopolitics of oil and added urgency to its mission to lessen dependence on Middle East supplies. It has reinforced China's fears that it is locked in a zero-sum contest for energy with the world's lone superpower, prompting Beijing to intensify its search for new sources, international relations and energy experts say.

As a vocal camp in Congress recoils at the prospect of a Chinese state-owned company, Cnooc Ltd., taking control of the California-based Unocal Corp., the Bush administration's decision to wage the war in Iraq stands out as a crucial factor in explaining how China came to scour the earth for energy and why the effort is likely to remain central to U.S.-Chinese relations for some time, those analysts say.

"Iraq changed the government's thinking," said Pan Rui, an international relations expert at Fudan University in Shanghai. "The Middle East is China's largest source of oil. America is now pursuing a grand strategy, the pursuit of American hegemony in the Middle East. Saudi Arabia is the number one oil producer, and Iraq is number two [in terms of reserves]. Now, the United States has direct influence in both countries."

Many other factors help explain China's motives in dispatching its energy companies abroad for new stocks. Oil demand is exploding in China as people embrace automobiles and as factories, apartment towers and office buildings proliferate. For the third summer in a row, China is rationing energy, limiting production in industrial areas.

In little more than a decade, China has changed from a net exporter of oil into the world's second-largest importer, trailing only the United States.

Concern is mounting about future prospects for China's domestic oil production, which supplies about two-thirds of the country's crude oil needs. China's government estimates that it will need 600 million tons of crude oil a year by 2020, more than triple its expected output. Worldwide, the best oil fields are already claimed.

For the United States, Europe and Japan, the oil shocks of the 1970s supplied the lessons that have shaped their thinking about energy. China is a latecomer to the vagaries of the global energy business. It is grappling with how to manage dramatic growth and soaring demand for energy at the same time it confronts the implications of interventionist U.S. foreign policy.

"Many people argue that oil interests are the driving force behind the Iraq war," said Zhu Feng, a security expert at Beijing University. "For China, it has been a reminder and a warning about how geopolitical changes can affect its own energy interests. So China has decided to focus much more intently to address its security."

Throughout China's modern history, and particularly under Communist Party rule, the country's leaders have sought self-sufficiency -- a drive fueled by nationalist pride and the experience of colonialism, which fed notions that the outside world wants to prevent China's rise as a great power.

Under the rule of Mao Zedong, China -- under the banner of fending for itself -- focused on oil production in its northeast, near the city of Daqing. The government's current push to secure foreign oil fields is driven by worries that there may one day be too little oil to meet worldwide demand and that foreign powers -- in particular the United States -- will choke China.

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