URUMQI, CHINA -- Buried deep beneath the scorching desert sands in this harsh northwestern region of China lies what is widely believed to be one of the largest untapped oil fields in the world.

The Tarim Basin, in southern Xinjiang, represents the greatest potential for oil in China, with some estimates of its reserves equaling those of Alaska's oil-rich Prudhoe Bay.

At a time when the threat of a war in the Persian Gulf has revived worldwide fears of the consequences of dependence on Middle East oil, Chinese officials are hoping that Tarim may be the key to the nation's future energy self-sufficiency.

At the same time, foreign oil companies -- which have seen the price of crude oil skyrocket from $16 to nearly $40 a barrel in the past few months -- are also eager to get a piece of the action.

"Xinjiang is a frontier area, considered high-risk exploration," said Ed Chow, Chevron's representative in Beijing. "But it's the number one prospect for oil in China. Outside the Persian Gulf, there are not that many frontier areas left in the world."

China is the largest oil producer in Asia, but its total production accounts for less than 5 percent of world output.

Although China is a net exporter of oil, its domestic production has not kept pace with growing industrial demand in recent years.

Oil fields in eastern China, which now account for between 70 to 80 percent of total output, are maturing and are expected to see a decline in production in the next few years. China currently exports about 20 million tons of crude oil a year. By 1995, China is expected to become a net importer of oil if current conditions hold, analysts said.

"Tarim is absolutely critical to the economy," said David G. Fridley, an expert on oil in China at the East-West Center in Honolulu. "Tarim is their ticket to energy self-sufficiency," he said. Without it, China would need to spend up to 20 percent of its export earnings to import oil by the year 2000, if current trends of consumption and demand continue, he said.

In recent days, leading Communist Party conservatives, including chief government spokesman Yuan Mu, have stressed the importance of national self-reliance. In that context, development of Tarim takes on heightened importance.

China's main energy source is coal. But "you can't run a car on coal, you can't fly a plane on coal, and you can't make packages unless you have petrochemicals, which are most cheaply made from oil," Fridley said.

Chinese officials predict it will be another three years before they can say with certainty how much oil is in the basin, which covers 216,000 square miles, much of it shifting desert sand marked by 550-yard-high dunes. Estimates on Tarim's potential vary, from a high of 18 billion tons of total reserve to a low of 1 billion to 3 billion tons.

With exploratory oil wells in the basin having shown promise, the untapped treasures of the region have become an important priority for China's leadership in recent years, especially after hopes of an offshore oil bonanza in the South China Sea fizzled and foreign companies showed little interest in exploring possible sites in southern China.

Hundreds of millions of dollars have already been invested in developing the Tarim Basin in the last two to three years, and Beijing has indicated that it is prepared to continue pouring money into the project.

In late August, Communist Party chief Jiang Zemin visited Korla, which is the headquarters and main supply base at Tarim, and urged all workers to "develop the Tarim Basin as soon as possible." An estimated 17,000 workers from oil fields around the country have been deployed to work in the basin.

"The central government has paid great attention to this project, so we can easily have money for this development," said Kang Mingzhang, a spokesman for the powerful China National Petroleum Corp.

But the inhospitable environment -- temperatures shoot as high as 120 degrees and the climate is so dry that most animals and plants cannot survive there -- is likely to make development a slow and costly process. There are no roads across the desert, parts of which lie 250 miles from Korla. Special desert drilling equipment is needed.

At a cost of about $825 per foot, or $16 million for a 20,000-foot well, drilling there is almost as expensive as that in offshore wells in the South China Sea, according to some estimates.

The location of the basin in the Xinjiang Autonomous Region, as it is officially called, also raises a sensitive political issue. Despite the desire by some provincial officials for foreign involvement, China, in the self-reliant spirit that allowed it to develop the Daqing oil field on its own, insists on developing the Tarim area without foreign participation except for equipment sales and consulting help.

The reason, according to Kang, is that the economic loss to China could be great if foreign companies were assigned oil rights as part of equity contracts.

"If the discovery in Tarim turns out to be small or medium, then it would not be economical for China to develop it," he said. If foreign companies were involved, he said, they would demand oil in return for the money they invested in the development and that would only add to China's oil burden.

But other analysts said there may be another factor at work. Most of the people who live in Xinjiang are members of ethnic minorities, and relations between them and the ruling Han Chinese have long been uneasy. The conflict flared anew in April with a Moslem-inspired uprising by armed rebels.

"Xinjiang is in a sensitive area," said Chevron's Chow. "It's close to the Soviet border. Do you want a lot of foreigners running around? I'm guessing that is one of the concerns of the central government."