- The Writer holds an MSc in Eurasian Political Economy & Energy from King’s College London and also an MA in European Studies from Sabancı University.
Oil supply security is playing a larger role in China’s policy decisions to sustain economic growth. Over the past 25 years, China has expanded its energy relations and commercial footprint in the Middle East and has become an important newcomer in regional dynamics. The fall in oil prices since mid-2014 is seen as a boon for China’s economy and has resulted in the halving of the country’s import bill within one year. However, the heightened instability and lack of security in the Middle East remains a constant concern for Chinese rulers.
With an annual GDP growth rate of 10 percent for over a decade, China’s energy demand, particularly for oil, has changed dramatically accounting for 60 percent of global energy demand growth from 2003 to 2013. While China consumed 6.4 million barrels a day in 2004, its daily oil demand surged to 10.4 million b/d in 2014 and reached 11.67 million b/d in July 2017.
In May 2014, President of China Xi Jinping used the phrase “new normal” to describe China’s new economic growth model. Within the framework of the “new normal”, Xi called for an energy revolution to reduce China’s over-dependence on fossil fuels for sustainable economic growth. This model aimed at bringing slower aggregate growth over the long term with comprehensive reforms to continue to promote economic development. Nonetheless, BP’s Energy Outlook 2017 for China predicts that the country’s oil dependence will rise from the current rate of 61 percent to 79 percent in 2035. In the report, it has foreseen that by 2035, China’s global share of oil consumption will increase from 18 percent to 20 percent, surpassing the U.S.’ share to become the world’s largest consumer.
To meet this new program’s commitment to reduce overall dependence on oil consumption, China’s demand for crude could grow at a slower pace but, nevertheless, demand for oil will continue to grow before it reaches its peak volume in the coming decades. Therefore, Middle Eastern producers will meet China’s large crude demand share both in the short to medium-term, and this inevitably will lead to greater engagement in the region.
Seeking out markets for uninterrupted oil flow for sustained economic growth is of utmost importance to China’s policymakers. Given the vast reserves of oil that Middle Eastern producers hold, the region has become a magnet for major suppliers to China. Shifts in geopolitical energy dynamics have not only prompted China’s rulers to increase their presence in the region but also Gulf producers progressively seek to capitalize on China’s increasing global power.
As China’s reliance on oil increases, the prior distant and passive role that Beijing played in the region has also changed over time. Other than securing oil for its needs, China has multiple reasons to enhance its position in the Middle East ranging from increased trade to arms transfer to geopolitical benefits and other monetary advantages. Although China holds one of the largest oil reserves in Asia, domestic production has not been sufficient to meet the upsurge in demand and therefore, approximately two-thirds of China’s oil supply has come from the Middle East, including Saudi Arabia, Iran and Iraq.
Ties between Saudi Arabia and China further strengthened since 2001, after the 9/11 attack. With Saudi Arabia’s desire to diversify its global alliances, trade between the parties increased tenfold from 2002 to 2012, reaching US$74 billion. The confluence of interests between the governments gave rise to ever-stronger bilateral relations to such an extent that cooperation was extended to China’s involvement in Saudi’s infrastructure market. Considering that Saudi Arabia has been a top crude supplier to China over the last decade with over a million barrels per day, Saudi Aramco’s participation in a joint venture in China to process Saudi crude in the Fujian Province signals that the relationship will continue to evolve to an even stronger partnership over the long term.
Oil supplies from Iraq and Iran have also increased over the past decade. Despite Chinese oil companies’ reluctance to invest in upstream projects in the region, with the encouragement of state institutions, the number of contracts signed in Iraq and Iran to develop large oil fields has increased.
The National Petroleum Corporation of China (CNPC) has become one of the largest upstream investors in the postwar oil industry in Iraq. Chinese oil companies own over 20 percent of Iraq’s current upstream sector. In 2013, China and Iraq signed a contract to double the export of crude oil.
China has also been taking on a larger role in Iran’s upstream sector in recent years while Iran was the fourth largest oil supplier for China over the last decade. Despite the reduction in China’s crude imports in recent years due to sanctions on Iran, both CNPC and Chinese oil and gas company, Sinopec, have invested in the upstream sector in Iran. While China imported 555 thousand b/d in 2011, in 2013, imports overall dropped to 400 thousand b/d, as a sign of China’s commitment to the United Nations-mandated sanctions against Iran.
As China’s commercial and diplomatic engagements with the Middle East deepened, policy makers started to consider China’s increasing oil dependence as a vulnerability. With the help of China’s increasing technological, managerial and financial capacities, Beijing has been pursuing a more active foreign policy in the Middle East and is seeking to increase its influence over the Middle Eastern oil market. As a result, the geopolitical environment the region has increasingly become of interest to China’s rulers. This, in turn, pushed policymakers to further strengthen China’s presence in the region to keep political and security complexities at arm’s length.
- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy.