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China’s Worst Nightmare: The US Oil Weapon – OpEd

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China’s island building on the four-mile-long and two-mile-wide Subi Reef in the South China Sea has put the US in a tight spot. To protect its ally from China’s aggression, there are some who are concerned the US will be left with little choice but to constrain China by military means.

However, the US won’t directly engage China in any war in the foreseeable future, because the US dominates China with its superior naval and air force and the only way for China to level the playing field would be to apply nuclear weapons. Indeed, the nuclear nature of Sino-American warfare would be disastrous for both.

On that backdrop, there is, however, a possibility that the US could use its oil weapon instead to strike at the core of China’s weakness — it’s huge dependence on oil imports.

Currently, China imports 55% of its oil, almost half of which sails from countries in the Persian Gulf, and which accounts for 5.3 million barrels per day and is around 75% of Saudi Arabia’s production.

As a matter of fact, China’s reliance on Middle Eastern oil has gradually grown in line with its rapidly-increasing demand for oil. Right now, China has achieved the equivalent of the peak of US oil import dependence and it is not slowing down. The single largest source of China’s crude oil imports is Saudi Arabia.

China’s state oil reserves of 475,900,000 barrels (75,660,000 m3) plus the enterprise oil reserves of 209,440,000 barrels (33,298,000 m3) will only provide around 90 days of consumption or a total of 684,340,000 barrels (108,801,000 m3).

Meanwhile, the US is inching towards energy independence. With the technological breakthroughs of shale gas and tight oil, the US has started an energy revolution: US crude oil production has increased by 50% since 2008. With that increase, as well as more efficient cars, oil imports have come down from their high of 60% in 2005 to 35% today—as low as in 1973. With domestic production and gasoline mileage still increasing, imports will continue to decrease. It’s also impressive that US natural gas production has increased by nearly 33% since 2005, and shale gas has gone from 2% of output in 2000 to 44% today.

As of 2013, the United States is the world’s second largest producer of crude oil, after Saudi Arabia, and second largest exporter of refined products, after Russia.

According to BP Plc’s Statistical Review of World Energy, the US has surpassed Russia as the biggest oil and natural-gas producer in 2014. While looking at total energy, the US was over 70% self-sufficient in 2008. In May 2011, the US became a net exporter of refined petroleum products.

With this newly acquired oil might, the US could trick Iran to block the Strait of Hormuz without any economic damage for the US, but which would strike a severe blow to China’s fragile economy.

Under such a scenario, the US Congress could reject the Iran nuclear deal and the US could give the nod to an Israeli air strike against Tehran’s nuclear facilities.

If such were to happen, Iran would retaliate by blocking the Strait of Hormuz. The Strait is the only sea passage from the Persian Gulf to the open ocean, which if it were blocked would cause China to scramble to meet its oil demands. Additionally, in China inflation would skyrocket, the yuan would plummet, and an economic meltdown would commence.

Under such a scenario, China would be forced to succumb to the might of the US’ oil weapon to save itself from a political, economic and social collapse. Such an oil weapon would achieve what the military couldn’t achieve, and at a less cost. This indeed is a scenario that China should be seriously concerned about.

*Zhang TingBing, Chief Strategist, Zhonghua Yuan Institute



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5 thoughts on “China’s Worst Nightmare: The US Oil Weapon – OpEd

  • Avatar
    September 6, 2015 at 5:36 pm
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    Intelligent & suprrb analysis

    Reply
    • Avatar
      September 7, 2015 at 2:11 am
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      Loud thinking !

      Reply
    • Avatar
      September 7, 2015 at 8:01 am
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      The US is not sleeping at all with its dominance and the plan for the world’s future global-economic-equivalance envisioned by Pres. Ronaid Reagan in early 80’s.

      Reply
  • Avatar
    September 7, 2015 at 2:35 pm
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    I am curious to know how the recent $400 Billion oil deal with Russia would impact such a scenario. Would Russia and China put that deal on steroids thus neutralizing such an effort ? Additionally if the Saudis are our allies why would we put their oil exports which constitute 90% of their GDP in jeopardy ultimately causing a Saudi financial disaster ? And lastly we certainly do not need to get involved in an ever escalating war between Israel and Iran . I believe this time it would not be over with just a couple of nuclear power plants blown to bits. I do not know the answer to the Middle East problem apart from the religious one which seems to be the root of it all but i’m thinking the more we abstain from getting in their business the better off I believe we are though I do agree the genie is already out of the bottle.

    Reply
  • Avatar
    September 8, 2015 at 12:05 am
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    The scenario is fascinating, but doubtful. First, in the case of a major external crisis a vigorous government can perform drastic economic measures with broad social agreement. For example, Russia curtailed imports by 50% after the recent collapse of oil prices without chaos and collapse. Nearly a quarter of Chinese imports come from Russia and Kazakhstan, and I would assume that as they expect China to help in their time of trouble, they would maintain the supplies. The rest would come from “open market”, but perhaps quite a bit is also cover by longer term contracts. That means that China can weather at least six month of such a crisis. However, West Europe and Japan, who are American allies, would be less lucky, while Russia would of course gain, quite enormously at that.

    At that point it does not look like a strategic win, Americans view Russia as the main adversary. Worst of all, there could be a huge diplomatic blowback against Israel, and USA. Iran has to trade with someone after the crisis so it would accept a mediated solution, perhaps requiring reparations and trade sanctions on Israel as long as the reparations are not paid. At the end of the day, Israel and USA would be huge diplomatic and trade loosers, and China would have a major influence in ending the crisis sooner rather than later.

    It is not like China can simply assume that such a crisis would not happen, but she has sufficient reserves and policy option to cope with it and perhaps even gain in the long run.

    Reply

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