U.S., China Race for Mideast Oil


Headlines about soaring gas prices are increasingly common across America. This is reality—and it may not improve anytime soon.

According to Alan Gaines, chief executive officer of Houston-based Dune Energy and a former top energy analyst, Americans could easily see $5 a gallon gas this summer. Gaines correctly predicted the rise in gas from under $3 to $4 several months before it occurred.

Several factors could produce $90- to $100-per-barrel oil, he says—up from the current $70 price. But perhaps the most significant factor is increasing demand from Asia—primarily China.

In February, China’s net oil imports soared 28 percent over the previous month. In March, Chinese crude oil imports were up a comparatively smaller but still huge 10.9 percent year over year. China has become the world’s second-largest oil consumer after the United States. Its increasing appetite for oil has ignited a global resource race with America to secure sources of supply, and this is causing tension between the two.

As Asian demand for oil has increased, Middle Eastern reliance on American oil consumption has fallen. Consequently, U.S. influence within the Middle East, Saudi Arabia in particular, is eroding. If these trends continue, America will reach the point where it needs Middle Eastern oil more than the Middle East needs U.S. money.

Perhaps nothing illustrates the growing tensions over oil between China and America better than the less-than-open-armed reception Chinese President Hu Jintao was given on his April visit to Washington. In contrast, President Hu’s visits the same month to Saudi Arabia (China’s second-largest supplier of crude oil) and Nigeria (the top African oil producer) underscored China’s increasing demand for oil and its growing relationships with oil-exporting countries. Also, Saudi Arabia’s tense attitude toward the United States was clear.

In a speech before Saudi Arabia’s legislature on April 23, President Hu—only the second foreign leader ever invited to address the Saudi assembly—pledged to help stabilize the Middle East, saying that “China is ready to work with Saudi Arabia and other Arab countries to support peace and growth in the Middle East and build a harmonious world that enjoys constant peace and prosperity.”

Hu’s remarks were seen as a “direct challenge” to the U.S. (Times Online, April 24).

China and Saudi Arabia have found the basis for a friendship in their shared disdain for Western meddling in their internal affairs. China resents American criticism over its human rights record; for Saudi Arabia, both human rights and Islamism issues are cooling its relationship with the U.S.

After his trip to Saudi Arabia, Hu was welcomed to Nigeria by President Olusegun Obasanjo. An example of this developing relationship is the Chinese state-controlled oil company cnooc’s $2.3 billion investment to develop a Nigerian off-shore oil field, announced in January. cnooc is the same company the U.S. government blocked from purchasing U.S.-based oil company Unocal last year.

In stark contrast to the Chinese president’s warm reception in both Saudi Arabia and Nigeria, Hu’s latest visit to America was characterized by a snub and a series of blunders. The Seattle Times reported that the “protocol-obsessed Chinese leader suffered a day full of indignities—some intentional, others just careless” (April 24).

America’s snubs of the Chinese president are surprising given the fact that China is the second-largest foreign holder of U.S. debt and has been one of America’s largest financiers in recent years.

Why the huge contrast between how China was received by the U.S. and the warm receptions Saudi Arabia and Nigeria gave? The answer is largely that China’s rapid growth has put it in direct competition with the U.S. for many resources—including oil. Additionally, many Middle East oil producing countries are dominated by Muslim populations that increasingly see the U.S. as the enemy, and who thus seek allies elsewhere. China, which desperately needs oil and conveniently is a UN Security Council veto holder, makes an ideal partner for these nations.

As these types of relationships develop, America will probably continue to lose influence in the oil-rich Middle East and resource-rich Africa.

What does this mean for Americans? It means that as China continues to secure oil supplies, oil prices will probably keep going up.

And that doesn’t just mean higher gas prices. Less than half of each barrel of oil imported into the U.S. is used for gasoline. In the form of petrochemicals, oil is a key ingredient in thousands of other products. Everything from radios and shampoo bottles to soft contact lenses and garbage bags are made with oil, in the form of plastics.

The modern world in its work and leisure relies very heavily on oil. As the saying goes, oil makes the “world go round.” As the price of oil goes up, the grease that keeps the world spinning starts to cost more—and so will all the things that are manufactured from it.

Higher oil prices could cause inflation and rising consumer prices—not a good thing for the U.S. economy, which has become so dependent on consumer spending.