China Races to Secure Middle East Oil Deals

27 May 2010 - Newsweek

China is racing to secure Middle East oil deals, putting it on a possible collision course with U.S. interests in the world's most volatile region. China is now the biggest importer of Saudi oil, the second-biggest of Iranian oil, and the largest player in the Iraqi oil game. China is "being very aggressive," says Jon Alterman, director of the Middle East program at the Center for Strategic and International Studies. "They're putting a lot of money on the bet that having ownership of oil fields is a better guarantee of supply than buying oil on the open market."

Beijing is betting big in Iraq, which many Western companies are avoiding. In November, the Chinese National Petroleum Co. (CNPC) won a large stake in a $15billion deal to develop the Rumaila oil field in southern Iraq, thought to be the second largest in the world. That followed a $3billion deal to develop the Ahdab oil field in 2008. And two other Chinese firms just closed a deal on a large oil field in eastern Iraq. Chinese companies have also shown much greater willingness to take on risk by placing their own nationals in war zones: CNPC has an office in Baghdad partly led by Chinese nationals.

China is also ramping up its ties to Iran as many Western firms pull out. Last summer, China signed $8billion in oil and gas deals with Tehran. It's also increased sales of gasoline to Iran, which has a lot of oil but few working refineries or stable gas suppliers. In fact, China is now Iran's biggest economic partner, with more than $21 billion in annual trade.

China is moving to protect its new oil ties in the Middle East, presenting a challenge to the West. China is reluctant to follow the U.S. line on Iran sanctions because of its oil interests. The two Chinese warships that docked in Abu Dhabi in March also sent a blunt message: China is willing to back up its interests with firepower. For their part, U.S. officials have tried to reassure Beijing that it can meet growing energy needs without dealing with Tehran and have pressured Saudi Arabia to give China oil guarantees to wean it off Iranian oil. Still, there will likely be plenty of other disagreements ahead as China increases its Middle East footprint. "Bilateral quarrels and clashes are unavoidable," Sun Bigan, China's former Middle East envoy, wrote in an essay in a Chinese academic journal last fall. "We cannot lower vigilance against hostility in the Middle East over energy interests and security."

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