China’s continued economic development at home and its expanding economic footprint abroad is lending added strategic importance to its relations with the Middle East. China is becoming increasingly dependent on oil imports from the Middle East, while the United States is becoming increasingly energy independent due to a surge in domestic energy production and falling energy consumption. In response, the Chinese Communist Party introduced policy initiatives during the Third Plenum in November 2013 to try and shift China away from energy-heavy industries toward environmental conservation. 

In a panel moderated by Andrew Browne of the Wall Street Journal, Leiv Lunde of the Fridtjof Nansen Institute, Pan Guang of the Shanghai Academy of Social Sciences, Jean-Francois Seznec of Georgetown University, and Zha Daojiong of Peking University discussed the effects of China’s evolving energy demands and the changing political and economic dynamics in the Middle East. 

The Future of Energy Cooperation

Panelists agreed that the ongoing political and security uncertainty across the Middle East, coupled with the fact that there are no international organizations that could contribute to international energy cooperation, significantly limit China’s capacity to contribute to energy governance. 

  • Expecting the Unexpected: One panelist emphasized that policymakers should expect the unexpected in the next five to twenty years in terms of future Middle Eastern security, political structures, and energy development. Major political shifts are likely to occur as a result of uprisings in the Middle East. The effects of the shale gas revolution, future climate change policies, and potential developments in energy extraction technology make it difficult to predict energy trends. 
     
  • Missing Energy Cooperation Mechanisms: Chinese companies share a vested interest in stable business environments. One panelist explained that the Chinese are increasingly aware of the need for comprehensive risk analysis and the relationship between political stability and energy security. However, this balance will be difficult to achieve as there is in no independent, overarching international energy cooperation system to assume this responsibility. 
     
  • Thinking Creatively: A Chinese participant argued that Chinese companies have a long way to go with their Middle East operations and need to think more creatively. Companies should diversify the structure of their operations and internationalize their management teams. The panelist added that the set-up of corporate social responsibility projects should incorporate the views of the local population. Chinese companies can improve their communication with NGOs in order to ensure that local interest groups understand their operations. China should also hedge against risk by improving the vertical integration of its energy projects. The panelist noted that allowing private companies to dominate China’s energy industry is not necessarily the best policy since the government plays a crucial role in quality control. Government regulation could be compromised if China’s energy industry is composed of primarily private operations.  

Problems with China’s “March West” Policy

A Chinese panelist outlined two major problems with China’s “March West” policy in regards to energy policy in the Middle East. The policy is designed to counteract potential disruptions to China’s energy supply via the Malacca Strait. 

  •  Environmental Impact: One panelist noted that given Beijing’s recent policy priorities aimed at reducing pollution, China should avoid increasing oil imports from regions west of China via heavily-polluting overland pipelines. Instead, the panelist suggested that importing liquid natural gas would be a more environmentally friendly option. 
     
  • Economic Versus Security Interests: A panelist pointed out that currently China makes investments in energy transport infrastructure in countries located at its western borders based solely on economic considerations. The panelist noted that security concerns in these countries must also be taken into account, as these risks could ultimately outweigh the costs of transporting liquid natural gas via tanks from further locations like Australia or the Malacca Strait. 
     
  •  A Reliable Energy Source: Another panelist said that the Middle East, and particularly the Gulf, will remain China’s main energy source. While China has growing energy interests in Central Asia, Russia, Latin America, Africa, and Australia, the Middle East offers greater stability, reliability, and quality. 

Dispelling Myths About the Energy Industry

  • U.S. Role in the Middle East: One panelist explained that in spite of recent media reports, the United States is far from becoming oil independent. The panelists agreed that the United States is not likely to reduce its political or military presence in the Middle East because of decreasing dependence on oil from the region. Another panelist questioned the accuracy of the recent International Energy Agency report claiming that China had overtaken the United States to become the world’s largest net oil importer, given that Washington still imports ten million barrels of oil per day. Finally, the panelist added that Washington has a long-term interest in freedom of navigation of the region’s waters and will continue to invest in regional security. A panelist concluded that China will continue to benefit from the security provided by U.S. presence in the region. 
     
  • Implications for Global Energy Cooperation: Panelists agreed that there has been a reluctance at the multilateral level to promote dialogue on energy cooperation. But panelists noted that given the growing importance of Asia to the Middle East’s energy market, such dialogue is especially crucial between the United States and Asia, particularly China, India, South Korea, and Japan.