China and India are largely responsible for the world’s skyrocketing oil prices. Their dazzling economic growth is increasing their consumption of fossil fuels considerably. The two countries are to be found on all the fronts of the new wars over black gold. Analysis.

The past three years were marked by a steady rise in commodity prices, especially those of fossil fuels. The barrel of Brent ? appreciated 40% between September 2004 and September 2006, when it was selling for US$65. The tensions surrounding these prices are maintained by several factors, such as the chaotic situation in the Middle East, political instability in Venezuela and Nigeria, under-investment in refining capacity, and even speculative anticipation. However, this oil crisis in the making is explained above all by China and India’s economic development. These two countries are responsible for more than a third of the increase in global consumption since 2000. Today, China and India, which are respectively the world’s second and sixth leading oil consuming countries, are in worrisome situations, because their dependence on oil imports continues to strengthen. China has been importing oil since 1993 and the share of its purchases abroad in total consumption has risen from 30% in 2000 to 50% today. The situation in India is just as worrying. Although this country continues to be very poor (its total fleet of automobiles is only one third of China’s), 70% of the oil that is used there comes from abroad. When it comes to the ranking of world oil importers, China comes third, after the United States and Japan, while India is already 9th in the list. This thirst for black gold, like the war in Iraq and instability in Saudi Arabia, have prompted both Beijing and New Delhi to embark on a strategy of diversifying their oil supply sources in Central Asia, Africa, and Latin America.

Focus on Central Asia
The Central Asian Republics’ hydrocarbon resources have interested the major powers since the collapse of the Soviet Union in the early 1990s. China forged the closest ties with Kazakhstan. In less than a decade the Chinese oil companies have achieved significant results. In June 1997 the China National Petroleum Company (CNPC1) obtained the operating rights to several oil fields in Aktyubinsk (in the northwest of Kazakhstan). More recently, the last segment of a huge, more than 3,000 km long pipeline carrying Caspian Sea oil from Aytrau to Alashanku in Xinjiang Province went into service.
Oil-based relations with Russia have been marked by many ups and downs. At first glance, the geographical proximity of Russia (the world’s second leading oil exporter) and China should enable them to get along. Yet Moscow is not hiding its reluctance to enter into an oil partnership with its huge neighbour, and the contracts that were signed when Vladimir Putin visited Beijing in March 2006 fall short of China’s expectations. Russia fears China’s ultimate power and sees in Japan a more reliable customer. These considerations explain Moscow’s many changes of heart in the 2,400 pipeline construction project to link Angarsk (in Siberia) to Daqing in China. India’s presence in Central Asia remains limited. The conflict situation with Pakistan requires New Delhi to be somewhat cautious in co-operating with Muslim countries, which are objective allies of Islamabad. The projects to pipe oil and gas from Turkmenistan to India thus continue to hang on an improvement in the political situation in Afghanistan, which any pipeline would have to cross.

The African card
Beijing and New Delhi have gradually begun to set their sights on Africa and Latin America. The African continent, which has 9.4% of the world’s oil reserves and thus a potential comparable to that of Iraq, currently accounts for 11.4% of global oil production2. China and India alike started their oil investments in states on the fringes of the international community, such as Sudan, Libya, and Angola, in the late 1990s. CNPC has joined with the Indian company ONGC (Oil and Natural Gas Corporation) in a consortium, the Greater Nile Petroleum Operating Company (GNOPC), in order to work the El Muglad hydrocarbon deposits in southern Sudan. These investments have enabled Sudan to double its output over the past five years.
The second approach being taken by the Chinese and Indian companies is to conduct geological explorations in less coveted areas. Even though the results so far have been mixed, neither Beijing nor New Delhi is leaving any potential suppliers unturned. SINOPEC has thus been prospecting in Niger and Mauritania, but also in Mali, where some deposits that were identified but had remained untouched are becoming profitable with the rising oil prices. India, for its part, is multiplying its prospecting activity, especially in the East and Central African countries with which it has close economic ties thanks to the presence of large Indian minorities. In March 2006, ONGC got the right to conduct geological explorations in Mauritius Island’s exclusive economic area. More recently, the Indian companies have also invested in Côte d’Ivoire, Gabon, Guinea-Bissau, and Ghana. The African continent (basically Angola and Sudan) currently account for 30% of China’s and 20% of India’s oil imports.

Alliance with Hugo Chavez
Latin America, with 9.7% of the world’s oil reserves, has also attracted Beijing and New Delhi’s roving eyes. For the moment, China’s presence in the Latin American hydrocarbons sector remains limited. It is the third buyer of Latin American oil, but is still far behind the United States 3. Beijing has close ties with Venezuela, which is a leading player in the oil world with 6.6% of the world’s oil reserves (this puts it in 6th place).
President Chavez signed several economic and trade co-operation agreements with Hu Jintao during his official visits to Beijing in December 2004 and again in August 2006. The volume of Venezuela’s oil exports to China is continuing to rise. In the second half of 2006 about 5% of Beijing’s oil imports came from Venezuela. While Venezuela is a kingpin in China’s oil strategy, China has not been neglecting Latin America’s other, smaller oil producers, such as Ecuador and Peru. India’s presence in Latin America remains more measured, even though its trade flows are clearly rising. ONGC has mainly concentrated its efforts in Venezuela and Cuba. Hugo Chavez’s visit to New Delhi in March 2005 was an opportunity to sign several contracts. In Cuba, ONGC joined forces with the Spanish company Repsol YPF and Norsk Hydro of Norway in September 2005 to develop the island’s offshore deposits.

Oil for diplomatic support
Both China and India are conducting true oil strategies. Beijing is proposing to build roads, railway lines, and navigation infrastructure in Africa at preferential prices in exchange for long-term oil contracts. In Angola, for example, China is going to build several thousand dwellings in Luanda and renovate the CFB (Chemin de Fer de Benguela) railway line linking Benguela and Luau to the border of the Democratic Republic of Congo.
Beijing can also offer invaluable diplomatic support to its hydrocarbon suppliers. Relations between China and Sudan attest to this. Over the past two years Beijing threatened a number of times to use its right of veto on the UN Security Council to oppose political and “oil” sanctions against Sudan in connection with the conflict in Darfur. These threats forced the Security Council to water down the texts of its proposed resolutions. Many African capitals see in China a less demanding protector than the West, for Beijing takes care not to challenge the natures of their political regimes.
India, which has neither the financial nor diplomatic means of China, aims to promote a true partnership with the African and Latin American countries. New Delhi is encouraging technology transfers, whereas China is often seen as a predator, interested solely in extracting commodities. Indian pharmaceutical concerns such as Ranbaxy are Africa’s leading suppliers of generic drugs – a market that Western laboratories have neglected as offering little profit. The Tata group, for its part, has subsidiaries throughout the region, including a vehicle assembly plant in Zambia.
This conquest of energy has military and diplomatic implications as well. Beijing has also established (and will probably step up) military relations (which translate into equipment deliveries) with Angola, Venezuela, and Cuba – its main oil suppliers. Hugo Chavez has China’s support for his bid for a non-permanent seat on the UN’s Security Council. China’s influence in Latin America is now being denounced as a genuine threat for Washington4. China’s presence in the area offers a counterweight to the United States’ influence there and bolsters desires for emancipation and defiance towards Washington, as occurred during the Mar el Plata summit in Argentina in November 2005, where George Bush’s Americas Free Trade Area proposal was rejected. This oil rivalry is also bolstering autocratic regimes such as that of Idriss Deby in Chad, who has got a new lease on life thanks to the diplomatic relations he established with the PRC last August. The United States, which is also keen to reduce their energy dependency on the Middle East, is starting to take umbrage at Beijing’s and New Delhi’s oil diplomacy. According to the Cheney report5, Washington wants to increase the share of its oil imports from the Golf of Guinea from 15 to 25% between now and 2015 – an ambition that could well be thwarted.
Africa, Latin America, and Central Asia are the theatres of a true struggle for influence amongst the United States, India, and China, which will probably be the three main economic powers in the middle of the 21st century. This energy competition has major repercussions on the entire world. Far from boosting development, the oil economy effectively often fuels corruption, pumps up border disputes in oil-rich areas, and exacerbates dependence on raw materials6. The European Union is not keen to take part in this confrontation. Instead, it prefers to launch an energy partnership with Russia, which already provides a third of its oil imports.

Note

Name of a North Sea oil deposit discovered in 1971. Brent crude oil is the global standardfor crude oil. Its price determines the price of 60% of the oil pumped in the world. (Source: Wikipedia)