A research paper by Zha Daojiong and Michal Meidan of Chatham House's Asia Program dated October 2015 finds (Executive Summary) -
- The fall in global oil prices, due to rising supplies and slowing demand, since mid-2014 has been an economic boon for China. The import bill for the world’s largest buyer of crude oil has more than halved in the space of a year. At the same time, with slowing domestic growth in oil demand, Beijing has been able to buy more oil at lower prices in order to boost its strategic petroleum reserves.
- In light of the United States’ reduced need for oil imports, thanks to the ‘tight oil’ revolution, more West African and Latin American producers are competing with China’s traditional Middle Eastern suppliers for market
share. Even within the Gulf, Saudi Arabia’s dominance as a supplier to the Chinese market is being challenged by Iraq and Iran, which are gradually boosting their output.
- China’s decision-makers still view the country’s high dependency on imported oil as a source of vulnerability. Instability in the Gulf, which supplies half of China’s imports, is a constant concern for Beijing. At the same time, the United States’ declining need for Middle Eastern oil raises questions about Washington’s broader involvement in the region and its willingness to stabilize oil production there.
- These shifting energy and geopolitical dynamics are prompting decision-makers in China to review their country’s involvement in the Middle East. Increasing oil imports, combined with Beijing’s ambitious foreign policy designs, are paving the way for a deeper commercial and diplomatic engagement. Gulf producers are also increasingly looking eastwards to expand their exports, as they seek to capitalize in particular on China’s economic and geopolitical rise.
- While China will continue to expand its commercial footprint in the Middle East, its appetite for a deeper security engagement remains limited. Contrary to many depictions of China’s nascent relations with the Middle East, Beijing has maintained ties with the region dating back to the Maoist years. Beijing is therefore aware of the political and security complexities of the region, and will want to keep such issues at arm’s length.
Nevertheless, as China is poised to become the world's largest economy in the not distant future with an energy-hungry urbanized middle-class, her demand for oil and gas imports is likely to redouble, her impressive green energy progress notwithstanding.
As the research paper shows, the world's gas and oil producers from the Middle East, Russia, Latin America and Africa are tilting towards China as the global customer par excellence.
The collapse of energy prices worldwide and growing production capacities in such countries as Iran and Iraq, not to mention the United States' "shale revolution", has placed further leverage in China's hands, which enhances China's influence in the Middle East (and indeed in other major oil exporting countries) without having to put "boots on the ground".
