CHINA overtook the United States as the world's top oil importer – at least for one month. Last December, US net imports averaged 5.987 million barrels a day while Chinese net imports averaged 5.994 million barrels per day. Is this just a blip on the chart or a harbinger of things to come? Citigroup Inc. oil analyst Eric Lee although admits that the figures are only for one month, and December is traditionally a lower-demand month in the United States, his take is that it won't be long before China takes the title as the world's largest net importer of crude and petroleum products. “What it shows is it's on the cusp of happening. We could see in the next few months that the US goes back to the No. 1 spot. But really, this crossover should be happening this year. This is a harbinger of things to come.” China's rapidly growing economy accounted for a third of global oil demand growth in 2012, and with efficiency measures and slow economic growth expected to weigh further on demand in the industrialized world that is unlikely to be a one-off. Saudi Aramco CEO Khalid Al-Falih has been admitting for some time now that this is a long-term transition. “Demographic and economic trends are making it clear — the writing is on the wall. China is the growth market for petroleum,” he underlines. And it is no surprise hence that today China is the focus of attention of the regional crude producers. When Saudi-Sino diplomatic ties were re-established in 1990, bilateral trade stood at a mere $296 million, with energy playing no visible role. Today the scenario has changed altogether. Energy is now at the heart of the relationship, with about a third of China's crude imports coming from Saudi Arabia (more than 1 million barrels of oil per day or nearly a fifth of China's total net import of oil). According to a 2009 agreement between Aramco and Sinopec, this figure is poised to reach 1.5 million barrels by 2014, effectively making China, Saudi Arabia's most important energy customer for the near future. In the meantime, Iraq is also seeking to bolster its ties with China in the field of oil industry. China's moving in to lay claim to much of Iraq's known oil reserves of 143.1 billion barrels, which it needs to feed a burgeoning economy. "Chinese companies are strategic partners to Iraq in aspects of extracting and marketing crude oil through their active participation in developing the Iraqi oilfields," the state-run Iraqia channel quoted Iraqi Oil Minister Abdul-Kareem al- Luaybi as saying. "China is one of the major oil customers for Iraq as it imports more than 500,000 barrels per day (bpd) from Iraq," he added. Iraq has signed several oil deals with Chinese companies. Already, PetroChina, China National Petroleum Corp. and China National Offshore Oil Corp. are either partners or operators in several major Iraqi oil fields. Observers say that nearly a third of the future oil production in Iraq is expected to come from fields that were either directly owned or co-led by Chinese companies in several major Iraqi oil fields. In 2009, China National Petroleum Corporation (CNPC) and BP entered into a 20-year service contract with Iraq's State Oil Marketing Company to develop the prized Rumaila oil field. Reports in China's state press pointed out that the daily output from Rumaila, currently the world's fourth-largest oilfield, was 1.03 million barrels a day and rising. Many now insist that China will soon be drilling a third of Iraq's oil. And interestingly on the other hand, 10 years after the invasion of Baghdad, major American oil companies appear absent, staying away from investing in Iraq's oil resources. A few months back, the International Energy Agency reported that by 2020, 80 percent of Iraq's oil will be going to Asia, including 1.5 million barrels per day to China, rising to nearly 2 million bpd by 2035. That will be about one-quarter of Iraq's expected output. "There's a new trade axis being formed between Baghdad and Beijing ... the B&B link," underlines Fatih Birol, IEA's chief economist. "In effect, China will be replicating in Iraq what it's done in several African nations," most prominently in Angola, the Democratic Republic of Congo and South Sudan. "The 'B&B' oil link would not only be the key for the oil market but could also force a bigger political and military involvement of China in Iraq and the broader Middle East." Analysts say state-owned Chinese companies are less likely than profit-driven Western companies to be put off by the low fees and low returns that are standard fare in Iraqi production contracts. "For them, the key is access to Iraq's hydrocarbon resources and the off-take deals that allow them to export crude," the Financial Times observed. "The Chinese have a higher tolerance for risk," says Gal Luft of the Institute for the Analysis of Global Security in Washington. And all this has political connotations too. In fact, it was the crude glue that bonded Washington to Riyadh together, signifying the special relationship between the two countries. But now with Washington no more that dependent on Middle Eastern oil, as it was until a few years back, would it continue to extend its security umbrella to this oil-rich region? And then there is another aspect of this question that the diplomatic community in Riyadh is buzzing with: would Beijing be ready and indeed capable of replacing Washington to meet the regional security concerns? Billion dollar questions indeed! Indeed Beijing is no Washington – one has to concede. The emerging relationship between Saudi Arabia and China is strategically significant - one can't really deny it - but basically it is a business relationship. To satiate its galloping energy needs and to ensure the continued growth of its economy, China needs oil from this region. And the regional producers are targeting this growing market. A win-win situation indeed! Security is apparently not a domain of this emerging, budding, bubbling and strategically very important relationship. But is this a real issue? Isn't that a blessing in disguise? After all, for last many decades, this energy-rich region has been receiving “unwanted and unsolicited” attention from friends in Washington and elsewhere. Had there been no oil here, the geopolitical story would have been totally different. For a change now, let this energy-rich region live free of this unwanted attention. After all, what's wrong with it? Let's give it a try!
