China's Changing Oil Calculus

November 12, 2013 Topic: Economics Region: ChinaNortheast AsiaAsia

China's Changing Oil Calculus

The strategic considerations behind Beijing's "Hydrocarbon Highway."

Last month, China and Russia announced an $85 billion equity deal to jointly develop Russia’s east Siberian oil resources for export to China in an unprecedented agreement between the two countries.

This comes on the heels of Chinese president Xi Jinping’s tour of Central Asia to forge closer trade ties with Kazakhstan, Uzbekistan, Turkmenistan and Kyrgyzstan. Promoting a “New Silk Road” of regional commerce, he spoke illustriously of “camel bells echoing in the mountains” and “wisps of smoke rising in the desert” as in the days of yore.

Although much less romantic, “Hydrocarbon Highway” more aptly describes Xi’s vision. In recent weeks, China has signed nearly $100 billion in energy contracts to increase Chinese access to the abundant petroleum resources of Central Asia. A major advantage of obtaining oil from Siberia and Central Asia is that it could travel to China overland—and thus beyond the reach of U.S. naval power.

Xi’s efforts are not limited to terra firma. He has also pressed for closer military and economic ties with Indonesia and Malaysia, the two countries which sit astride the Strait of Malacca, a crucial maritime “choke point.” Roughly 80 percent of China’s oil imports pass through this waterway, which is just two miles wide at its narrowest passage. By comparison, the oft-threatened Strait of Hormuz, which Iran has periodically promised to close to deny Persian Gulf oil to the global market, is twenty miles wide at its narrowest point.

An American naval blockade, most likely stemming from a conflict over Taiwan, is a nightmare scenario the Chinese regime clearly wishes to avoid. A new report I wrote for the Council on Foreign Relations casts this danger in a new light.

Most observers believe China’s investment reflects the importance of petroleum access for sustaining the nation’s extraordinary economic growth—which according to the World Bank, has averaged 10 percent annual GDP growth over the past twenty-five years. Soaring economic expansion has been accompanied by a doubling of Chinese oil consumption from five to ten million barrels per day over the past decade alone. Access to oil may also play a special role in buttressing the regime. Western experts commonly argue that the primary reason the regime has maintained power despite waning ideological relevance is the palliative effect of prosperity.

No doubt oil plays an important role in the Chinese economy, and by extension, the stability of its political regime. Yet this explanation overlooks a factor that is at least as important as prosperity: the crucial nature of oil for fighting modern wars.

In the past, military fuel shortages had disastrous effects on the battlefield, undermining both Nazi Germany and Imperial Japan’s military efforts in World War II. Today’s conventional wisdom holds that such shortages are no longer a danger, based on the assumption that military oil consumption comprises only a tiny portion of a country’s overall petroleum demand. Nothing could be further from the truth.

I find that Chinese military fuel demand in a conventional conflict would be staggering—large enough, in fact, to strain its overall supplies. According to my estimates, in an air war against Taiwan alone, the People’s Liberation Army Air Force (PLAAF) would guzzle nearly half of China’s indigenous jet fuel production. If a U.S. blockade cutting off oil imports coincided with a war against Taiwan, leaving China to fuel the war from domestic sources alone, China would eventually have to slash civilian aviation consumption by 75 percent to maintain a full military effort.

Such a scenario is not far-fetched. Historically, the majority of blockades have been imposed during ongoing wars. And of the rare peacetime blockades, several were immediate precursors to conflict. Furthermore, it is hard to imagine the United States blockading China for any other reason than to retaliate for an attack on Taiwan. Although a U.S.-China confrontation is unlikely, the possibility of its occurrence nevertheless influences the behavior of political and military leaders, who must prepare for worst-case scenarios.

If Chinese leaders are preparing for the contingency of a U.S. blockade, they are likely also preparing for an overlapping, simultaneous contingency of war with Taiwan. Thus President Xi’s efforts to build a Hydrocarbon Highway in Asia may be motivated as much or more by military readiness imperatives, not just prosperity concerns.

Rosemary A. Kelanic is associate director of the Institute for Security and Conflict Studies and a research instructor in international affairs at the Elliot School of International Affairs, George Washington University.