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Middle East Helps Quench China's Thirst for Oil - 2004-09-30

China's rising demand for oil and gas makes Middle East oil producers its natural partners. They provide China with about half its oil imports. But analysts say Beijing is also seeking other suppliers outside the volatile region to help meet its soaring energy needs. Correspondent Laurie Kassman takes a closer look at how China is relying on the Middle East and other regions to satisfy its ever-increasing appetite for oil.

Analysts predict oil exports from the Middle East to the Asian giant could triple by 2010 in order to meet China's steadily rising demand for energy. Saudi Arabia, Iran and Oman are the top three suppliers. Iraq could well become the fourth.

Economist Mohammed Alkacem, of Metropolitan State College of Denver, says Beijing made significant inroads in Iraq when Saddam Hussein was in power and hopes to regain a foothold there as the new government signs reconstruction contracts. China has already pledged about 25 million dollars to support Iraq's rebuilding efforts.

"Prior to the invasion of Iraq, they did have a significant acreage in the Saddam Hussein era, contracts to prospect for oil, along with Elf of France and other companies," Mr. Alkacem said. "So all of that is nullified by the events and the new elected government will have to decide whether they want to revisit the contract or even award it to China."

China had an oil deal and military links with Saddam Hussein, which put it at odds with Washington. But China watchers like David Lampton also say that Beijing did not oppose the U.S.-led war in Iraq, which placed it in a good position once the war ended.

"One reason China acquiesced to the American invasion of Iraq and didn't veto in the U.N. Security Council was because they expected the U.S. to go ahead in any case and the U.S. would be sitting on very large oil reserves to which China has aspirations to have access," Mr. Lampton said. "So I think China has actually minimally cooperated with the U.S. in the Iraq situation, even though it has grave reservations about our policy precisely because they know Iraq is important too. "

But China's ties to another oil supplier in the Middle East, Iran, could place it at odds with the United States and Europe, which are calling for greater scrutiny of Iran's nuclear energy program.

Mr. Lampton, who directs China studies at Johns Hopkins School of Advanced and International Studies in Washington, says China's energy ties to Iran forces it into a delicate diplomatic balancing act.

"China is very much torn in its foreign policy by the desire, on the one hand, to be an increasingly good citizen in the world and to be perceived that way," Mr. Lampton said. "On the other hand, its energy needs are driving it to deal with regimes that are not widely viewed as responsible."

Mr. Lampton says Beijing has other reasons besides oil to maintain good ties with Middle East oil producers. He points to China's Muslim population, which numbers some 19 million.

"Part of the reason they want to improve relations with the Middle East countries isn't just over oil," Mr. Lampton said. "It's to have sufficiently good relations with governments of the Middle East so the governments of the Middle East aren't trying to destabilize China through the vehicle of spreading fundamentalism to China itself."

From the Middle East perspective, China has a lot to offer too.

"You'll find throughout the Middle East and Africa a major export of the Chinese is their labor power and services," Mr. Lampton said. "So that's a big export industry. Also, China is a big producer of low-cost consumer goods."

But analysts predict that instability in the Middle East and potential competition with U.S. oil interests will lead China to rethink its heavy dependence on Middle East oil.

Chinese Embassy spokesman Sun Weide says Beijing is not limiting itself to the Middle East for its oil. It's also seeking other partners all over the world.

"The oil producing countries in the Middle East and Russia have actually been our traditional partners and now we are actually expanding our cooperation with Kazakhstan, Turkmenistan, Sudan, Libya, Indonesia, Burma and Venezuela," Mr. Weide said.

Political analyst Yufan Hao of Colgate University says China's push to diversify is driven by politics as much as commerce.

"China has to consider its commercial interests at the same time it has to think about its political and strategic interests," said Mr. Hao. "I would say obviously China would also like to balance its commercial need of oil and its relationship with the big powers like the U.S."

Most analysts expect the Middle East to remain a substantial source of China's oil imports. But, as China's demand steadily increases, they see Beijing relying on other sources outside the region to fill the gap.