Thursday, December 08, 2005

Oil Diplomacy or Mere Hyperbole: Is India In For Another Disappointment?

China is aggressively working to satisfy its energy requirements for the future. Just a few months back in a daring move, one of China’s largest state-controlled oil companies, the China National Offshore Corporation (CNOOC), made a $18.5 billion unsolicited bid for the American oil company Unocal. Though the bid ultimately failed, it created panic in the US political circles as the offer by CNOOC was viewed as the latest symbol of China’s growing economic prowess and of the soaring ambitions of its corporate giants, especially when it comes to the energy resources it needs desperately to continue feeding its rapid growth. China is actively seeking to loosen the grip of the US on world energy resources and secure the fuel it needs to keep its economy in overdrive. Energy deal-making, from Iran and Sudan to the shores of the Caspian Sea, has been the center-piece of China’s foreign policy for the last few years. Chinese President, Hu Jintao, has traveled to Latin America, Southeast Asia, and Africa on missions focused largely on securing energy supplies that will not pass through American or European companies before reaching China.

Last year China passed Japan to become the world’s second-largest importer of oil, after the United States. Its booming but grossly inefficient economy consumes three times as much energy per dollar of output than the world average. Beijing has grown increasingly wary of depending heavily on imports when it companies do not control major reserves abroad and its navy does not patrol the sea lanes through which these supplies must pass to reach China’s ports. China’s foreign policy is being transformed by its energy needs and a major competition with the US for resources is in the offing.

Recent Indian attempts notwithstanding, China has clearly left India far behind in so far as its international diplomacy in the energy realm is concerned. India’s Oil Minister, Mani Shankar Aiyar now wants to pursue the oil diplomacy equivalent of Hindi Chini Bhai Bhai. He believes that India and China will benefit greatly if they cooperate across a range of matters relating to hydrocarbons value chain and calls this Sino-Indian alliance a “21st century silk route.” Of course, cooperation in the oil sector will benefit both but will the Chinese cooperate in good faith? Chinese state oil giants have so far had an edge over their Indian counterparts in the search for energy resources because of a head start and deeper pockets. They've beaten Indian rivals in the race for some blocks in Angola, Myanmar, and Indonesia. Despite all the talk of Sino-Indian cooperation on energy security, there is an almost equal likelihood of the two sides competing aggressively as their energy demands surge in the coming years. The Chinese government has been notably silent on all the hyperbole surrounding possible Sino-Indian cooperation in the energy sector. Instead of India putting all its eggs in the Chinese basket, it would make much more strategic sense for India to cooperate with China if and when desirable, and yet be ready for competition which is likely to emerge sooner than later.


Anonymous elise said...

In love with India. Trying to raise funds to go back. Plz promote my blog ( and click on the commercial links (no risk-Google ads).

January 02, 2006 9:42 PM  
Blogger Jing said...

Just a correction, but I think China is not the second largest oil importer, but rather the second largest energy consumer. Most of China's energy needs are met by coal and oil imports while growing are still only a relatively small percentage of total energy consumption.

January 11, 2006 5:08 AM  

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