China and India's Oil Thirst Brings New Dynamics to the Market
class=storytext>MARK COLVIN: The huge economic growth in the world's two most populous nations has already started to put extra strains on the oil market. Could the newly voracious Chinese and Indian thirst for oil also have dangerous strategic implications?
Two experts from the Lowy Institute have been looking at the possibilities, and their paper about it was released today. One of the authors, Anthony Bubalo, spoke to me this afternoon.
ANTHONY BUBALO: The rapidly growing Chinese and Indian economies are becoming two of the world's largest consumers of energy. In China's case, it's moved into second place behind the United States and in India's case, it's moved into sixth and rapidly rising. At the moment, oil is not the largest source of energy for India and China.
MARK COLVIN: But it's a growing sector of their demand, isn't it?
ANTHONY BUBALO: That's right, it's a growing sector, in a large part because their economies are expanding and those parts of the economy – the consumer sector, the industry sector that requires oil – are growing and growing quite dramatically.
MARK COLVIN: So you've got more middle class people, people moving into the middle class buying cars, but also their consumer demands for things like plastics, which require oil, are growing as well.
ANTHONY BUBALO: That's right. Now, why this is significant or significant in strategic terms is that both India and China are net importers of oil. In India's case, they've long been a net importer of oil. In China's case since about 1993 they became a net importer of oil, in part because their own oil resources were diminishing, but also because of rising demand.
MARK COLVIN: So effectively, they've got to get it from the same sources that America gets it from, that Europe gets it from, that we all get it from?
ANTHONY BUBALO: That's right, and that's the Middle East. Looking at current trends, the Middle East will only become even more important as a source of oil for the international community.
If you're looking at around 2010-2120, sources of oil outside the Middle East will have peaked, whereas what we know about the reserves in oil in the Middle East currently suggests that the Middle East will become an even larger supplier of the world's energy needs.
MARK COLVIN: Now, China and India are both super powers, in the sense they're both nuclear armed and China is, because of its huge size, is already developing into a major eastern superpower, but neither of them have really taken much interest in Middle East politics. Is that going to change?
ANTHONY BUBALO: That in fact has already changed. Certainly in China's case, in the last ten years, precisely at the moment where they've become conscious of what they call their energy security requirements, you've seen a growing interest in the Middle East.
And certainly recently, you've seen in two issues in particular, China playing a prominent role – and those two issues are Iran and Sudan.
In the case of Sudan, the Chinese stated very clearly that they would oppose the imposition of oil sanctions on Sudan over the Sudanese government's role in supporting belligerent militia groups in Dafur. In the case of Iran, again, China said very publicly that they oppose any effort to bring the Iranian nuclear issue to the Security Council.
MARK COLVIN: And all of this is important because China has a veto on the Security Council.
ANTHONY BUBALO: Absolutely important.
MARK COLVIN: So if the world is outraged by what's going on in Darfur, China can stop it and you're saying this is connected to this strategic issue of oil?
ANTHONY BUBALO: It's very connected. One of the main countries in the Middle East in which China is investing heavily in joint exploration and exploitation contracts is in fact in Sudan.
They're building a major oil pipeline to the coast, they're helping the Sudanese build a major oil refinery, there are some 10-15,000 Chinese workers in Sudan, working on these projects. And there's even information to suggest that a significant proportion of those workers have a security function.
MARK COLVIN: During the first year of the Bush administration, before September the 11th, what all the strategic analysts were saying was what was building up was a big confrontation between the United States and China.
That went away after September the 11th. But are you saying that as a result of this oil problem, that was only ever going to be on the backburner, that that's bound to come back?
ANTHONY BUBALO: There's certainly the potential for it to come back. Now, one of the reasons why we didn't see this kind of confrontation between China and the US was a decision by the Chinese to take, if you like, a small target strategy.
For economic reasons, they wanted to in every instance they could, avoid conflict or confrontations or diplomatic disputes with the United States. In the Middle East, or certainly in terms of energy security, it's slightly different. It's probably one of the few issues on which the small target strategy doesn't necessarily apply, and that's simply because energy security is so important to the Chinese over the long term.
MARK COLVIN: So it sounds as though really confrontation of some sort is inevitable, that the two powers are bound to clash over oil?
ANTHONY BUBALO: I don't think it's inevitable, but certainly over Middle Eastern issues, simply because the two, China and the US, see a lot of the issues in the region differently. There's more potential for the two countries to kind of bump heads.
And there's certainly a lot of potential to misunderstand each other's motives in the region, but that applies equally to Washington as it does to Beijing.
And the Iranian and the Sudanese issues are just two examples of that and of course, the US invasion of Iraq alarmed China, not just from the perspective of what it meant in terms of pre-emption, but also in terms of instability in the region, oil prices. I would think that the kind of talk of possible US military action against Iran would also be a similar concern to China.
MARK COLVIN: Anthony Bubalo, who's a research fellow at the Lowy Institute.