The Bear and the Dragon

Today Drudge linked to this report saying China now consumes 20 percent of the world's total oil production. China's need for energy sources will be a key factor driving China's foreign policy for the foreseeable future. China needs the fuel to keep its economic expansion going.

China is making efforts to secure these energy sources. You may not immediately link China and Africa in your mind, but China is moving into African oil development in a big way. Just as one example, a Chinese oil company has an agreement to explore and develop oil reserve in western Ethiopia, near the border with Sudan.

I have written a number of times recently about how Russia is using its considerable reserves of oil and gas as a tool of its foreign policy. It should not surprise you, then, that Russia and China are forging ties based in no small part on energy supplies. Certainly, Russia sees an opening to use its natural resources as a means to build an alliance to serve as a counterweight against American power.

Last August, Russia and China conducted their first joint military exercises. The message was clear. A new power to be reckoned with was growing in East Asia.

A week ago, Kuala Lumpur hosted the first ASEAN-Russian Federation Summit. China was there. Russian President Vladimir Putin attended, and one of his goals was to boost cooperation in energy deals.

On the same trip, Putin also addressed the East Asian Summit, another association of East Asian nations that did not include the United States. In this, too, Russia is looking for ways to leverage its advantages in enery resources.

I've written about how Russia is building dependencies in other countries through its pipelines. Russia is also seeking to do the same with China. There are a number of discussions going on between Russia and China to build out gas and oil pipelines between eastern Russia and China. I'll detail those plans in another post.

This article illustrates the focus Russia has:

Bilateral relations have indeed developed apace, reflecting hard-headed mutual interests. On 10 August, Putin told Sergei Razov, his new ambassador to China, that he should "focus on economic ties first of all.... I am talking about the energy sector, like electricity, supplying natural resources, [and] working together in foreign markets."

In 2006, China is expected to build an oil pipeline from the railhead at Blagoveshchensk to the railway line at Heihe across the Amur River, which will have an initial annual capacity of 21 million barrels. The building of additional pipelines will certainly boost Russian sales to the seemingly insatiable Chinese market, which are limited at present largely by the lack of means to deliver the huge quantities of oil that China's expanding economy seeks.

Moreover, the executive director of China National Offshore Oil Corporation, Fu Chengyu, announced on 8 December that his expanding company is interested in "acquiring the assets of Yukos oil company," Interfax reported.

China is not just sitting idly by and waiting for Russia to supply all its needs. As it is doing in Africa, China is moving now to secure the oil and gas it needs.

Last week a oil pipeline from Kazakhstan to China opened, a pipeline that bypasses Russia. The pipeline is managed by Kazakhstan's big energy company KazMunaiGaz. (In a related note though, in my post on Gazprom I mentioned Gazprom reached a deal with KazMunaiGaz whereby Gazprom would virtually control all of that gas. Look for Russia to make moves to compete with Kazakhstan oil as well.)

Also, you may recall the flap from earlier in the year when China attempted to buy the US oil company Unocal. The deal ultimately fell through on political opposition to the deal.

Stratfor's view is that China is taking advantage of Russia's need to sell its oil and gas, and that in the future the two could become competitors.

States that border each other are far more likely to compete for influence than cooperate. This has been lost on many Russians who are so reflexively hostile to the West that they see the largest threat to Russia's existence from Washington and NATO, as opposed to its own rising Muslim population or the Chinese colossus to the southeast. China, for example, even after downsizing its army, still has more men under arms than NATO did at the height of the Cold War.

And while many Russians dream of a Chinese alliance against the West, China has been taking advantage of that misperception and preparing for a world in which Russia no longer matters. It is Beijing, not Moscow, which has been building rail lines and petroleum pipelines into Central Asia and acquiring Central Asian energy firms. It is Beijing, not Moscow, which is now pre-eminent in influence in North Korea. It is Beijing, not Moscow, which quietly sponsors an unofficial policy of encouraging migration of its citizens to resource-rich Russian Siberia. It is Beijing, not Moscow, which is purchasing component after component of Russian military technology as part of a broad-based modernization program. And it is Beijing, not Moscow, which likes to hold large-scale military maneuvers on the border named innocuous things like "Northern Sword."

Moscow has been slow to recognize the shifts in China with the transition from Jiang Zemin to Hu Jintao. Just as Jiang was taken off guard by the change from the easily manipulable former Russian President Boris Yeltsin to the more calculating Putin, Russia has misread the evolution of Chinese policies from Jiang to Hu, thinking that China is still pursuing the same means as it did under Jiang's reign.

This is not the case. Beijing now looks to enhance its influence globally through integration rather than confrontation. Moscow has misread Chinese intent several times recently, from the evolution of the Shanghai Cooperation Organization to the recent Chinese-Russian defense exercises. China is fully engaged in the old three-player game and views Washington as its major concern, with Russia being simply a tool of foreign policy.

Nations with ambitions must have the energy to fuel those ambitions. Watching Russia's and China's goals collide and mesh in the coming years will make for some fascinating international politics.