CHINA BECOMES A GLOBAL OIL POWER: FROM COMMERCIAL RIVALRY TO GEOPOLITICS?

Daniel Yergin, Chairman of Cambridge Energy Research Associates, examined the issues around China's growing and significant presence in the world energy market in an article for Fortune magazine's May 16, 2005, issue. This analysis points to the urgency for China of its rapidly growing energy demand and the importance of adequate energy supply for meeting its overall economic and social objectives. Under such circumstances, it would be more surprising if China did not seek to become a major player in the global oil market. He distinguishes between commercial competition and geopolitical rivalry. Yergin argues that China and the United States have too many common interests in energy technology, energy efficiency, and the environment-and in the overall stability of their increasingly interdependent economic relationship-to let the geopolitical take over.

- In 2004 nearly 40 percent of the rise in global oil demand came from China, making the country the world's third-largest oil importer. China's rapidly growing imports are part of a larger pattern of denser trade and economic relations, including the fact that China is now the second largest holder of US government debt.
- China's three major oil companies have been working to make themselves players in world oil. Owing to their initial public offerings, the companies are responsive both to political authorities in Beijing and the international financial community.
- The geopolitical elements are most clear in energy issues involving China's immediate neighbors-Russia, Japan, and Kazakhstan. The risks, more broadly, become greater if oil (and natural gas) considerations get caught up in larger foreign policy issues-as, for instance, in the imbroglio over Iran's nuclear program.
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This article first appeared in the May 16, 2005, issue of Fortune magazine.

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