China turns on demand power

China, the demander, gains too much leverage on exporting countries that have not managed to diversify their clientele.

With a grim scenario of minimal economic growth and decreased energy consumption in store for the US, the European Union and Japan for some time to come, energy exporting states dominated by a single sector hope to spread their risks by selling fossil fuels in Africa and Latin America, not to mention non-Chinese Asian players with robust growth like India.

But economies of scale and the instant attraction of a bottomless Chinese market imply that Beijing has the power to become kingmaker for many energy supplying countries, with far-reaching political and diplomatic consequences.

For instance, Saudi Arabia – the world’s second-largest crude oil producer – used to rely on the US as its single-largest customer for petroleum liquids up to 2008, averaging 1.53 million barrels per day.

In 2009, this figure fell to 989,000 while Saudi oil exports to China surged to above 1 million barrels a day. With overall net crude imports of around 5.4 million barrels a day and a projected uptick of 900,000 more barrels a day in the next two years, China is set to keep the US displaced for good as Saudi Arabia’s number one destination.

Until now, the domestic politics and foreign policy of the kingdom bore a distinct American influence, which in turn was linked to oil interests in the US. This whole political economy of a US-Saudi special relationship is now being upended by the entry of China. The day China develops a more interested and active policy position on Middle Eastern conflicts and alignments will be momentous because the two oil-producing arch-enemies of the region – Saudi Arabia and Iran – are both predominantly dependent on the Chinese market for their economic fortunes.

Asia Times