China’s Growing Oil Demand Has Created A Geopolitical Dilemma
China has become the world’s largest oil importer, and despite establishing the largely successful yuan-denominated oil futures, Beijing will have to grapple with an overlooked geopolitical and economic consequence as it seeks to quench its thirst for oil and gas.
As China relies more on both foreign crude oil imports and imported gas in the form of LNG and piped gas from neighboring countries, the outflow of petro-dollars or in this case petro-yuan will see the country contend with the decades-long dilemma that the U.S. faced; a massive transfer of capital to foreign oil producers.
Worse yet, for the U.S. at the time of its foreign oil import dependence, the transfer of funds was often to less-than-friendly Middle Eastern oil producers, including Saudi Arabia who in the 1970s and 80s could arguably have been called a quasi-friend or at least an ally of convenience. The U.S. needed Saudi oil as American oil production continued to decline while U.S. oil consumption spiked to unprecedented levels. For their part, the Saudis needed, and still do, the U.S. Navy’s 5th to keep open vital shipping lanes including the world’s most important maritime chokepoint, the Strait of Hormuz, to allow the export of massive cargoes of crude to foreign markets.
China’s insatiable oil thirst
China surpassed the U.S. in annual gross crude oil imports in 2017 by importing 8.4 million barrels per day bpd compared with 7.9 million bpd of U.S. crude oil imports. China had become the world’s largest net importer (imports less exports) of total petroleum and other liquid fuels in 2013. New refinery capacity and strategic inventory stockpiling, combined with declining domestic production, were the major factors contributing to its recent increase in imports.
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