Sunday 15 August 2004

  American leaders have good reason to worry about the price of oil. Oil price shocks can play a decisive role in ending a presidency, as in the cases of Presidents Jimmy Carter and George H. W. Bush. The Nov. 2 election may well hinge on the cooling of the economic recovery caused by sustained high levels of oil prices. But that's not really what the next president should be so concerned about. The real oil shocks - much more damaging and sustained than ever before - will come a bit later, but much sooner than anyone had expected, from a part of the world not even discussed seriously in the current campaign: China.

  With 1.3 billion people, a phenomenal rate of economic growth, and an insatiable consumer demand for cars, China will soon come into direct conflict with the United States over oil, the world's most valuable and increasingly scarce industrial commodity.

  The pressure on supply will inevitably jack up prices to levels that would make today's motorists and electricity customers blanch.

  The conflict is unavoidable. It could create geopolitical tensions and cause dramatic shifts in U.S. foreign policy that may overshadow today's preoccupation with global terrorism. And there are no easy solutions to avert it, only regrets over this nation's missed opportunities in decades past to develop viable alternative energy sources to lessen U.S. dependence on imported oil.

  Any such program, initiated today, will take far too long to bear fruit in time to avoid an economic and political clash with China over oil.

  Just a quick glimpse at the figures involved makes clear the dimensions of the problem. China's economic growth has bubbled along at a steamy pace of 8 to 10 percent a year for the past decade.

  With that growth, private auto sales in that vast nation have skyrocketed from token levels 10 years ago - only 220,000 were sold as recently as 1999 - to nearly 2 million this year. Last year alone, China's automobile sales increased by a staggering 69 percent.

  More cars than U.S. by 2030

  It's estimated that China could have nearly 30 million automobiles by 2010. By 2030, China is expected to have more cars than the United States and import as much oil as the U.S. does today.

  Already, China has overtaken Japan as the world's second biggest importer of oil, after the United States. And its appetite is huge and growing. As Daniel Yergin of Cambridge Energy Research Associates puts it, "China has gone from being a minor player in world commodity markets, if a player at all, to being the decisive dynamic factor today. In terms of oil, 40 percent of the entire growth in oil demand since the year 2000 has been China."

  In this quarter alone, China's demand for oil is projected to increase 21 percent. That follows a 19-percent increase during the first quarter of this year.

  Nor are Chinese consumers, especially those in the growing middle class produced by a booming technology sector, particularly interested in fuel-efficient small cars. Gas-guzzling sport utility vehicles are not simply an American passion. They are in great demand in China, too.

  In a report from China broadcast on National Public Radio in June, a 35-year-old woman in Beijing, Sia Lan, an executive in China's expanding advertising industry, said she, like many other of her friends, prefers to drive SUVs. "I have a sedan car, too, which I used to drive to work because my Jeep guzzles a lot more gas," she said. "But I prefer my Jeep because I can see over all the other cars."

  A Chinese environmentalist, Liang Congjie, is distressed by the implications. "If each Chinese family has two cars like U.S. families, then the cars needed by China, something like 600 million vehicles, will exceed all the cars in the world combined."

  The prospect is daunting, not only for the effects it would have on the world's production of greenhouse gases to accelerate global warming, but also for the incredible pressure it would put on the world's oil supply.

  Just 10 years ago, China was self-sufficient in oil and actually exported small quantities to other Asian nations. Now, imports account for more than one- third of Chinese oil consumption. And rather than relying on foreign oil companies to supply it with oil, China wants its own oil firms to go directly overseas to secure supply sources it can exploit itself.

  Clash with U.S. in Mideast

  This is where China's quest for more oil will come directly in conflict with the concerns of U.S. foreign policy - particularly in the Middle East.

  During the Cold War, China stayed away from the Middle East. That region's geographic distance and political instability deterred it from securing ties with its major oil-exporting nations and, at least until a decade ago, the old China of ox carts and bicycles did not need to import oil.

  But now the Middle East and relations with oil-producing nations have become key interests in China's foreign policy, perhaps second only to its obsession with Taiwan.

  Exploring the world

  Today, nearly 60 percent of China's oil imports come from that region. Through bilateral agreements, rather than international mechanisms, and using arms sales and dual-use technology transfers - nuclear equipment, guidance systems for missiles - to cement ties, China has obtained oil exploration and exploitation rights in some of the most turbulent nations in the Middle East and North Africa - Iran, Sudan, Libya, Algeria and, until the recent war, Iraq.

  The case of Sudan, where international concern for the humanitarian disaster in the Darfur region is intensifying, puts China's role in perspective. It illustrates how Beijing's oil interests could come in direct conflict with U.S. policy.

  Chinese troops in Sudan

  While Washington has begged the world - and pressured the United Nations Security Council - to send peacekeeping troops to Sudan to quell the sectarian fighting that has put a million refugees at risk, China has already deployed 4,000 troops to Sudan. But those troops are there only to protect China's investment in an oil pipeline. China is concerned that civil unrest could wreck the oil project. It has actually been hostile to U.S. pressure to impose economic sanctions on the Arab government in Khartoum, a key Chinese client, buyer of Chinese arms and partner in oil exploration.

  It was also telling that China was a major opponent at the Security Council of the war against Iraq, in large part because China had obtained prospective contracts with Saddam Hussein for exclusive exploitation of some oil fields. But perhaps the most worrisome prospect for U.S. policymakers is China's burgeoning attempt to secure ties with Saudi Arabia, the world's arbiter of the oil market, taking advantage of the Saudi regime's tensions with Washington since the 9/11 attacks.

  All these are disquieting harbingers of Beijing's coming conflict with the United States over oil. It will come sooner than expected and the United States is not prepared for it. This president or his successor must, at the very least, alert the nation about its consequences, initiate a national conversation about it and encourage a program of energy conservation to alleviate the obvious economic pressures we will all face.

  China's need for oil is the proverbial 800-pound gorilla in the room, and no one seems willing to confront it or even acknowledge it - until it's too late.