A dock worker watches an oil tanker unload crude at a port in Qingdao, Shandong province, China, on March 26, 2020. Photo: China Daily

Imagine: A Chinese-flagged super tanker bound for the mainland has just turned off its automatic identification system to hide an Iranian oil shipment in violation of US sanctions.

Passing through the narrow Strait of Malacca, just off of Singapore, where some 80% of China’s fuel imports pass, however, provides little protection from the prying eyes of a US navy destroyer which has been shadowing the maritime area for weeks.

As the US warship positions itself to block the Chinese tanker, the vessel maneuvers and presses on, calling in assistance from nearby Chinese naval assets strategically placed across a string of nearby South China Sea military installations.

The stage would thus be set for armed conflict on the high seas between the world’s two superpowers, one that would inevitably draw in other regional players.

The Strait of Malacca, which cuts between Indonesia, Malaysia, and Singapore, connects the Indian Ocean with the Pacific Ocean through the South China Sea. It is the shortest sea route between Persian Gulf suppliers and key Asian markets.

While the above scenario is conjecture, it typifies China’s vulnerability on the high seas to safely get its crude oil shipments to the mainland and fuel its economy.

Now, China’s energy security quandary is exacerbated by what some see as a New Cold War with the US, a budding conflict that started with trade disputes that has recently been exacerbated by Beijing’s handling of the Covid-19 pandemic and calls for it to take accountability for the damage wrought.

As the coronavirus crisis nears a half-year mark, the geostrategic stage for such a potential superpower clash heightens. But as the world appears to move from one Cold War to another, the brewing US versus China contest has energy security at its core.

A Chinese worker checks the valve of a gas pipe at a natural gas plant in Suining in southwest China’s Sichuan province. Photo: AFP/Getty Images

Unlike the past Cold War, when the Soviet Union was a major oil and gas production superpower in its own right, China is on the precipice of a dangerous overreliance on oil and natural gas imports.

At the same time, the US has risen to become the world’s oil production leader and third-largest liquefied natural gas (LNG) producer. China’s vulnerability to a US-led energy blockade is arguably growing.

For one, Beijing’s natural gas imports continue to rise. Last year, the country’s gas imports totaled 96.5 million metric tons, up 6.9% year on year, General Administration of Customs data showed.

That growth was slower than the 31.9% reported in 2018, mostly due to slower demand growth and more robust production. China bypassed South Korea two years ago to become the second top LNG importer and within a few years will likely overtake Japan, the world’s largest purchaser.

At the same time, China’s domestic oil and gas production has remained flat since 2012 and is projected to enter a steady decline as the country’s fields mature and new discoveries become fewer.

China’s oil consumption is also trending higher, rising last year to an average of 10.1 million barrels per day (bpd), according to the US Energy Information Administration (EIA).

Despite the ongoing Covid-19 pandemic, the Middle Kingdom’s oil thirst remains strong, climbing to 10.42 million bpd in April from a slight dip in March when it registered consumption of 9.68 million bpd.

Last year, China’s crude imports were mostly scattered across a few legacy exporters, including de facto Organization of the Petroleum Exporting Countries (OPEC) leader Saudi Arabia at 1.7 million bpd, followed by Russia at 1.6 million bpd (for a combined Chinese market share of just over 30%).

The battle for Chinese market share between the two oil production heavyweights often devolves into market-damaging brawls that hammer prices. Their most recent standoff, in early March, sent Brent crude prices south by some 30%, the biggest one day drop since the Gulf War.

In 2019, China’s crude oil imports from Saudi Arabia stood at 1.7 million bpd, or 16% of total crude oil imports, according to the EIA. For its part, Russia was the largest non-OPEC source of China’s oil imports in 2019, averaging 1.6 million bpd, or 15% of its total imports.

China’s oil imports have fueled the country’s almost meteoric multi-decade economic expansion, propelling the nation to become the world’s second-largest economy. More recently, Beijing’s recent oil import uptick can also be attributed to filling up its strategic petroleum reserves (SPR), both while global prices are low and a possible US conflict looms.

An oil storage facility in China. Photo: Facebook

While China’s exact SPR numbers are a closely guarded state secret, the country’s National Energy Administration (NEA) said in September it had enough reserves – including SPR, oil at storage firms and commercial stocks – to last around 80 days, representing just under 800 million barrels.

China is also reportedly planning to expand its crude oil storage capacity to boost its SPR while global oil prices remain weak and beneath many producers’ breakeven cost due to demand destruction caused by the Covid-19 pandemic.

By way of contrast, America’s SPR, set up after the Arab oil embargo in the mid-1970s, has a maximum storage capacity of 713.5 million barrels in four salt caverns across the US Gulf Coast, with two in Texas, the country’s top oil-producing state, and two in Louisiana.

If history is a guide, fledgling superpowers often face an uphill battle to supremacy if they are dependent on oil and gas imports. With the US shifting from a net importer to an oil and gas production powerhouse in recent years, the US could be expected to try to seize advantage from China’s energy insecurity in any conflict scenario.

That vulnerability likely explains China’s rising aggression and assertiveness in the hotly contested South China Sea, where in recent years it has gone on an island-building militarization spree in disputed waters, likely towards the eventual aim of establishing an Aerial Defense Identification Zone (ADIZ). The sea is also rich in unexploited hydrocarbons.

“Not only would China be under pressure to protect SLOCs [Sea Lanes of Communication] and so enhance its maritime profile in areas which are geopolitically contested, but the US will also use its emergence as a major supplier of gas to challenge China,” Harsh Pant, a professor of international relations at King’s College, London, told Asia Times.

“The new Cold War with the US is real and it will be a serious constraining factor in China’s emergence as a global power in the foreseeable future. That might be one of the reasons why China is flexing its military muscle now.”

Other analysts, however, downplay China’s energy shipping quandary.

Keunwook Paik, a research associate at Oxford Institute for Energy Studies (OIES) and an associate fellow at international think thank Chatham House, believes that as long as Japan, South Korea and Taiwan maintain large-scale oil and gas imports via sea lanes connecting the Middle East to Northeast Asia, China will not be forced to shoulder the financial burden of guarding the shipping lanes alone.


“The time for the US as the exclusive protector of the sea lanes from the Middle East to Asia is gone. The burden share of guarding the sea lanes among Asia’s main buyers will be inevitable. The era of blind dependence on the US to guard sea lanes will cease in the 2020s,” he said.

Indeed, there could be stronger cooperation between the US and Japanese navies, though this would escalate matters considering China’s decades-old loathing of Japan and could force an even sharper response by Chinese President Xi Jinping to appease the Chinese populace.

Ho Chi Minh City-based energy and geopolitical analyst Cong Le Khanh told Asia Times that China has long prepared for such a scenario by diversifying its energy sources, including nuclear development, renewables, natural gas pipelines from Russia and Central Asian countries, and oil exploration in Africa.

“However, China will still be vulnerable because of its high oil and gas imports during a Cold War,” he said. He also contends that China will pay a higher cost to protect sea routes and its oil imports from Saudi Arabia, including through the Malacca Strait.

“Meanwhile, China’s continued overreliance on Saudi crude will challenge bilateral relations between Riyadh and Beijing,” he added. “They [China] will have to also import oil and gas from Russia and the US, so these two energy power producers will likely be manipulative.”

Saudi Arabia is increasingly in a geostrategic bind. While it needs to maintain strategic relations with the US, especially now as a hedge against Iranian hegemony in the Middle East, it also must maintain ties with Beijing to sell crude.

Paik takes a contrarian view, arguing that Washington’s expectations of large-scale oil and gas exports to China look unlikely to materialize.
China’s oil imports in 2019 fell around 43% compared to the year before, primarily as a result of trade negotiations that imposed tariffs on many US goods.

Oil imports from the US were supposed to increase this year as part of the Phase One Trade Deal reached between the two sides. However, to date, that has not materialized.

For the first five months of 2020, China imported US$600 million worth of covered energy products against a target of US$10.5 billion, according to research from AB Bernstein.

“US oil and gas exports to China, based on their shale revolution, will be a minimum rather than maximum quantity,” Paik said. “As both Middle East oil and gas producers and Russia are desperate to maximize their exports to China, Beijing will use the oil and gas import card quite effectively.”

China’s oil and gas dependence will also force Beijing to intensify its hydrocarbon development in the hotly disputed and proximal South China Sea. In recent years China has pressured other regional claimants, including Vietnam, the Philippines, and Malaysia, from exploring for oil and gas even when activities have clearly been within their exclusive economic zones (EEZ).

Chinese PLA Navy soldiers on a naval vessel in the South China Sea. Photo: Twitter

Though estimates vary, a US Geological Survey (USGS) study in 2012 said that there could be 160 trillion cubic feet (tcf) of natural gas and 12 billion barrels of oil untapped in the South China Sea.

The EIA estimates that the sea holds about 190 trillion cubic feet (tcf) of natural gas and 11 billion barrels of oil in proved and probable reserves, most of which lie along the margins of the South China Sea rather than under disputed islets and reefs.

Rival claimants are looking to the law to stake their claims vis-à-vis China. In July 2016, the Permanent Court of Arbitration at the Hague ruled overwhelmingly in favor of Philippine claims against China’s encroachment on its territory in the contested sea. China ignored the ruling, which lacked an enforcement mechanism, as baseless.

In recent months, Vietnamese Deputy Foreign Minister Le Hoai Trung has suggested Hanoi could also mount an international legal challenge over China’s perceived encroachment on its own territorial waters, according to media reports.

The US has sought to check Beijing’s ambitions through growing freedom of navigation operations and strategic alliances, including with Vietnam. The US Navy has made more frequent port calls and in November provided Vietnam with another coast guard cutter for its growing fleet of ships. In 2017, the US also transferred a Hamilton-class cutter to Vietnam to help it protect its territorial waters in the sea.

Whether America can build naval alliances with rival claimants who would be willing to assist the US in blocking or harassing China’s fuel shipments in a conflict scenario is still unclear. But China’s efforts to secure its fuel shipments are still incomplete, even with recent strides made in its naval capacity.

If the New Cold War becomes a shooting war at sea, China’s energy dependence could be the Achilles Heal that keeps the strategic balance tilted in America’s favor, despite rising signs of weakness and growing perceptions of a flagging US commitment to the region’s security.