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posted on 04 February 2016

The U.S. Oil Weapon: A Threat To China

Written by , Zhonghua Yuan Institute

China's island building on the four-mile-long and two-mile-wide Subi Reef in the South China Sea has put The U.S. in a tight spot. The reef lies within the 200-mile international limit of the Philippines and is only 26 miles from a Philippino occupied island. To protect its ally from China's aggression, the U.S. will be left with little choice but to constrain China by military means.

subi.reef.spattley.islands

However, it is not likely that the U.S. will directly engage China in war in the foreseeable future, because the U.S. dominates China with its superior naval and air force and the only way for China to level the playing field is to apply nuclear weapons. The nuclear nature of Sino-American warfare would make both the world no.1 and no.2 economy the fallen giants.

So there is a possibility that The U.S. might use economic weapons. One susceptible area at the core of China's weakness is it's huge dependence on oil imports. At the moment, China imports 55% of its oil, almost half of which sails from countries in the Persian Gulf, which amounts to 5.3 million barrels per day and is around 75% of Saudi Arabia's production. As a matter of fact, China's reliance on Middle Eastern oil has gradually grown orewtty much in line with its rapid-increasing demand for oil. Right now, China has achieved the equivalent of the peak of U.S. Oil import dependence and is not slowing down a bit. The single largest source of China's crude oil imports is likely to remain Saudi Arabia.

China's state oil reserves of 475,900,000 barrels (75,660,000 m^3) plus the enterprise oil reserves of 209,440,000 barrels (33,298,000 m^3) will only provide around 90 days of consumption or a total of 684,340,000 barrels (108,801,000 m^3).

Meanwhile, the U.S. is inching towards the energy independence. With the technological breakthroughs of shale gas and tight oil, the U.S. has started an energy revolution: U.S. crude oil production has increased by 50% since 2008. With that increase, as well as more efficient cars, oil imports have come down from their high of 60% in 2005 to 35% today - as low as in 1973. With domestic production and gasoline mileage still increasing, imports will continue to decrease. It's also impressive that U.S. natural gas production has increased by nearly 33% since 2005, and shale gas has gone from 2% of output in 2000 to 44% today.

As of 2013, the United States is the world's second largest producer of crude oil, after Saudi Arabia, and second largest exporter of refined products, after Russia. According to BP Plc's Statistical Review of World Energy, the U.S. has surpassed Russia as the biggest oil and natural-gas producer in 2014. While looking at total energy, the U.S. was over 70% self-sufficient in 2008. In May 2011, the U.S. became a net exporter of refined petroleum products.

With the newly acquired oil might, the U.S. can trick Iran to block the Strait of Hormuz without any economic damage onto the U.S. itself, in order to strike a severe blow to China's fragile economy. With the failure of the U.S. congress to reject the Iran nuclear deal the likelihood of an Israeli air strike against Tehran's nuclear facilities has been reduced. Thus a retaliation by Iran by blocking the Strait of Hormuz is no longer as likely. But the U.S. has many other ploys it could use to provoke Iran. The Strait is the only sea passage from the Persian Gulf to the open ocean. If it's blocked, China will scramble to meet its oil demands. In China, the inflation will jump up; the China yuan will plummet, and an economic meltdown will come to bear.

China will succumb to the U.S.'s might of oil weapon to save itself from political, economic and social collapse. The oil weapon will achieve what the military can't achieve at less cost. This scenario is something China should be really worried about.

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