September 8, 2015
Daniels and Brown: China's Energy Security Achilles Heel: Middle Eastern Oil
While recent turbulence in the Chinese economy has caused investors and pundits much concern, observers may be missing another critical threat to both Chinese and world markets. Soaring Chinese oil consumption and turmoil in the Middle East have been central, and seemingly irrevocable, features of the global energy landscape in recent years. But China's outsized and growing reliance on crude oil imports from this increasingly turbulent region leave the world's largest crude importer highly exposed to the adverse effects of a major supply disruption. The Middle East's precarious security situation and fragile political balance constitute serious threats to China's energy security and, by extension, the stability of global markets.
China is thirsty for crude oil. The world’s most populous country consumed over 11 million barrels per day (mbd) and accounted for over one third of global oil demand growth last year. It is reliant on imports for 60 percent of its crude oil needs, and that reliance is growing as China’s demand growth has outpaced the country’s lagging domestic production growth. While the “new normal” rate of economic growth in China is expected to cut into crude oil demand growth, Chinese consumption is still projected to exceed 13 mbd by 2020. This sustained demand growth ensures that China will remain one of the largest and most sought-after crude oil markets on the planet, with suppliers from Caracas to Moscow jockeying to increase their market share in the Middle Kingdom. Despite the best efforts of producers like Russia, China will continue to be disproportionately reliant on imports from the Middle East. In 2014, Middle Eastern crude accounted for over half of total Chinese imports, a share that is unlikely to decrease in a meaningful way given current market trends.