China's Oil Diplomacy a First

China’s diplomatic efforts have traditionally been modes in the extreme, supporting unilateral engagement to solve thorny issues.
 
No more.
 
In a first, Beijing is inserting itself into resolving a festering diplomatic issue involving two countries at economic and political loggerheads.
 
The unitary issue?
 
Well, energy exports, of course – specifically, oil.
 
Boldly going where other nations fear to tread, in a diplomatic first, Beijing is attempting to mediate between Sudan and the state carved out last July from its southern provinces, South Sudan.
 
Earlier this month China's Foreign Ministry publicly asked Sudan and South Sudan to resolve their oil transit issues through "friendly consultations."
 
South Sudan's Minister of Petroleum and Mining Stephen Dhieu Dau said, "They are concerned as investors about the negotiations, so he came to listen to exactly why the two parties have not been able to reach an agreement."
 
On 9 July following an internationally supervised plebiscite South Sudan left Sudan, becoming an independent state and severing Africa's largest country in two following a 2005 peace treaty that ended nearly five decades of war between the mostly Muslim north and heavily Christian south.
 
The economic future of the two countries remains intertwined, however. Five months ago, Sudanese Minister of Finance and National Economy Ali Mahmood Hassanein told the National Assembly that 73 percent of the country’s oil was in the south, 26 percent in the north and the remaining one percent in the contested region of Abyei.
 
While the 2005 Comprehensive Peace Agreement (CPA) stated that northern and southern Sudan would equally split the revenue from oil exports, the geographical reality is that most of Sudan’s oil comes from oilfields in the south, the pipeline network to transit it to the country’s Indian Ocean coastline lay through the country’s Muslim north, controlled then as now by the administration of Sudan’s President Omar al Bashir. Last month African Union-mediated talks held between the two sides in the Ethiopian capital Addis Ababa collapsed as Khartoum threatened to impose a unilateral fee of $36 per barrel and confiscate oil shipped from the south which, according to Khartoum, has not paid any fees for the use of its pipelines since independence.
 
South Sudan stated last week that it offered to pay an average of 70 cents for each barrel sent through the pipelines but Sudanese authorities in Khartoum were demanding $36 a barrel. As oil is currently trading at roughly $98 a barrel, Sudan’s transit fees would more than a third of South Sudan’s projected revenue.
 
And where does Sudan’s oil go?  Two-thirds to China.
 
China depends on the two Sudans for about five percent of its oil buying roughly 365,000 barrels per day (bpd) of the former Sudanese unitary state’s 500,000 production. In the first ten months of 2011, China's imports of Sudanese crude were up 5.5 percent on the same period a year before, reaching 11.1 million tons
 
No wonder Beijing want to break the diplomatic impasse.
 
The money goes beyond mere governmental greed, as for South Sudan, relief agencies estimate that up to 90 percent of its population lives on less than 50¢ a day.
 
To keep the crude flowing, China dispatched its envoy for African affairs, Liu Guijin, who on 8 December arrived in Khartoum after visiting South Sudanese capital Juba where he held talks with senior officials including President Salva Kiir. In Khartoum two days later  the Chinese envoy held talks with the Sudanese Vice-President Ali Osman Mohamed Taha and expressed Beijing’s concerns of the diplomatic deadlock, telling reporters, "China encourages the two parties to stick to the peaceful option, adopt active procedures to avoid further escalation and resolve the difference through dialogue and negotiations. If the two sides fail to resolve the problem, the whole region would be affected, the repercussions would be very serious. The consequences would be ‘lose-lose’ for all. "
 
Will Chinese diplomacy succeed in resolving the Sudanese transit issues? Hard to say, but as Beijing currently picks up the tab for roughly 75 percent of the two Sudans’ oil exports, no doubt Juba and Khartoum will listen, and listen hard.
 
As for the rest of the world, the message from Africa is that Chinese diplomacy is now a part of the global mix nations attempting to resolve some of the globe’s more intractable international issues.
 
Washington, Moscow, London, Paris and Brussels, take note. If Chinese diplomacy asserts itself on the world stage the way that is economy has begun to do in the past decade, to praphrase Mao Tse Tung, the East may well indeed be “Red.”

By. John C.K. Daly of Oilprice.com