An Energy Trade War Is Brewing Between China And The U.S.

It may be a lame duck session, but Donald Trump's presidency is far from over, and neither is his trade war with China. Just a few days ago the sitting president announced that he intends to extend the United States' blacklist of Chinese companies which are allegedly military-controlled. The newest proposed additions to the list are China's largest chip producer SMI and oil giant CNOOC, which will have the effect of "escalating tensions with Beijing before President-elect Joe Biden takes office" according to Reuters. While the timing of this move makes it of particular political interest, it is far from an isolated incident. The United States and China have been firmly locked in a power struggle for years. The addition of a major oil and gas company to the blacklist should not come as a surprise either, as oil and energy are integral to the geopolitical turmoil continuing to unfold between the world's first- and second-largest economies. 

Energy is the single biggest variable in China's world superpower ambitions, and it could either be their biggest launchpad or their biggest stumbling block, depending on how Beijing plays its cards. 

One of China's biggest concerns is its energy security, which has guided a huge number of Beijing's political moves in recent years, from hesitating to slap tariffs on U.S. oil imports even at the height of the trade war, to investing enormous sums into clean energy infrastructure, to quietly ramping up its coal production at the same time.

In addition to shoring up its own energy security, China has been hard at work expanding its energy dominance and sphere of geopolitical influence around the world, swiftly moving into new markets for both coal and nuclear. Beijing's aggressive moves to dominate global energy sectors have also been a major factor in the intensification of tensions and export battles between the United States and China. 

Related: China's Big Plastic Ban Is A Massive Failure

Last week's blacklisting may be the sign of a new, even more intense era in the U.S. and China's neverending power struggle. Vice chairman of IHS Markit and oil expert Dan Yergin has warned that this may be a key step toward "decoupling" between the U.S. and China, who continue to be essential trade partners despite years of geopolitical sparring. "It's an alarming situation, we have a spiral going on now where instead of talking about engagement and collaboration and constructive relationship, it's great power competition, strategic rivalry, peer competitors," he was quoted by CNBC. Yergin went on to say that the international relations between the U.S. and China will be the "biggest geopolitical issue" Joe Biden will face during his upcoming presidency. 

The struggle between the world's largest oil producer (the United States) and the world's biggest oil importer (China) will have huge implications for the entire world's energy markets and the global economy in general. This comes at a time that oil markets are already historically vulnerable and volatile. As the market fluctuates as the impact of the novel coronavirus pandemic and vaccine advances vie for influence on oil prices, OPEC+ is currently considering an extension to the rather severe production cuts that they've relied on to keep oil prices afloat in a year of devastatingly low oil demand. 

"PEAK OIL IS SUDDENLY UPON US," a Bloomberg headline screamed this week. As we head into an unprecedented and uncertain energy era, a ramping up of the energy trade war between the world's biggest economies stands as a potential destabilizing force for the whole world. The situation is precarious, and the challenge of approaching the issue without plunging the world further into an economic depression - not to mention massive geopolitical conflict between superpowers with strong and far-reaching networks of alliances - should not be understated. Reflecting on last week's addition of  SMI and CNOOC to the U.S. blacklist, Yergin says: "I think right now, the Trump administration is putting down a series of landmines almost, of difficulties for a Biden administration."

By Haley Zaremba for Oilprice.com

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