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
More Top Reads From Oilprice.com:
- A Major Oil Rally Could Be On The Horizon
- Oil Majors Are Paying The Price For Investing In Renewables
- Japan And Kuwait Strike Major Oil Storage Deal
During his four years in the White House, President Trump was an inept president and a bully in the pocket of Israel’s Prime Minister Benjamin Netanyahu. Now he is proving also that he is a bad loser who is even prepared to let his personal enmity towards President-elect Biden take precedence over the United States trade interests with China.
The measures he is taking to extend the United States’ blacklist of Chinese companies which are allegedly military-controlled are intended to escalate tensions with China before President-elect Joe Biden takes office thus making it difficult for him to improve relations with China and end the trade war with it.
The struggle between until recently the world’s second 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.
Three quintessential objectives occupy China’s strategic thinking. The first is securing its oil and energy needs peacefully. The second is ensuring its energy security and the third objective is dethroning the petrodollar and replacing it with petro-yuan as the global oil currency. All three objectives are directly connected with oil and energy.
In addition to ensuring and defending its own energy security, China has been hard at work expanding its global energy dominance. This has been a major factor in the intensification of tensions between the United States and China.
The most recent battlefield is Iraq. China’s interest in buying ExxonMobil’s 32.7% stake in Iraq’s supergiant West Qurna 1 oilfield will result in its control of three of Iraq’s supergiant oil fields, namely Majnoon, Rumaila and Qurna 1 oilfields. And by taking over the contract for the crucial Common Seawater Supply Project (CSSP) which ExxonMobil isn’t keen to go ahead with, China will virtually be in control of Iraq’s oil industry. The CSSP is pivotal for Iraq’s plans to raise its production to a minimum of 7 million barrels a day (mbd) and a maximum of 12 mbd by transporting sea water from the Persian Gulf to oil production facilities to boost the pressure and recovery rates at key oil reservoirs in Iraq.
Still, the trade war is not principally about oil or China’s trade surplus and alleged Chinese malpractices. It is about the petro-yuan undermining the supremacy of the petrodollar and by extension the US financial system, Taiwan, refusal by China to comply with US sanctions against Iran and Venezuela, China’s overwhelming dominance in the Asia-Pacific region and its sovereignty claim over 90% of the South China Sea, the new order in the 21st century and above all fear of the US losing its unipolar status.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London