China’s Oil Strategy at Risk Amid Problems in Asia and Africa

A host of foreign relations developments and issues in Asia and Africa have begun to pose problems for China's oil imports.

Last week, a military standoff flared up between China and the Philippines over Scarborough Shoal in the South China Sea after Chinese fishermen were found fishing in waters claimed by the latter country. Around the same time, India successfully test-fired its first intercontinental ballistic missile.

These two developments, as well as the ongoing war between South Sudan and Sudan, are problematic for China's oil imports. The country depends on the Middle East and Africa for oil and has invested especially heavily in oil exploration in the warring nations, reported the Shanghai-based First Financial Daily.

Indiais expanding its military budget rapidly, and last year was the world's largest arms purchaser. Its military buildup is aimed at securing the top spot in the Indian Ocean, which would threaten oil shipping lines that link China to the Middle East and Africa.

The Philippines and China have laid territorial claims to Scarborough Shoal — referred to by China as Huangyan Island — in large part because of the huge oil deposits nearby in the South China Sea. The shoal lies along China's oil shipping lines as well. If it is taken over by an unfriendly neighbor, oil imports will be threatened.

South Sudanand its northern neighbor fought a civil war for over 10 years before signing a truce agreement in 2005. Although the south declared independent in a plebiscite in 2011, the conflict has not ended. The root cause is a dispute over which side should control the benefits of oilfields, which are concentrated in South Sudan but are exported through terminals to the north. Both have refused to cede any ground in the dispute so far. 

The conflict has endangered China's investments in oil exploration in two countries, which are years from yielding returns.

The three incidents serve as a warning to China that it should improve its ties with Russia, Turkmenistan and Kazakhstan and speed up the construction of pipelines through these countries to ensure steady oil imports to China. They also remind Beijing of the importance of estimating the political risk of a foreign investment.

(Wantchinatimes, Edited by Topco)