The political turmoil and violent clashes originated in Tunisia are quickly extending to the whole Middle East and North Africa as not only altered the political ecology of the countries in the region, but also exerted profound impacts on the region and even on the world configuration; and as not only sparked strong fluctuations of the international oil market, but also lead to chains of fluctuations of the world economy and world finance as well.
China, the second largest oil consumer and importer of the world, has close relations with the Middle East in both economic and political terms. The recent turmoil and the fallouts in the region will inevitably draw attention to China in an all-round way.
The impact on international oil price gets on people’s nerve the most. The sanction against Libya mandated by the UN resolution 1973 constitutes a de facto embargo, which is felt by both the Libyan government and its opposition. Moreover, the no-fly zone and the bombing raids launched by the West seriously impaired Libya’s oil production. Oil price soared instantly on the events. The U.S. crude oil futures and London Brent prices hit new highs of $106.09 and $115.54 respectively.
Geopolitically, however, it is the heavy-weight oil producers like Saudi and Iran that will determine the long-term international oil price. So far, the domestic opposition forces in the two countries are not powerful enough to take over the incumbent governments. Presumably, therefore, the political turmoil in the two countries will not lead to “regime change” as they were indeed in Tunisia and Egypt. Therefore, the two largest oil producers of OPEC can remain stable in relative terms. In addition, the slow global economic recovery that will curb and even reduce the traditional energy demand in the developed countries of the United States and Europe and a massive amount of strategic oil reserves that the OECD member countries keep in the framework of IEA are the basic and long-term factors that will prevent the international oil price from overpriced. Moreover, as the hardship of the livelihood is the major cause of the turmoil, the upcoming regimes, be them new or old, upon the calming down of the Middle East situation, will certainly draw upon the lessons by expanding oil production, increasing oil income, improving the people’s livelihood to stabilize their rule.
Given the above geopolitics and the supply-and-demand fundamentals, the high oil price caused by turmoil will predictably not last long, despite the short-term chaos in the Middle East and the spiraling oil price at present. As the turmoil relaxes, and under the sustained downward pressure, international oil price will fall to some degree, and maintains within a reasonable range acceptable to both suppliers and demanders. Of course, it can not be ruled out that the speculating capitals will drive up the short-term oil price by playing up the theme of Middle East.
So far as China is concerned, the political turmoil in the Middle East poses grave challenge to China’s national interests including personal security of the Chinese citizens. China has taken largest ever political, economic, military and diplomatic measures, succeeded in personnel evacuation via sea, land and air, and by timely and precisely seizing the opportunity in the dramatic, geopolitical change in the region, pushed forward the mission and influence of the navy and air force to the Mediterranean and the heartland of Africa in protecting the national interests of China and maintaining the world peace as well.
The globalization of China’s economy has made it possible that the Middle East, a region quite remote previously, comes close at hand now and relates to China’s national interests. There are four aspects to the point: The Middle East is: 1, the major region of China’s energy cooperation, including direct trade of oil and gas, cooperation in upstream industries, project contracts and joint construction of refinery plants, etc.; 2, the major market for China’s labor export; 3, the major entrepot of China’s export products; and 4, the forward front and important arena where China protects its national unity, and combats terrorism and East Turkestan splittist forces.
The handling of the events in Libya demonstrates that China is confident and capable of bearing the international obligation and responsibility of a big power. For example, as a permanent member of the UN Security Council, China have managed to protect the national interests and make coordination and cooperation with the Unites States, Russia and other big powers in international affairs, a good example of realizing the win-win situation of maintaining the world peace and protecting Chinese interests.
The turmoil and warfare for a length of period have inflicted heavy loss on the operation and assets of China’s enterprises in the Middle East. According to the PRC Department of Commercial Affairs, Chinese enterprises have contracted a total of 50 large projects in Libya alone, involving contract value of $18.8 billion. The war in Libya has forced the shutdown at all of those projects, staff evacuation, and looting and sabotage to many of the equipments and properties.
The heavy losses ring alarm bell on the “walking-out” enterprises and relevant departments of the government, who should be highly concerned with the political risks totally different from those at home, and they shall establish a system of recognition, early-warning and response regarding political risks. Especially, the Middle East region, home to legion of enterprises of energy and engineering, are exactly the epicenter of contradictions and conflicts of the world, and triggers various disputes and wars due to big-power games, ethnic contradictions, religious clashes, territorial disputes, terrorism ans so on. Therefore, we should take advantage of China’s peaceful diplomacy, push forward traditional friendship with those cooperation countries, work hard on establishing cooperation and win-win mechanisms with relavent countries, and instruct and help enterprises of both sides to establish trust and deeper cooperation by virtue of the ties of energy.
The enterprises in their turn should seek government support and protection, establish a complete system of avoiding political risks and taking responding measures concerning overseas projects, including application for insurance on overseas projects, especially the insurance earmarked against political risks. To assess political risks and to establish counter-risk mechanism for overseas projects and operation are what the government and enterprises should pay particular attention in regard of their risk management, and all the more are of strategic importance to protecting China’s national interests in general and energy security in particular.
Ma Hong is senior research fellow at the Center of Energy Strategy, China University of Petroleum
