Tamkang University – Graduate School of Economics Department
Course: Energy Policy and Management (Fall Semester 95/1)

Fossil fuels in international energy policy:
China‘s oil diplomacy in sub-Saharan Africa

Niclas Dominik Weimar / 威贏民 (Department of Chinese Studies)
Date of hand over: 19th of January 2007

Contents

1. Introduction 3
2. The political power of crude oil and increasing demand since 1973 4
3. Fossil fuels in international energy policy: China’s oil diplomacy in sub-Saharan Africa 6
3.1 China’s economical history after 1976 and its need for energy 7
3.2 Africa in international energy policy: relations to China 8
3.2.1 Production and investment in sub-Saharan Africa 9
3.2.2 Transportation 12
3.3 Impacts and chances of Beijing’s oil diplomacy 13
4. Conclusion 16
References 18

1. Introduction

Since the oil shocks in the 1970s, petroleum has not only proven to be an influential factor in international energy policy and the economical development of nations, but also changed dramatically its perception. With the beginning of the industrial age and in context of World War II, the black gold has increasingly become important as it has been used as fuel in almost the entire sector of transportation or the plastics industries. Conflicts, struggles and wars about oil have used to be the major topics in the fight for access on lucrative resources, proven to be true by looking at Western and Asian government’s exertion of influence on countries especially in the Middle East, like Iran, Iraq or Saudi-Arabia, which dispose of huge reserves of crude oil. Nowadays, the rapid economical upturn of the People’s Republic of China has been accelerating the race about petroleum, a resource which gradually becomes less. In order to fulfil its needs, Beijing has adopted a strategy of diversifying its import sources and thus sub-Saharan Africa has come to the fore. The black continent had been neglected for a long time. But, since the discovery and exploitation of new resources in São Tomé and Príncipe or in Sudan and due to the rising oil prices and political struggles in the Middle East, sub-Saharan Africa made a step into the viewpoint of countries like the USA, Great Britain, France, India and of course China, which is currently one of the big players in the African oil sector. Therefore, the present term paper deals with China’s oil diplomacy in sub-Saharan Africa as it is to analyse China’s reasons and the extent of its engagement in this region as well as the implications and impacts that derive from that interests-led diplomacy. After a historical introduction to the political power of oil since the first oil crisis in 1973, the economical development of the People’s Republic of China will be summarised shortly, there from China’s increasing thirst for crude oil. Commencing with China’s relations to Africa, the quantity and quality of China’s investments in the sub-Saharan African crude oil sector as well as the transportation ways of petroleum to the Chinese territory will be explicated, exemplifying the production and investment processes in the top three petroleum producing nations in this region. The main part will be completed by a general description of both negative and positive impacts as well as the consequences of China’s oil diplomacy in sub-Saharan Africa and then lead to a final conclusion.

2. The political power of crude oil and increasing demand since 1973

On the 6th of October 1973, when Israel was attacked by Egypt and Syria which wanted to regain control over Sinai respectively the Golan Heights¹ as well as to wipe out the Israeli government, both Middle Eastern countries declared to interrupt export of petroleum to those countries that supported Tel Aviv during the war (called: Yom Kippur War), such as the USA, France and Germany. Both Arabian states used petroleum as political weapon to enforce their ideological and territorial interests. Several other member states of OPEC (Organisation of the Petroleum Exporting Countries) – to which Syria and Egypt also belong – like Iraq, Libya or Saudi-Arabia joined the approach initiated by Egypt and Syria.² Thereon, the oil-dependency of anent importing Western nations quickly became obvious and contributed to dramatic changes in energy use worldwide.³
The rapid advance of the global market price for crude oil forced affected countries and their governments to impose speed limits and periodical bans on motorised traffic or to spend more money on crude oil-imports. In the case of Germany, the GNP (Gross National Product) in 1974 was in a stalemate, the rate of unemployment in 1973 with 273.000 unemployed people increased to an amount of 1.047.000 people in 1975. A consequence was not only the increasing inflation in the years after 1973, but also the end of the economical boom in Germany which had changed to a situation of stagnation.⁴ Before the oil embargo was imposed by OPEC, the oil price in October 1973 circulated at around US$ 3.00 per barrel. By the end of 1974 the price for crude oil had already surged to around US$ 12.00 per barrel and by the end of 1978 to US$ 13.55.⁵ A further significant event regarding the economical and political weight of petroleum was the Islamic Revolution in Iran in 1979, when the ruling Shah Mohammad Reza Pahlavi was exiled and Khomeini⁶ returned from his exile to Tehran in order to establish and proclaim the new government of the Islamic Republic of Iran. Almost one year later, in September 1980, Iraq attacked Iran and thus a new war (1stGulf War) was started which lasted until 1988 and not only disequilibrated the already problematic political situation in the Middle East, but also heavily influenced the global oil production, as Iraq and Iran belonged (and still do) to the biggest oil exporting nations. Consequently, the war and the uncertainty on the global oil market led to a further surge in prices up to more than US$ 50.00 per barrel as for the year 1981.⁷ Being a core region of crude oil production, the Iraqi aggression against the Emirate Kuwait in 1990 and in consequence the 2nd Gulf War between Baghdad and Washington contributed to a temporary advance of the global market price for crude oil, too.⁸ In the early 1990s to 1997 the consumption of crude oil and thus the global market price for oil rose gradually because of the booming economies in South East Asia and East Asia. OPEC increased its production quota by 10 percent in 1997 in order to meet demands in the Asian emerging countries. With the beginning of the East Asian Financial Crisis in 1998, price levels fell again as a high oil production met lower demand of the black gold.⁹ With the end of the crisis and the economical recovery of South East- and East Asian nations like the Democratic Republic of Korea or Malaysia, the recovering economies have been leading again to an increased consumption of crude oil and thus to a noticeable rise of the prices, too.¹⁰

¹

The former Egyptian territory Sinai and the former Syrian territory Golan Heights had been captured by Israel during the Six-Day War in 1967.

²

Williams, James L., (2006).

³

Salameh, Mamdouh G., (2004), pp.43-45.

⁴

Borowsky, Peter, (1998).

⁵

Williams, James L., (2006).

⁶

The cleric Ayatollah (one of the highest religious titles in Islam) Seyyed Rouhollah Mousavi Khomeini was initiator and leader of the Islamic Revolution of Iran and later Supreme Leader of the new islamic government in Tehran.

⁷

Energy Information Administration, (2002); Williams, James L., (2006).

⁸

Energy Information Administration, (2002).

⁹

Williams, James L. (2006).

¹⁰

Salameh, Mamdouh G., (2004), pp.56-58 and p.84.