Friday, December 21, 2012

US Blood for Chinese Oil

How the invasions of Iraq and Afghanistan have set the stage for a possible "Chinese caliphate"

Reuters has a report today about Exxon's divesture from Iraq's southern oil fields and how China's state-owned CNPC is the top-bidder for the drilling rights that they're abandoning.

China National Petroleum Corp (CNPC) has emerged as the frontrunner to take over Iraq's West Qurna-1 oilfield from Exxon Mobil, a move that would diminish Western oil influence in Iraq a decade after the U.S.-led invasion.

This has HUGE implications, in addition to the reasons laid out in the story. The most important, immediate concern is the effect that this move will have on the status of Kurdistan and the very viability of Iraq as a unified state.

China's stealthy advance in Iraq, supported by piles of cash, has already given it a formidable position in prized southern oilfields, and through Chinese oil company Sinopec , its reach has extended into the northern Kurdish region… Kurdistan has upset Baghdad by signing deals directly with oil majors such as Exxon and Chevron, providing lucrative service contracts and better operating conditions than in Iraq's south… With oil majors now shifting their focus northward to sign deals with Kurdistan and away from Iraq's southern oilfields, leaders on both sides are warning of the risks that the dispute could slide into an ethnic war.

That sounds pretty bad.

(An aside: Though it would most likely lead to war, there is an argument to be made that a stable, independent, peaceful, democratic Kurdistan would be a boon to the region. Turkey would have to settle a lot of internal issues for that to happen, however. And the Kurds in Syria might have something to say about it, too. But I digress…)

Even if a new sectarian war is averted it still doesn’t look good. The oil that Chinese state-owned companies pump out of the ground doesn’t flow into the global market like oil pumped by Exxon or Shell. It goes straight back to China. That means when China secures oil rights, it actually secures them. China will be the world's #1 consumer of oil very soon, and they're not looking to share. That's a radically different macro-economic philosophy than what has dominated the world for the last 60+ years.

If this deal goes through, China would be the central player in the Iran-Iraq arena. Iran's biggest oil customer? China. Most consistent veto vote against UN sanctions on Iran? China. This would also mark an alignment of business interests across Iran and Iraq that hasn't existed since the days of the Ottoman Empire and will, as a result of these new alignments, give the Shiites much more power in Iran than Saudi Arabia and other Gulf countries will be comfortable with. Saudi Arabia is already bristling at Iran's current level of involvement in Iraq and their meddling in Yemen. This could seriously ratchet up regional tensions.

But that's not what really concerns me, because, in the end, the oil business is a business. So long as the wheels are being greased, things will remain relatively stable. (Iran's nuclear ambitions notwithstanding.) And if there's one thing that China's good at, it's laying out the cash to make things work smoothly.

No, what really makes me shudder is when I think about Afghanistan.

Fast-forward 2 years and you'll see China pulling the same game in central Asia. In areas that the US has secured in Afghanistan, Chinese companies will swoop in and buy up mineral rights. It's already happening. There are massive deposits of all sorts of minerals in that country and Chinese companies have no problems dealing with corrupt governments or local warlords. So long as the supply routes are secured ("Thanks, US Army!"), they'll jump right in and make a killing, securing (there's that word again) for themselves tons of gold, copper and other rare earth minerals that the entire world needs.

Once that's done, you'll have what amounts to a China-dominated natural resources market that stretches from the southern Iraqi oil fields, across Iran and through to mines in northeast Afghanastan. Railroads and pipelines will not be far behind (they're already in the planning stages). All of a sudden, China will have a large measure of control over a huge swath of central Asia and the Middle East. And it'll be in large part thanks to a decade of belligerent American steps, including 2 wars and the isolation of Iran. (And as a bonus: In this scenario, US naval dominance in the Persian Gulf and Indian Ocean wouldn't be as important anymore.)

As ominous as this all sounds, it's important to remember that China isn't necessarily out to dominate anybody. Nor are they trying to push the US out of any particular region for ideological purposes, like the USSR during the Cold War. Instead, China's #1 stated foreign policy goal has always been to make China self-sufficient. In effect, "We will feed ourselves," and "Nobody fucks with us ever again."

But they are our major economic and systemic competitor. The situation now gives them a clear opening to make incredible gains. It has exposed the debacle of the Iraq invasion and botched early years in Afghanistan as not only a massive military, economic and foreign policy blunder, but it has proved to be a geopolitical disaster the likes of which we haven’t seen since Vietnam.

I hope that the Obama team sees a way out of this. Because I don’t.