The Wall Street Journal has a story today about ostensible Sino-American tensions over China’s growing oil imports from the Middle East, where security is provided by the US This is notable but it isn’t new. What’s new is that China is close to passing the US as the world’s largest oil importer, period, and will remain there indefinitely.
There is a clash between what America and China put into the Middle East and what they get out of it. But the US has been moving away from Persian Gulf oil since the 1991 war; imports from there dropping one-third while our total oil consumption has increased roughly 12%. The American presence in the region has been a topic of debate for some time.
From the other side of the Pacific, China passed the US in Persian Gulf oil imports around 2010, depending on who’s counting. Recent developments are not focused on the region, but about China’s rather desperate search for oil everywhere else.
That search has already had a transnational impact, with Chinese money pouring into Venezuela, Kazakhstan, and, to a lesser extent, Iraq. When China passes the US in total oil imports, it will have a global impact.
Oil has always been priced in dollars. Not only is the dollar the world’s reserve currency, the US long been the top importer of crude. Within a few years, China could not only pass the US for the lead, it could be far in front, as American shale production continues to rise.
Will oil pricing then start to move to RMB? Only when the RMB is made fully convertible — a choice Beijing has struggled with for years. It may struggle for a good while longer, but when the decision is finally made, oil will give the RMB a strong claim to be a truly global currency.
There are also considerable losses for China and gains for America. The US suffered in the 1970’s as the cost of oil imports soared, causing inflation. We are now much less vulnerable. China got a taste of oil panic in 2007, when prices spiked, and more may be coming. The Communist Party hates instability but regional conflict and temper tantrums by major suppliers make oil shocks all too likely.
The future oil world will have elements of the past. China faces an unpleasant transition in some ways similar to the US in the 1970’s and 1980’s. The US is returning to some extent to the 1960’s, when we were engaged with much of the world economically, but not necessarily oil producers. The change extends far beyond the Middle East.