Bloomberg: U.S. Pays To Police Persian Gulf, But China Benefits

Bloomberg News yesterday released a thoughtful analysis of how Persian Gulf developments are impacting global petroleum trade that puts U.S. security operations there in a new light. Reporters Indira A. R. Lakshmanan and Gopal Ratnam found that while America is leading military efforts to keep the Strait of Hormuz open, China figures to be the biggest beneficiary. The reason why is that as the U.S. and its allies move to cut off their purchases of Iranian oil as a way of pressuring Teheran to end its nuclear-weapons program, China can get big discounts — up to 40 percent — on its own continuing purchases of Iran’s oil.

According to the Bloomberg story, China imports about 5 million barrels of oil per day, half of which comes from the Persian Gulf region. The U.S. gets about 18 percent of its crude oil and petroleum products from the same region. But whereas U.S. imports of Persian Gulf oil originate mainly in Saudi Arabia, China gets a substantial share of its own imports from Iran. In fact, China is the biggest refiner of Iranian oil, consuming 22 percent of the country’s oil exports. While other countries have been gradually turning to alternate sources as the U.S. and Europe impose economic sanctions on the Teheran government, Chinese purchases of Iranian oil surged nearly 30 percent in 2011.

As sanctions begin to bite, China looks poised to reap big benefits in the petroleum prices it pays by demanding discounts from the increasingly desperate Iranian government. Teheran generates most of its budget from oil sales, so it is incentivized to sell more oil to China as U.S. allies like Germany and Japan turn to other sources. That gives Chinese oil purchasers considerable leverage in pricing their imports. The irony is that China is doing nothing to police Persian Gulf waters while America — a nation that is becoming less dependent on offshore sources of petroleum — pays most of the military bills to assure safe passage of oil out of the Gulf.

Reporters Lakshmanan and Ratnam note this is not the first time Chinese companies have benefited from America’s military presence in Southwest Asia. The Metallurgical Corporation of China was awarded a contract by Afghanistan’s government to develop that nation’s biggest copper reserve, even as U.S. troops were dying to keep the government in power. China is the world’s biggest consumer of copper, and landlocked Afghanistan shares a common border with the Middle Kingdom. China has also moved to secure petroleum concessions in Iraq. Beijing’s behavior is understandable given the voracious appetite of its fast-growing economy for raw materials, but the Obama Administration’s repeated failure to elicit changes in China’s self-serving trade practices must be counted as a major failing. It appears that American military power is helping make the world safe for Chinese mercantilism.