Diversification of the Oil Markets and China's Oil Sescurity targets

http://www.fiw.ac.at/fileadmin/Documents/Publikationen/Studien_II/SI03.Studie.China__s_oil.pdf

FIW Research Reports 2009/10 N° 03
January 2010

China’s foreign oil policy: genesis,
deployment and selected effects
Edward Hunter Christie (Ed.), Joseph Francois, Waltraut Urban, Franz Wirl

This is a long article, but I chose to comment on the piece on Diversification, risks and threats and China’s oil security targets

According to Winston Churchill ‘the key to oil supply security is with diversity and diversity alone.’According to the article their are three types of diversity that are relevant for energy security: diversity of suppliers, diversity of routes, and diversity of fuels. In regards to diversity of suppliers and fuels the article actually talks about how it is better to have one reliable supply rather than several shaky supplies which would reduce overall risk. In regards to diversity of routes, it is important to do a risk analysis factoring in cost and benefits to creating new routes in relation to the risk associated with existing routes.


China has undergone a major campaign towards securitization of its oil resources. China can securitize it's oil in two ways, either confrontationally or non. Since much of China's oil is exported by sea mainly through the Straits of Malacca, one way that it can securitize it's shipments non-confrontationally is by finding alternative ways to import its oil such as pipelines or third parties. Potential threats to China's shipping of oil by sea include largescale terrorist attacks, piracy, naval blockades, major shipping accidents and/or extreme weather events. The Straits of Malacca is such an important location for China because it would be a pivotal blocking point of oil exports if say they were to get into conflict with the United States. If the United States wanted to cut off China's oil the Straits is where it would most likely occur. Since the Iraq war China has decided to focus more on issues of oil security. "ong Lixia, an energy expert at the Chinese Academy of International Trade and Economic Cooperation stated: ‘The turning point in China's energy strategy was the Iraq war. After 2003, both the companies and the government realized China could not rely on one or two oil production areas. It's too risky."

Issues such as diversification and Securitization of oil are pressing and will dictate the future of China and its growth.