By All Means Necessary (28 page)

Two other prospects have not been so fortunate. The only other pipeline that doesn't encounter politically fraught lands is a notional one crossing the Isthmus of Kra in southern Thailand; this potential pipeline, though, does more to illustrate that many talked-about projects never materialize. A 1.5 million barrel a day pipeline across the isthmus was approved by the Thai government in 2004; in principle construction was to begin in 2008.
⁵⁰
(Chinese planners have also talked about the possibility of building a canal that would traverse it, a prospect that has been discussed in Thailand for fifty years.)
⁵¹
The project has some plausible underlying logic, since it could cut down on tanker costs for moving oil from the Middle East to East Asia. But no domestic Chinese players have ever seriously pushed for the project, and no work has ever been done on implementing the pipeline.

A final pipeline from the port of Gwadar in Pakistan (west of India) through to China has also been discussed for many years.
⁵²
Yet instability in Pakistan—not only security challenges but more fundamentally the lack of a predictable government with which to deal—has prevented progress. It is not clear whether much would happen even if this roadblock were cleared away, given the weak economics of any prospective pipeline, and the proliferation of new supply routes into China's west. Moreover, even if the pipeline reduced Chinese exposure to interdiction of seaborne oil, it might introduce a new vulnerability: Pakistani maps of the notional route suggest it would be highly vulnerable to Indian land forces during a future Sino-Indian conflict.
⁵³

Chinese-backed pipelines might eventually lessen the country's dependence on seaborne imports, but there is little chance they will eliminate them. China will continue to depend on seaborne oil and gas for the indefinite future. It will also continue to rely on metallic ores and agricultural products (which cannot be moved through pipelines) to be shipped through international waters.

China's resource quest can also lead it to become entangled in events far from home through its companies' investments overseas—and this can, in principle, have broad consequences for international security and international politics that go beyond bilateral relationships. This dynamic has been most pronounced for Chinese investments in oil and gas. China is far from alone in having its oil interests create consequences for international security and politics—the United States has often been drawn into the same nexus—but with China still in the early stages of deepening its investments abroad, the consequences of Chinese involvement, though already apparently different, are not yet well understood.

Sudan has been engulfed in intermittent civil wars since its independence more than fifty years ago. In early 2003, a conflict centered on the Darfur region in the west of Sudan broke out. It led
to hundreds of thousands of civilian deaths over the course of the next seven years and to international calls for action to halt it.
⁵⁴
The Sudanese government in Khartoum supported Janjaweed militias with arms, even incorporating some irregulars into its Popular Defense Forces.
⁵⁵
Although Khartoum agreed to disarm the militias on multiple occasions, Janjaweed fighters continued to be a brutally effective government proxy in Darfur.
⁵⁶

During that time, CNPC maintained a large ownership stake in Sudanese oil production. CNPC involvement in the Sudanese oil sector dates back to an agreement on oil development with the government of Sudan in 1995.
⁵⁷
In 1996, CNPC won another trio of development blocks in a competitive international auction, and in 1999 the project began producing oil for shipment to Singapore, turning Sudan from an oil importer into an oil exporter. After that, the role of CNPC in the Sudanese economy grew steadily. By 2009, CNPC held a stake of at least 35 percent in each of five developments, in addition to majority shares in a petroleum refinery and a petrochemical production facility. In 2009, China imported roughly 50 percent of Sudanese oil production.
⁵⁸
This was about 16 percent of CNPC's 2009 equity production.
⁵⁹

The result was strong mutual dependence between CNPC and the government of Sudan. The relationship between Chinese oil interests and Khartoum came under stress during the Darfur conflict but never reached a breaking point. (China has also faced a new set of geopolitical difficulties following South Sudanese independence that may be a harbinger of broader challenges to come.) Rebels attacked Chinese oil fields at least three times between 2004 and 2008, raising concerns about security and drawing Beijing deeper into Sudan's politics.
⁶⁰
One rebel commander warned, “We carried out operations in the oil regions before and warned the firms and individuals that whoever is there is considered a legitimate military target.”
⁶¹
Yet Sudanese oil production climbed during every year of the conflict.
⁶²
Indeed, there is no indication that the attacks and abductions had a major impact on daily production, or even that they were surprising given the high degree of political risk the Chinese NOCs naturally encountered while operating in Sudan. Similar abductions occur with some frequency in the Niger Delta, another conflict-prone area with major oil interests.

The Chinese government, consistent with its past support for Sudanese sovereignty, shunned initial international mediation efforts in Darfur favored by the United States, the UN, and others.
⁶³
However, by the mid-2000s, China's standard noninterference policy gave way to more direct diplomatic pressure on Khartoum. One Chinese scholar described this strategy as “influence without interference.”
⁶⁴
Starting in 2004, a series of senior Chinese envoys visited Sudan and urged Khartoum to end its support of Janjaweed militias. The government of Sudan balked at the requests.
⁶⁵
In response, Chinese diplomats took a new approach: they began to withhold their veto power and abstain from UN Security Council votes on Darfur. China did not veto UNSC Resolution 1556 in July 2004, which implicated Khartoum directly in the Darfur conflict; UNSC Resolution 1564, which even threatened Sudan with oil sanctions; or UNSC Resolution 1593, which urged that the International Criminal Court begin an investigation in Darfur.
⁶⁶
In total, China abstained from eight of the twenty-two UNSC resolution votes from 2001 to 2007.
⁶⁷
It voted in favor of all the others.
⁶⁸

Yet this willingness to let resolutions pass does not tell the full story: China appears to have successfully softened some of the most important resolutions that did pass as a condition for its abstention. UNSC Resolution 1706, for example, was designed to expand the UN peacekeeping mission to Darfur and deploy an international force to the region. China abstained from the vote but steered the resolution so that Khartoum was given the opportunity to approve the UN peacekeeping force.
⁶⁹
The result was at least a seven-month delay in the start of the peacekeeping mission, since the government of Sudan stonewalled. Many analysts argue the delay was an important strategic buffer period for Khartoum to increase its strength in the region and perhaps may have been part of a tacit agreement with China.
⁷⁰

Some observers have speculated that China's effort to weaken resolutions was influenced by pressure from Chinese NOCs (or a proactive desire from the government to help the NOCs) to smooth over the Sino-Sudanese diplomatic relationship.
⁷¹
Resolving this
is essentially impossible, since China has not faced similar situations with countries in which it has no oil interests. At a minimum, though, oil interests did not lead China to take decisive action to block UN efforts in Sudan.

The Chinese government also continued to supply small-arms ammunition throughout the conflict despite a bar from the Security Council against assistance to any of the parties involved.
⁷²
Heavier weapons, including helicopter gunships and attack aircraft, came from Russia and Belarus. (China has also been accused of training Sudanese fighter pilots in the use of Chinese Fantan fighter jets delivered in 2002, prior to the UN restrictions.)
⁷³
The roles of Russia and Belarus suggest that, moral issues aside, Chinese leverage through the option of denying arms sales to Sudan may have been limited; Khartoum appears to have had other major suppliers willing to provide it with an ample volume of arms. Regardless, any connection between arms sales and Chinese resource development would have been tenuous at best; China did not need to sell arms to Khartoum to secure access to resources, since Chinese companies were the only ones willing to develop Sudan's oil.

Ultimately, the experience of Darfur does not support claims that the combination of Chinese resource interests and Beijing's UNSC veto will always prevent international intervention in civil wars and other human rights challenges. But the possibility that China will make such interventions slower and more difficult cannot be ruled out.

Chinese oil and gas interests have also been blamed for Beijing's reluctance to pressure Iran to curtail or forgo its nuclear-weapons-related activities. Chinese uranium and technology suppliers have a long history of assisting the Iranian nuclear program, extending to well before China was dependent on imported oil.
⁷⁴
Though such assistance has stopped in recent years, China continues to be the strongest voice among the permanent Security Council members against aggressive economic sanctions targeted at Tehran.

China has been highly active in the Iranian oil and gas sector. CNPC is responsible for developing the northern half of the large Azadegan oil field, the biggest one found in Iran in decades.
⁷⁵
A CNPC subsidiary (CNPC International) was also important in helping Iran blunt the consequences of sanctions by taking over majority ownership and responsibility for development of the southern half of the field from INPEX, a Japanese company that had previously held a 75 percent interest but withdrew under international pressure between 2006 and 2010. It does not, however, appear to have moved forward much with development. Meanwhile Sinopec is the major foreign equity participant in Yadavaran, the other major Iranian oil prospect, an arrangement it entered into in 2007.

As tensions with Iran intensified, with oil- and gas-related sanctions particularly prominent, Chinese energy-related interactions with Iran have sent inconsistent messages. With the withdrawal of Western firms following nuclear-related sanctions, CNPC was left as the largest foreign oil company active in Iran and moved ahead with its North Azadegan investment.
⁷⁶
In July 2012, Iran announced that Chinese companies planned to invest $20 billion to develop Azadegan and Yadavaran, with an ultimate production goal of 700, 000 barrels of oil a day.
⁷⁷
Chinese companies also continued work on several less promising fields.

But Chinese companies have proven more willing to exercise restraint elsewhere. In September 2011, press reports indicated that Chinese companies had deliberately refused to invest in new projects, including opportunities abandoned by Western firms thanks to sanctions.
⁷⁸
(Azadegan and Yadavaran were existing projects.) Perhaps the greatest controversy has focused on the South Pars gas field. Iran, home of the second-largest natural gas reserves in the world, has concentrated on expanding production from its South Pars field, which is estimated to contain 47 percent of Iranian reserves.
⁷⁹
In March 2013, the U.S. EIA noted that “Phase 11” of the development, a joint effort between CNPC and the Iranian national oil company, aimed for completion in 2016 and, with capacity of two billion cubic feet of natural gas a day, for supplying Iran's first liquefied natural gas exports.
⁸⁰
In June 2009, CNPC had signed
a $5 billion contract to develop the project, replacing the French company Total, which was ejected after what Iran considered unacceptable delays.
⁸¹
Beginning in 2011, however, Iran began to warn CNPC over what it saw as inadequate progress with the project.
⁸²
CNPC responded by citing stability concerns and difficult operating conditions, and in July 2012 it pulled out of the project, at least temporarily.
⁸³

Were there underlying motives related to international efforts to isolate Iran? The evidence is mixed. In September 2012, Wu Bangguo, chairman of the Standing Committee of the National People's Congress, led a delegation to Iran that included CNPC's president, Zhou Jiping. It was reported that Iran agreed to CNPC's withdrawal from the South Pars project and promised to provide another block of oil or gas in exchange at a later date.
⁸⁴
The
International Oil Daily
reported in September 2012 that CNPC withdrew because of war concerns and an inability to find gas buyers, quoting a CNPC source as saying “CNPC can't find buyers for gas production from South Pars, so that's why we can't start production on there.”
⁸⁵
In September 2012,
Caixin Online
also reported that critical equipment for the South Pars project, such as natural gas compressors, would need to be purchased from European countries or the United States, but sanctions would have prevented delivery to Iran.
⁸⁶

Meanwhile, pending Chinese efforts to buy into U.S. oil and gas production also may have played a role. With U.S. oil and gas production on the rise, Chinese companies were interested in investing in U.S. prospects; some worried, though, that they could be denied permission to invest if the U.S. government disapproved of their activities in other countries of concern, most notably Iran. In October 2010, press reports suggested that the Chinese government “informally instructed” firms to slow down after the United States imposed unilateral sanctions on Iran. A source linked the instruction to the 2010 $2.2 billion shale gas deal between the U.S. firm Chesapeake Energy and CNOOC (which was involved in North Pars but has almost entirely extricated itself), saying “The political pressure came directly from the government…and I believe it's logical to draw a link with these U.S. deals.”
⁸⁷