Escalating demand for crude in the China Rim region-comprising China and 18 surrounding countries-will outstrip supply over the next 5-50 years and precipitate a crisis of “economic imbalances, energy insecurities, ancient hatreds, and unsettled scores” that could threaten world peace, said researchers at Laguna Research Partners LLC, Irvine, Calif.
“Based on our analysis of the intense economic, crude oil, and military confrontations developing among the China Rim region’s largest economies, we believe that the most aggressive crude oil price targets calling for $100/bbl within the next 3 years will prove to be conservative,” they said in an Apr. 14 report.
They also warned, “At worst, this competition could deteriorate into armed conflict.” Laguna Research Partners analysts quoted a June 2004 US Department of Defense report that China’s People’s Liberation Army is on “an ambitious, long-term military modernization effort to develop capabilities to fight and win short-duration, high-intensity conflicts along its periphery.” China’s economic rise is creating the “war chest” to finance the modernization of its army as the “ultimate guarantor of China’s energy security,” the analysts said.
Competition for energy
Of the 19 countries in the China Rim region, only 4-Russia, Kazakhstan, Viet Nam, and Kyrgyzstan-have surplus production of crude. The 19 countries in the region in total have a crude production deficit of more than 1.7 billion bbl/year.
The countries in the region are home to 50.1% of the world’s population but account for only 9.7% of the world’s crude oil reserves, the analysts noted. China, at the hub, has 20.4% of the world’s population but only 1.8% of global crude reserves.
“This huge disparity has already begun to heighten political tensions in the China Rim region,” Laguna Research Partners said. “Even if large reserves of crude oil are eventually proven in the East and South China Seas, the disparity between these population and reserve figures appears likely to remain immense.”
Second ‘economic behemoth’
India is emerging as a second “economic behemoth” behind China, the report said.
Increases of just 1 bbl/person in China’s and India’s crude oil consumption would boost annual global consumption by 2.4 billion bbl, or 8.6%, the analysts said. The hunt for crude supplies by the region’s five largest economies has spread to the Western hemisphere in North, Central, and South America.
Increased crude demand from Brazil’s emerging economy will further increase the call on global crude production, which appears set to peak, the report said.
Flash points abound
The Laguna Research analysts expect pressure to keep building on the China Rim’s largest crude oil importers-Japan, South Korea, China, India, and Taiwan-to secure reserves in their region. Potential flash points include China-Tawain reunification, conflicts between China and Japan, and China’s pursuit of direct land-bridge access to Bay of Bengal and Arabian Sea crude oil sea lanes via Burma and Pakistan, which India might see as a threat.
Moreover, the analysts said, “China’s drive for access to the Caspian Sea’s huge crude oil reserves via the Kazakhstan ‘land bridge’ is likely to create mounting tensions with Russia. South Korea, facing the inevitable economic disaster of reunifying with North Korea, is likely, we feel, to slip back into Chinese suzerainty.”
As a result of growing competition for crude, defense spending increases related to energy security “will be significant among all of the world’s largest importers of crude oil,” Laguna Research analysts said. “This is likely to include the huge economies of China, India, Japan, South Korea, Taiwan, and the US. Reflecting this, we believe that worldwide defense spending is about to move to a new-and significantly higher-plateau.”
The China Rim region includes 14 countries that share borders with China-Afghanistan, Bhutan, Burma, India, Kazakhstan, North Korea, Kyrgyzstan, Laos, Mongolia, Nepal, Pakistan, Russia, Tajikistan, and Viet Nam. Also included are four noncontiguous countries-Japan, South Korea, the Philippines, and Taiwan. ✦