The Fears of the West, China and Saudi Oil
Randa Takieddine Al-Hayat - 27/01/06//
An economic expert said that if China becomes a country using cars at the same rate of Western countries, it would need to consume the total annual Middle East oil production.
A World Bank report urged China to change its current growth pattern since it would lead to daily and disastrous environmental threats because of the coal consumption in its economic production.
Undeniably, the visit of the Custodian of the Two Holy Mosques, King Abdullah bin Abdulaziz, to China and India is of paramount importance. The Kingdom of Saudi Arabia stores the biggest oil reserves in the world and is the primary source of oil to China, which imports 17 per cent of its needs from the Kingdom. China is looking for a political partner that would contribute to providing its oil needs.
At the same time, oil prices have risen to levels that were described by the Saudi King as "higher than they should be". Prices have surpassed $68/b in Nymex (New York Mercantile Exchange).
In this context, it was remarkable for the French "Le Figaro" newspaper to publish on its first page a picture of the Saudi King during his visit to China where he was received by the Chinese President Hu Jintao, with the title: "Oil, gas and nuclear energy: the new global shock."
The entire West is worried about an oil shock due to the Iranian threats to decrease Iranian production as a result of the struggle between Iran and the West in addition to the tensions in the oil sector in Nigeria.
Europe is talking about preparing a unified oil plan, while France is suggesting a memorandum outlining a European plan for the energy sector and recommending to diversify sources.
France largely relies on nuclear energy for electricity but it was keen on clarifying that its memorandum is not intended to defend nuclear energy but to push for the diversification of energy sources. France realizes that some European partners - like Germany and others - oppose nuclear energy.
The West's fears, from the rise in oil prices to an extent that would harm the world economy, are linked to the crisis with Iran, which often threatens to lower its production.
The Iranian threat scares countries like China, which recently signed a deal with Iran but not on a large scale. The deal amounts to 70 thousand b/d.
Saudi Arabia had exported to China 400 thousand barrels during the year 2005 and Saudi Aramco signed a deal with Chinese "Sinopec" and "Mobil" to build a refinery in a province south east China. Saudi Arabia also seeks to build a refinery in north east China.
The consolidated relationship between Saudi Arabia and China should reassure the second largest oil producer in the world, following the United States, over the security of its oil supplies, knowing that the growth in Chinese demand is one of the reasons for the spike in oil prices; in addition to speculations in financial markets, tensions in Iran and Nigeria and the succession problems in Kuwait.
The Organization of the Oil Producing Countries, OPEC, is holding an extraordinary meeting next Tuesday in Vienna, scheduled during its last meeting in Kuwait. Member-states expected, during their last meeting, that demand for oil will decline in the second quarter of the year, threatening to reduce prices. The upcoming Vienna meeting, however, is held in contrasting conditions, which could drive OPEC to freeze its production volume. Save for Saudi Arabia, OPEC countries are producing with full capacity, while Iraq is outside the quota system since its production is still below two million barrels a day.
In light of the energy crisis that worries Europe following the Russian move of stopping its gas supplies to Ukraine and Georgia - due to a dispute apparently over prices, but actually over politics - the status of the world's leading oil producer, Saudi Arabia, keeps gaining importance. Saudi Arabia sets up its policy, based on the stability of the world market, as for offer and demand within OPEC with the aim of maintaining acceptable prices.
Nonetheless, the importance of OPEC meeting stems from the fact that it will be a testing ground to many questions about whether Iran, under the presidency of Mahmoud Ahmedinejad will engage in maneuvers to stir up a crisis or will opt for pragmatism to sell its oil and collect the proceeds it ardently needs.
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