Opinion & Analysis

Differences between China and West

Drilling for oil in western Uganda. China prefers non-interference, which has proved attractive to developing countries. Photo/REUTERS
Drilling for oil in western Uganda. China prefers non-interference, which has proved attractive to developing countries. Photo/REUTERS 

When George Bush invaded Iraq in 2003, the world suspected that the main American motivation for the invasion was the eventual control of oil in Iraq.

Yet the recent awards for the development of oil by the government of Iraq point to an open competitive tendering that has brought in even the Chinese who did not directly participate in the war to democratise Iraq.

The joint venture between the British -based BP and the Chinese government-owned CNPC won the lucrative Rumaila contract to increase oil output from 1.1 to 2.85 million barrels per day.

Other companies that won various contracts in Iraq are the American ExxonMobil, the Anglo-Dutch Shell, and the Italian ENI.

My interest in the Iraq story is the surprise Chinese entry into Iraq oil and indeed their entry into oil and gas in many parts of the developing world including politically difficult countries.

While China systematically and easily wraps up oil deals across the globe, the West and especially the US are preoccupied in policing and democratising the world.

Both US and China do actually produce their own oil but are however net importers of oil to meet their deficits as their consumption exceeds domestic production.

While China’s strategy appears to be based on committing foreign natural resources for current and future economic growth, the US approach is to reduce dependence on imported oil and develop instead local alternatives to imported oil so as to augment security of energy supply.

The EU on the other hand, with limited oil resources is heavily dependent on imports of oil especially from the former Soviet Union.

While China uses all state machinery and capital to commit overseas oil, the West essentially leaves the business of oil to private oil companies which are mainly driven by shareholder interests rather than state needs. And this is where the major difference lies.

Both China and the US are permanent members of the UN Security Council whose key mandate is world peace.

However the difference in approach to supposedly troubled regions by the two nations is very telling.

While the US is preoccupied with peace and democracy initiatives, China prefers non interference with host countries and this approach has proved attractive to developing countries endowed with oil reserves.

For the developing countries, the coming of the Chinese into the scene over the last decade was a godsend relief.

After the cold war, the Western world reduced their economic and political patronage of the developing world which had hitherto supported the West in the war against communism.

Instead , the West unleashed the World Bank and the IMF onto the developing world to implement economic and governance reforms which resulted in bitterness and confusion in the developing world .

When the Chinese appeared on the scene at the beginning of this century, they dealt with the developing countries in complete contrast to the Bretton Woods institutions.

The Chinese stated approach of mutual respect and non-interference with domestic affairs of the host countries was welcomed with open hands by the developing countries.

An imbalance in global control of natural resources, especially oil and gas, is evidently widening with China easily getting an edge over the US and Europe.

The big question is whether this imbalance is sustainable in the long term without developing into an economic “cold war”.

It is oil and gas among other natural resources that empower economic development that eventually lead to political leverage.

Across the border in Uganda the West and China are gearing for a diplomatic dance as government approval is sought to buy Heritage 50 per cent interest in Block 1 and 3B jointly owned with Tullow Oil.

China has succeeded in Africa oil and gas because it offers “sweeteners” to go with oil deals in the form of infrastructural development deals and also soft grants for social development, and these meet the immediate and urgent needs for the developing countries.

Africa has its own political risks but rewards are high for those countries and companies who can demonstrate resilience in anticipation of future economic rewards.

Mr Wachira works for Petroleum Focus Consultants. wachira@petroleumfocus.com