Oil Is Still King – The American Spectator

Competition between the United States and China is the defining feature of international relations in the 21st century. Identifying domains in which one competitor has an advantage over the other is, thus, an exercise of both great interest to the academic and grave consequence to the policymaker. One domain in which the advantage assessment has gone awry is the geopolitics of energy. Due to the influence of the domestic green industrial complex, much of the American public believes that China holds the upper hand. The underappreciated and salutary truth is that the United States reigns strategically supreme on this issue.

In order to reach its import terminals, China’s Mideast oil supply must transit from the Indian Ocean to the Pacific through the Malacca Strait connecting the two.

To grasp why, a review of the contemporary energy usage hierarchy is in order. International Energy Agency (IEA) statistics indicate that oil is the largest single source of world energy supply at 29 percent. Despite notions of a green transition, oil is still king, and it will remain on the throne for a long while yet. IEA projects that oil will remain atop the charts at 29 percent at the end of this decade and that, while in 2050 it will make up a slightly lower 27 percent of global energy, it will still be the largest single contributing source. Moreover, IEA’s April oil market report concludes that global demand for crude will be higher in 2023 in absolute terms than in any year ever before.

The United States is both a driver and a beneficiary of these trends. Thanks to a doubling in output over the past decade, it is the world’s leading crude oil producer and is now a net-exporter. In addition to the economic benefits, U.S. oil production capacity — from the Gulf of Mexico to Arctic waters off Alaska — is a strategic insurance policy.

China’s energy security situation is this assuring snapshot’s negative image. Since 2010, China’s economy has doubled in size and its oil consumption has increased by more than 50 percent, placing it second on the global list of oil consumers. Its oil production, however, is no higher than in that base year and China now consumes nearly four times as much oil as it produces annually.

China’s oil imports have ramped accordingly. Indeed, U.S. companies have serviced some of this growth, selling about a quarter-billion barrels to China in each of the last three years. China’s main oil sources, though, are in the Persian Gulf. It is this oil — some estimates put it as high as 80 percent of China’s imported supply — that troubles Beijing strategists.

In order to reach its import terminals, China’s Mideast oil supply must transit from the Indian Ocean to the Pacific through the Malacca Strait connecting the two. The strait, which narrows to less than 2 miles in width at Singapore, provides a strategic chokepoint for the U.S. and its regional partners, should tension escalate to conflict. While China has supremacy at the Taiwan Strait and could enact a suffocating blockade, at the Malacca Strait the U.S., India, Australia, and other partners could turn the tactic around.

This deficiency in energy security partly explains Beijing’s aggressive posture in the South China Sea, where it has encroached upon the territorial claims of littoral states including Vietnam, the Philippines, Indonesia, and Malaysia in hopes of securing more offshore oil east of the Malacca Strait. It also explains why China has invested so heavily in alternative energy.

China’s buildout of its alternative energy portfolio, particularly the battery technology supply chain and electric vehicles, is primarily a strategy for attenuating its existing oil vulnerabilities. While Western environmental pressure groups like the Environmental Defense Fund credit China with “stepping into a leadership void” on climate policy, the acceleration of investment in alternative energy systems is better understood through a geopolitical lens.

From the U.S. perspective, these asymmetries are an advantage to be cultivated, and yet policy is either in place or under consideration that will do the opposite. One such policy is the explicit restriction of oil production in certain offshore areas. Another is tabled “windfall” profit taxes on oil companies. The ostensible justification for such punitive measures is environmental quality, but as recent work from the Institute for Energy Research shows, U.S. production is top flight in this respect. Keeping in mind the IEA expectations for oil’s global status in 2030 and 2050, hemming in U.S. production does not bring us closer to global environmental goals because it merely pushes production elsewhere. A more sensible approach to environmental questions would be to address the externalities associated with the burning of hydrocarbons in a source-neutral way.

Some commentators argue that, regardless of its motivation, the focus on alternative energy puts China in the catbird seat amid the rise of new energy tech. But China’s program only provides it an advantage to the extent that the U.S and its global economic and strategic partners force a transition to the technologies China currently dominates before their own supply chains have time to mature. Alongside a sound oil strategy, the U.S. needs an environmental policy overhaul that enables the market development of the resources and supply chains in question. Liberalization of permitting for mining, to cite one example, is a must.

While racing smartly on new energy technology, the U.S. ought to prioritize maintaining its existing advantages. One important region where this is in peril is the Arctic. As China and Russia have strayed further from the international relations mainstream they have grown closer politically and economically, with Russian oil potentially serving as China’s lifeline. Geographic challenges render this a costly project, however. The options for delivering more Russian oil to China are to expand and build anew lengthy, complicated pipelines through Siberia or Central Asia, or to navigate the icy waters of the Arctic Ocean to reach the north Pacific and China’s seaboard. Indeed, in late 2022 a Russian oil expedition made such a journey. While Russia and China (which dubs itself a “near-Arctic state”) are planning to operationalize the Arctic theater, U.S. policy is closing itself off from it. In conjunction with the approval of a sole shovel-ready Arctic development project, President Biden barred future development across Alaska’s Arctic Ocean shelf in March 2023. Though this does not mean Russia will be drinking Alaska’s milkshake, it signals a willingness stateside to relinquish U.S. advantage and forego potential economic and energy security gains. The president’s record has been decidedly mixed on energy, but his pledge to “end fossil fuel” still anchors the executive branch position.  

In a new era of geopolitical competition, to call for an end to a status quo that confers distinct strategic advantages was foolish; to act, if in fits and starts, toward that pledge has been a blunder. China’s oil weaknesses and U.S. oil strengths are an undervalued asymmetry in America’s favor. To maintain and leverage this advantage, U.S. policy should — through trade and other instruments of statecraft — elevate relations with the states adjacent to the Malacca Strait while facilitating continued oil production at home.

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