Zero Hedge
0
All posts from Zero Hedge
Zero Hedge in Zero Hedge,

Guest Post: China’s Worst Nightmare - The US’s Oil Weapon

Submitted by Tingbin Zhang, founder of the independent Chinese economic think tank "Zhonghua Yuan Institute"

China’s Worst Nightmare - The US’s Oil Weapon

China’s islanding building on the four-mile-long and two-mile-wide Subi Reef in the South China Sea has put The US in a tight spot. To protect its ally from China’s aggression, The US will be left with little choice but to constrain China by military means. However, the US won't directly engage China in the war in the foreseeable future, because the US dominates China with its superior naval and air force and the only way for China to level the playing field is to apply nuclear weapons. The nuclear nature of Sino-American warfare will make both the world no.1 and no.2 economy the fallen giants.
 
So there is a possibility that The US might use its oil weapon instead to strike at the core of China’s weakness - it’s huge dependence on oil import. At the moment, China imports 55% of its oil, almost half of which sails from countries in the Persian Gulf?which accounts to 5.3 Million Barrels per Day and is around 75% of  Saudi Arabia’s production. As a matter of fact, China’s reliance on Middle Eastern oil has gradually grown in line with its rapid-increasing demand for oil. Right now, China has achieved the equivalent of the peak of U.S. Oil import dependence and is not slowing down a bit. The single largest source of China's crude oil imports is Saudi Arabia.

China’s state oil reserves of 475,900,000 barrels (75,660,000 m3) plus the enterprise oil reserves of 209,440,000 barrels (33,298,000 m3) will only provide around 90 days of consumption or a total of 684,340,000 barrels (108,801,000 m3).

Meanwhile, This US is inching towards the energy independence. With the technological breakthroughs of shale gas and tight oil, the US has started an energy revolution: U.S. crude oil production has increased by 50% since 2008. With that increase, as well as more efficient cars, oil imports have come down from their high of 60% in 2005 to 35% today—as low as in 1973. With domestic production and gasoline mileage still increasing, imports will continue to decrease. It’s also impressive that U.S. natural gas production has increased by nearly 33% since 2005, and shale gas has gone from 2% of  output  in 2000  to  44% today.

As of 2013, the United States is the world's second largest producer of crude oil, after Saudi Arabia, and second largest exporter of refined products, after Russia.According to BP Plc’s Statistical Review of World Energy, the U.S. has surpassed Russia as the biggest oil and natural-gas producer in 2014. While looking at total energy, the U.S. was over 70% self-sufficient in 2008. In May 2011, the US became a net exporter of refined petroleum products.

With the newly acquired oil might, the US can trick Iran to block the Strait of Hormuz without any economic damage onto the US itself, in order to strike a severe blow to China’s fragile economy. First, The US congress will reject the Iran nuclear deal; and second, The US will give the nod to Isreal’s air strike against Tehran’s nuclear facilities. And then, Iran will retaliate by blocking the Strait of Hormuz. The Strait is the only sea passage from the Persian Gulf to the open ocean. Once it’s blocked, China will scramble to meet its oil demands. In China, the inflation will jump up; the China yuan will plummet, and an economic meltdown will come to bear.

China will succumb to the US’s might of oil weapon to save itself from political, economic and social collapse. The oil weapon will achieve what the military can’t achieve at less cost. This scenario is something China should be really worried about.