Home' Trinidad and Tobago Guardian : June 25th 2015 Contents BG8 ENERGY
BUSINESS GUARDIAN www.guardian.co.tt JUNE 2015 • WEEK FOUR
For hundreds of years travelers
have haggled over carpets,
jewelry, spices and copper
work in the winding alley-
ways of Khan al-Khalili,
Cairo s traditional souk.
Today the goods are more likely to have
been mass-made in a factory in China than
handcrafted in a local workshop.
Trade is central to growing ties between
China and the Middle East. It has increased
more than 600 per cent in the past decade,
to US$230 billion in 2014. Bahrain, Egypt,
Iran and Saudi Arabia all import more from
China than from any other country. China
is the top destination for exports from several
countries in the region too, including Iran,
Oman and Saudi Arabia. In April Qatar
opened the Middle East s first clearing bank
to handle transactions in yuan.
The trade is driven by China s thirst for
oil. In 2015 it became the world s biggest
importer of crude, half of it---more than
three million barrels a day---from the Middle
East. By 2035 China s imports from the
region will roughly double again, reckons
the International Energy Agency, far exceed-
ing that of any other nation. "This is a big
shift rather than incremental change," says
Chaoling Feng of Cornell University.
Even the Middle East s poorer countries
offer a fertile market for cheap Chinese
wares. In 2013 Xi Jinping, China s president,
proposed reviving the Silk Road, an ancient
trade route linking China to Persia and the
Arab world. Chinese cars crowd the streets
of the Egyptian, Syrian and Iranian capitals.
Chinese-made clothing, toys and plastics
are ubiquitous. China sells a lot of small
arms too, according to the United States
Institute of Peace, a think tank in Wash-
As China looks west, Arab countries turn
east. In part, this reflects the revolution in
the energy market wrought by fracking.
America is relying more on its own shale
oil and gas and buying less fuel from the
In 2000 the region exported 2.5 million
barrels of oil a day to America; that dropped
to 1.9 million by 2011. By 2035 the Inter-
national Energy Agency predicts America
will buy only 100,000 barrels a day and 90
per cent of Middle Eastern oil will flow to
Arab leaders such as Egypt s Abdel-Fattah
al-Sisi are keen to woo Chinese investors.
They need cash to fix their crumbling roads
and dilapidated ports. Sisi and almost every
other Arab head of state have visited Beijing
since 2012. Chinese firms are building
Tehran s metro, two harbours in Egypt and
a high-speed railway between Saudi Arabia s
holy cities of Mecca and Medina. Factories
in a Chinese-run special economic zone at
the Suez Canal churn out plastics, carpets
and clothing. On June 15 Egypt and China
signed an agreement for US$10 billion worth
of new projects.
So far a purely economic partnership has
worked well. Few Arabs worry that China
is exploiting the region; a feeling widespread
south of the Sahara. But the relationship
may change in time. Many leaders in the
Middle East fret over a perceived American
withdrawal. Although officials recognize
that China does not have America s military
or diplomatic clout, some want it to help
fill the void.
Beijing has long espoused a policy of
"noninterference" in other countries internal
affairs. It opposed the American-led invasion
of Iraq in 2003 and has voted with Russia
to block action to end Bashar Assad s rule
in Syria. It has tried to remain friendly with
both Israel and the Palestinians, and with
the regional foes, Iran and Saudi Arabia. It
is not taking part in the coalition of 60-
odd countries fighting the Islamic State,
despite its oil interests in Iraq and unsub-
stantiated reports of 300 Chinese Muslims
fighting there. "We don t really have the
ability to lead in solving Middle East matters,
nor have we ever thought about it," says Li
Weijian of the Shanghai Institute for Inter-
It is notable that neither Xi, nor his prime
minister, Li Keqiang, has set foot in the
Middle East, despite visits across the world.
Xi postponed a visit to Saudi Arabia in April,
probably to avoid commenting on its
airstrikes in Yemen.
Too big to be neutral forever
But China is finding it ever harder to stay
aloof. By vetoing resolutions on Syria, for
example, it is seen as one of the powers
supporting Assad. Chinese flags were set
on fire in various Arab capitals after it vetoed
a US Security Council Resolution calling for
Assad s removal in 2012. Despite the vetoes
it is also talking with the opposition in Syria.
And it has started to play a more active
role in other parts of the region. It is one
of the six countries trying to negotiate a
deal to curb Iran s nuclear program, even
as it engaged in joint naval exercises with
Iran last year. Its navy also protects com-
mercial shipping from Somali pirates around
the Gulf of Aden.
The tumult following the Arab Spring has
fostered caution: China is increasing its
stores of oil and seeking to forge more friend-
ships in the region. Still, Xi says he wants
to cooperate in nuclear power, aerospace
technology and renewable energy. Some
Chinese investors have been scared away
from turbulent countries such as Yemen,
where nearly 600 nationals were evacuated
in March amid fighting there, but many
have looked to quieter spots such as Dubai.
Chinese firms are eyeing opportunities in
Iran, which will open up if a nuclear deal
is struck this month.
As its economic interests grow, China
may be sucked into the Middle East s snake-
pit politics, whether it likes it or not. Last
year Barack Obama criticized China for
avoiding the fight against the Islamic State.
He accused it of having been a "free rider"
for too long, offering little in return for a
steady flow of oil.
Some Arab leaders agree.
Economist Newspaper Ltd. Distributed
by the New York Times Syndicate
The news from Iraq is not all bad. Despite
the war against the Islamic State group
in the north and west, for three months
in a row Iraq has pumped record amounts
of oil. New wells operated by Lukoil, a Russian firm,
at the vast West Qurna oil field have come on stream.
Iraq has found a way to separate light crude from
the heavier sort, enabling it to sell two types rather
than an unpredictably adulterated blend, raising
exports from 3.1 million barrels per day to almost
Kurdistan s autonomous government is pumping
out more oil, too. Thanks to the pipeline it opened
in November that bypasses the Islamic State-held
city of Mosul, it is sending a record 550,000 bpd to
Ceyhan, a port on Turkey s Mediterranean coast.
Despite the Kurds seizure last year of the oil-rich
area around Kirkuk, whose ownership is disputed by
Iraq s Arabs, Kurdish oil officials are getting on better
than before with their counterparts in Iraq s Oil Min-
istry in Baghdad. All told, a decade of investment is
at last starting to pay off.
Why then are faces at international oil shindigs
still glum? Perhaps because the good times may soon
be over. The cost of fighting the Islamic State, coupled
with the current low price of oil, has left Iraq struggling
to pay its bills, let alone maintain investment. The
Oil Ministry in Baghdad has cut investment in the
vast Rumaila field run by BP from US$3.5 billion to
, Shell, an Anglo-Dutch giant, and ENI, an Italian
one, have scaled back. Plans to improve the port at
Faw, at the top of the Persian Gulf, which are vital
if exports are to rise, have been put off. A scheme
costing US$13 billion to sustain pressure at the wells
is in doubt. And Kurdistan s reserves are proving
harder to exploit and scarcer than expected.
Corruption and indebtedness also hamper devel-
opment. Oil companies worry that Shiite militias,
which have been left alone in the south as the regular
army heads north to take on the Islamic State there,
may start demanding protection money.
Optimistic oil officials used to predict production
of 13 million bpd by 2020. Now even the oil minister,
Adel Abdel Mehdi, hesitates to bet on half of that.
Meanwhile, the oil majors are looking avidly at
prospects in neighboring Iran, before a widely pre-
dicted loosening of sanctions if a nuclear deal with
America is reached.
"The Iraqis have had quite a few chances to get
their oil industry running, and it keeps stalling," says
the representative of a foreign oil company in Iraq.
"If the Iranians come on stream, they ll have missed
@2015 The Economist Newspaper Ltd. Distrib-
uted by the New York Times Syndicate
The total number of oil and gas job losses
globally is more than 150,000 and continues
to grow, according to global oilfield staffing
firm Swift Worldwide Resources.
A recent report from Swift notes that the
United States saw the "fastest and steepest
decline" of jobs while the North Sea market
had also been "hit hard." Job cuts are affecting
direct employees as well as contractors, which
Swift CEO Tobias Read said are often the first
to be let go with little fanfare and do not get
counted in traditional layoff statistics.
"The contractor market in the oil and gas
sector is a huge silent community which com-
prises upwards of 100,000 professional-grade
workers and similar skills," he said in a report.
In regard to international markets controlled
by national oil companies, the report shows
a slowdown in new projects and anticipates
tougher times ahead with more layoffs. While
Southeast Asia has not been hit with sub-
stantial layoffs, impacts are expected in the
shipyards of Korea, China and Singapore.
While major operators have been cutting
costs in the upstream sector, primarily in
exploration and production, many of the dras-
tic cuts have been "done sympathetically
through accelerated early retirement pro-
The Middle East has fared far better than
the rest of the world, with Saudi Arabia s
drilling activity at a 20-year high. Job creation,
however, has been modest.
Because some job losses are not made pub-
lic, therefore making them hard to track, Swift
makes assumptions based on likely impact.
"Our assumptions remain conservative and
the likelihood is that total job losses probably
[greatly] exceeds Swift s forecast," Read said.
Report: More than 150,000 jobs lost in oil, gas
The Great Well of China
Oil production is surging, but
insecurity makes investors nervous
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