China imports oil at a rate of nearly 4 million barrels a day; this strong demand has inevitably placed constraints on its ability to diversify its outbound energy investments. Oil deals with countries like Angola and Kazakhstan notwithstanding, China remains tied to the Middle East. More than 40% of its oil comes from the region, with 21.6% from Saudi Arabia alone and 14.6% from Iran.
"There’s no way they can rely on Central Asia," said Ben Simpfendorfer, chief China economist at the Royal Bank of Scotland and author of The New Silk Road, a book on China-Middle East relations. "Even if they were buying everything that either Angola or Kazakhstan had to sell, they would still only be supplying a quarter of what they need. Inevitably they have to go back to the Middle East."
Unfortunately for Chinese oil firms, says Simpfendorfer, the advanced stage of development of Middle Eastern oil production means that investment opportunities are limited. Western oil giants such as ExxonMobil and BP are well established and have long-term relationships with producers and governments.
Sources close to a Gulf-based oil producer challenged this argument, however, suggesting that opportunities remain for Chinese oil firms in the region.
A US$350 million agreement struck in April between China Petrochemical Corp (Sinopec) and Kuwait Oil to build five oil-and-gas rigs in Kuwait is one such deal. It is also one of several pursued by Sinopec with Kuwait, the most high-profile of which is a plan to build a refinery in Guangdong in partnership with Kuwait Petroleum Corp. However, the International Energy Agency says that the project could be delayed up to 18 months due to the impact of the economic downturn.
A chance for more lucrative long-term opportunities may lie in Iraq, where ongoing instability has constrained the development of oil production. China National Petroleum Corp (CNPC) has already taken a step in that direction, recently reactivating a US$3 billion deal struck before the US-led war to develop the Al-Ahdab oilfield in eastern Iraq.
The US Energy Information Administration noted in a recent report that renewed investment in Iraq will see "fairly significant growth in production" between 2015 and 2030. Observers see this as a chance for Chinese firms to gain a firm foothold in the country.
"I don’t think it will be US [or] Western European entities that end up helping rebuild the Iraqi oil production system, but rather countries like Russia and China," said David Hewitt, oil and gas analyst with brokerage CLSA in Hong Kong. China’s relative tolerance for risk and political agnosticism may also serve it well in Iran.
In more developed oil-producing nations, analysts expect to see deals made with China to boost diplomatic ties, such as widening access for Chinese oil firms in Saudi Arabia, and more Middle Eastern investment in refineries in China. But these deals will have a limited impact.
"There is no doubt that China will be the biggest marginal buyer of oil over the next decade, even as the Middle East is the biggest marginal producer of oil," said Simpfendorfer. "But in no way do I think that the Chinese oil companies will displace Western oil companies… over the next 10 years."