A Dragon in the Andes? China, Venezuela, and U.S. Energy Security

IN AUGUST 2005, the Venezuelan daily El Universal published an interview with Ambassador Ju Yijie, the Chinese envoy to Caracas. When asked if China's demand for Venezuelan oil could push the United States out of Venezuela's market, the ambassador asserted that has the potential to do it. He then quickly added, Though I don't see the necessity for any of the countries involved. (1) The exchange highlighted the growing tension between China, the United States, and Venezuela over the fate of Venezuela's oil reserves as China's influence in the Western Hemisphere continues to expand. Does China's increasing role in South America's energy sector represent a threat to U.S. interests? In recent years, this question has provoked unease among U.S. policymakers who see a dangerous convergence of three worrisome trends. The first is the rise of China as a global economic power that may seek to challenge U.S. dominance over the next quarter-century. Second, U.S. influence in Latin America appears to be in flux as a number of the region's leaders, led by Venezuela's left-leaning President Hugo Chavez, have embraced populist politics and adopted anti-American stances. Third, ensuring access to energy sources has become a central U.S. security concern because a tight global oil market has caused crude oil prices to soar to more than $70 per barrel. Against this backdrop, China's increased efforts to tap into energy reserves in the Western Hemisphere have reverberated throughout the region, with potentially profound consequences for U.S. energy security. The Global Oil Squeeze China's need for oil has surged dramatically since the country first became a net oil importer in 1993. By 2003, China had overtaken Japan to become the second largest oil importer in the world (after the United States). According to the U.S. Energy Department, China now accounts for 40 percent of the global growth of oil demand since 2001. In fact, China's oil consumption is increasing 7 times more quickly than that of the United States, at a rate of 7.5 percent annually. (2) The Paris-based International Energy Agency predicts that, by 2030, Chinese oil imports will equal imports by the United States today. Meanwhile, the United States, which consumes 25 percent of the world's oil despite accounting for only 3 percent of world production, continues to rely on global oil markets, a fact that has created an enduring source of vulnerability. (3) Today, for the first time since the 1980s, the balance of economic bargaining power has swung toward oil-producing countries, thanks mainly to increased demand as developing states such as China and India replicate the United States' dependence on imports. How long this situation will last is anyone's guess, but it appears likely to continue for the foreseeable future. While China continues to import a majority of its oil from the Middle East--and that percentage is due to rise in the coming decades--it has increasingly focused on finding other suppliers, especially in the Western Hemisphere. One result has been the consummation of numerous oil and gas deals with Canada and countries in South America, including Argentina, Brazil, Ecuador, Peru, and Venezuela. Consequently, some in Washington are becoming apprehensive about China's attempts to tap into the hemisphere's energy sources, and bilateral tensions threaten to grow over time if competition for oil becomes more acute. Beijing's Southern Thrust In an effort to reduce Venezuela's dependence on the United States, Hugo Chavez has aggravated U.S. concerns by declaring his desire to seek major alternative markets for his country's crude. China has responded to his overtures by sending mixed signals about its eagerness to serve as an alternative market. On the one hand, China is seeking to portray itself as a rising power with significant interests in the hemisphere, but on the other, its officials continue to suggest that the United States has nothing to worry about. …

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