Oil-Rich Venezuela Meets Oil-Hungry China

Oil-Rich Venezuela Meets Oil-Hungry China (with Washington Scheduled to Pay a Price)

In late September, Venezuelan President Hugo Chávez visited China as his second stop on a multi-continent diplomatic mission. Cuba was his first stop, followed by China, Russia, Belarus, France and finally Portugal. During his brief time in Beijing, Chávez met with several high ranking Chinese officials, including President Hu Jintao. The two countries signed several mutual cooperation agreements involving education, sports, trade, telecommunications, and most importantly, oil.

The Oil Deals

President Chávez has repeatedly asserted that he envisions China as an important global oil consumer. Some of the agreements reached by Caracas and Beijing will boost Venezuela’s oil exports to China. By expanding China’s share of Venezuela’s oil consumption, the South American country could decrease its heavy dependence on the U.S. market, which has been the largest consumer of Venezuelan oil. According to the Venezuelan media, the two countries will cooperate to build four tankers and at least two refineries. The first refinery will be located in the oil-rich Orinoco Belt in Venezuela and the other in China’s coastal province of Guangdong. Venezuela’s state-run oil company, Petróleos de Venezuela, S.A. (PDVSA) will be responsible for shipping the oil to its Asian counterpart. Additionally, the two nations will double the amount of capital invested in existing development projects jointly undertaken by Beijing and Caracas beginning a few years ago, from $6 billion to $12 billion. China will contribute two-thirds of the funds, with an allotted amount going toward increasing Venezuelan oil exports, according to Chávez. The South American leader’s goal is to further diversify Caracas’ petroleum client base through reaching an output of 500 thousand barrels of crude per day (bpd) to China by 2009 and to double that figure by 2012. Ultimately, the Venezuelan president optimistically hopes to become the top oil supplier to China.

Same Summit, Different Attitudes

President Chávez does not hide his intentions to strengthen a political alliance expand upon economic ties with China, which are already quite strong. China is about to launch the first Venezuelan satellite, the Simón Bolivar, on November 1, 2008. Moreover, the Southern American country leader has tried to link the two geographically remote countries together through a shared ideology; he has claimed that he is a “Maoist.” During a trip to China in 2004, Chávez said that if Simón Bolivar and Mao Zedong had met, they would have been good friends for they upheld the same humanitarian ideals. Regardless of Chávez’s grandiose statements, Beijing has remained cautiously careful regarding its relationship with the Venezuelan leader. When asked about Chávez’s visit to China in a press conference staged by the foreign ministry in Beijing, the spokesperson Jiang Yu answered that bilateral ties between China and Venezuela were “normal state-to-state” relations.

Rhetoric aside, Venezuela also revealed more to the press about the detailed strategy on which the two countries will cooperate in the energy sector. For example, President Chávez disclosed the plan regarding the joint construction of four oil tankers as well as the expansion of a joint investment fund. On the other hand, China’s official news agency, Xinhua, has used vague language to describe China-Venezuela relations. The oil cooperation between the two countries regarding oil refinery and transportation is collaborative in every aspect. Since the Venezuela-China agreement only represents four percent of Chinese imported oil, other countries’ trade relationships with Venezuela will not be adversely affected, Beijing clarified.

Chávez led the media to believe that relations with China will go far beyond just oil. Prior to his departure to China, he publicly stated that his country would purchase 24 K-8 aircrafts from China in order to replace much older U.S. models. However, Beijing has never confirmed this announcement and there has been no further details regarding such a military deal between the two states. When asked about it, the Chinese spokesperson stated that she did not “have the information” about any such putative military trade deal. Chávez once said that China is an important ally of Venezuela on the anti-imperialism agenda. He claimed that “it is more important to be in Beijing than to be in New York.” Regarding the current financial crisis in the U.S., Chávez announced that both China and Venezuela are not affected by the crises because both countries “had and are having revolutions.” According to China’s President Hu, “Chávez is a good friend of Chinese people.” However, in contrast with Chávez’s fervent expressions, Beijing has shown some restraint in defining China’s relations with Venezuela as not relating to “any other third party or contain any ideology.” It is a bilateral relationship which aims to enhance mutual benefit and development. By stating that China is willing to establish friendly relations with every Latin American country, this assertion somewhat downplays the ideological appeal of Chávez to China.

When it comes to Chávez, it is usually about politics

President Chávez has given high credits to China for several reasons. Economically, China is among the largest oil consuming nations in the world, second only to the U.S. Furthermore, its oil consumption demands are on the rise. Beijing’s avaricious appetite for energy has positioned it to become an important Venezuelan oil client. He needs to tell his own people and his Latin American counterparts that his plan for substituting U.S. market share with other more compatible trading partners is starting to take place. Politically, the Bolivarian Revolution leader sees China as a key ally in furthering his anti-imperialist agenda. China, a rapidly rising power in world trade, is perceived by many developing countries as an economic role model. At the same time Beijing continues to peddle the notion that it comprehends the struggles of the Global South. For its part, Washington is cautious in its relations with Beijing, seeing it as a potential competitor rather than a trustworthy partner like the nations of Western Europe. To Chávez, all the aforementioned components are good reasons to strengthen ties with China as a hopeful recruit in a potential anti-U.S. bloc.

China’s Concerns

For China, Venezuela is undoubtedly an important business partner. Its abundant oil reserves make Venezuela a valuable source of the precious commodity for China. However, Beijing has been maintaining a relatively low-profile relationship with Caracas, pointing to only the cooperative factors between the two countries.

While China acts aggressively in certain respects, it does not want to be considered a threat to the world. Instead, China chooses to act peacefully as its global influence grows. While it is not shy about showing off its economic advances, it is careful not to exceed the line of proper deportment. Hosting the 2008 Olympic Game was the perfect occasion for Beijing to show the world that China had reemerged peacefully, and that its government was trying hard to erase any international skepticism. While Chávez indefatigably waves the flag of anti-imperialism, Beijing is working hard to elevate its reputation. For example, it states that Chinese relations with Venezuela are no different from those with any other countries in the world. Operationally speaking, China’s leftist hue is fast fading when compared to more vibrant leftist regimes in Latin America such as Venezuela, Bolivia and Nicaragua. While these leftist South American countries are flamboyant in their anti-U.S. position, China remains committed to pragmatism and does not automatically dance to such an anti-imperialist beat. Beijing definitely will fight to uphold its own national interests with Washington, like the clash between a U.S. reconnaissance aircraft and a Chinese fighter jet over the South China Sea in 2001. However, Beijing has no reason to fight with Washington over Caracas since the U.S. absorbs by far the largest amount of Chinese commodities, exceeding both Canada and Mexico. Simply stated, China views its ties with Venezuela as business relationship.

On the other hand, China would not give up any chance to stabilize its oil imports, including those from Venezuela. This is a priority because the oil sector is of great importance to the Chinese. Some Chinese analysts view the China-Venezuela oil alignment as a serious matter. In fact, China is considering the possibility of replacing Angola with Venezuela as a major supplier. According to a researcher in China’s Ministry of Commerce, Angola, Saudi Arabia and Iran are presently the three main oil providers for China. With Beijing’s increasing oil demand, looking for new providers has become essential. In this script, Venezuela is destined to play a major role. In the mean time, Caracas is becoming more important due to the fact that it also provides heavy oil and bitumen for China. In the future, the two countries might form a geo-energy community. This potentially represents a significant energy strategy for China.

A Win-Win Situation?

Even though China seeks to form a long term trade relationship with Venezuela, it is trying to quell any concerns the international community may have towards the relationship. Beijing argues that it will not threaten U.S. economic interests in Venezuela because the amount of U.S. investments overwhelms those of China, with the former representing $300 billion in trade, and the latter only $4 billion, according to a statement by the Chinese ambassador to the U.S. in 2006. In addition, the contribution of Venezuela’s oil to China’s oil security strategy is still limited due to the difficulties of transportation and refinement. Moreover, cooperation between China and Venezuela includes tackling multiple areas of shared interests, with a focus not only on energy. Therefore the U.S. should not have to have too many concerns when it comes to its fractious trading partner. The most important message that China wants to send to the West is that it will continue to pursue oil deals with Venezuela, but at the same time, it will not interfere with any bilateral relations that Venezuela has with the U.S.

However, the explanations offered by the Chinese only tell us half of the story. It is true that Chinese investment in Latin America still cannot even remotely exceed that of the U.S., but it is increasing notably. As President Chávez mentioned, China is going to double its investment for the development fund. Likewise, according to Georg Caspary in his article “China Eyes Latin American Commodities,” along with the recently accelerated growth in commodity imports from Latin America – around $ 50 billion – the investments in commodity related fields will also grow remarkably. With the growing Chinese investment in Latin America, the importance of China towards the region, not solely Venezuela, will increase as well.

Technically, the U.S. is the most important petroleum customer for Venezuela because of their proximity to each other. China does not have the same advantage. It only takes 3 to 4 days to ship oil from Venezuela to the U.S, but it takes more than a week to ship to China. Venezuela has to carry it through the Panama Canal and across the Pacific Ocean. The long distances increase the cost of the oil. If Venezuela cuts off its oil supply to the U.S., its oil revenue will unquestionably decrease, and the country’s economy will suffer. However, based on the actions taken by President Chávez up to this point, he does not seem to mind the revenues lost by importing more oil to China.

According to an article in Business Week, energy cooperation between Caracas and Beijing would have its strategic benefits. China would prefer having a major new energy provider. For Venezuela, this could mean declining the influence of unwelcome major customers. So perhaps it will be a win-win situation for both China and Venezuela. However, in the article “Chávez-China Oil Deal May Produce Unsuspected Winners,” the authors suggest that the U.S. should not be concerned about the China-Venezuela energy tie. On the contrary, the U.S. can take this as a turning point for it to start investing in research of alternative energy. Ultimately, this could lead U.S. independence from foreign energy. Nevertheless, in the short run, few changes are likely to be made; Venezuela and the U.S. are the U.S. will remain strong energy trade partner. Alternative energy projects still need years to mature and become applicable. Venezuela still needs revenue from its U.S.-oil sales to implement social reforms. Although Hugo Chávez has repeatedly told the world that he will halt exporting oil to the U.S., the statement has not yet borne fruit. Even though Venezuela may be in the midst of a “revolution,” it still cannot escape the impact of the U.S. financial crisis. President Chávez himself claimed at a summit with Brazilian President Lula de Silva that the destructive power of the global financial crisis is like the force of “one hundred hurricanes,” according to a New York Times report on October 2, 2008.

In an era when energy and other natural resources are weighed with great importance, it is in conceivable for any country to claim that its motivation is plainly economic without any strategic or security concerns. This is especially true for developing countries which are hungry for natural resources in order to promote their growth. In the game of energy security, China has proceeded cautiously in Venezuela or for that matter, elsewhere in Latin America; it is definitely far from being an insouciant player in this game. On the contrary, China has developed a very carefully wrought strategy on how to stabilize its energy supplies coming from Russia, The South China Sea region, Central Asia, The East China Sea and the Americas. Many neighboring countries like Vietnam and The Philippines are worried if China will use force to ensure its energy supremacy in the region is not threatened. Therefore, the U.S. has reasonable concerns to be sensitive to Hugo Chávez’s next step, particularly whether it will affect the country’s oil exports to the U.S. As for Venezuela, it is apparently using its oil as a bargaining chip to shore up its policy of confronting Washington.

ENDS

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