Looking at China’s Attempt to Control Oil

China has been flexing its muscles to control almost all major strategic resources of the world. And it is definitely eyeing to gain the upper hand in dominating the oil market. It is an undeniable fact that oil has been a major catalyst in the ongoing financial crisis.

Using its massive foreign exchange reserves, China is poised to take control of this precious source of energy that has sparked an unending contest of who gets to be in command of this valuable resource. Interestingly, some financial and political analysts have been entertaining the scenario that China will one day use oil as a weapon. Politics inside and outside of Beijing are poised to materialize this scenario.

To show its huge bargaining power in the world market, China has helped the US ease the effects of the financial meltdown a few years back by buying the US Treasury debt. China has also showed willingness to invest in long term loan-for-oil deals in developed and developing countries. Since 2009, it was reported that Chinese banks granted about $60 billion in loans to several countries around the world. The loans were financed directly through the foreign exchange market. Three major banks of China–Export-Import Bank of China, China Development Bank, and Bank of China–have provided financial assistance to Brazil, Russia, and Kazakhstan. These three have known massive oil reserves ensuring China has several suppliers in the future. Getting supplies from many sources has played a significant role in its manufacturing capacity as seen by the volume of its exports. It also allows China to regulate its own demand for oil as necessary.

While the West has gone to the length of waging wars in the Middle East to extend their reach for oil there, China has been spending large amounts of loans to smaller, yet numerous African countries with proven oil reserves. One example is the funding of Nigeria’s state-run oil company NNPC. About $23 billion was released last year to China State Construction Engineering Corporation to build three refineries and a fuel complex for NNPC. This huge project would boost NNPC’s capacity, adding 750,000 barrels per day to its refined products. Definitely, a large chunk of this supply would be forwarded to China.

Aside from creating a steadier oil supply, this can also give China leverage in affecting oil prices in the present and in the near future. This will allow China to have a direct influence in controlling other strategic supplies such as uranium and nickel. Controlling the flow of oil in the market can be China’s biggest stick to date. That stick can turn into a weapon overtime. This situation is one of the few significant reasons why China has been spared from the crisis that affects the US and Europe right now. China aims to provide loans so that it can access the resources first hand, without having to go to the markets. China is known to have at least $2.45 trillion in foreign exchange reserves and has every intention to use it for loan-for-oil scheme.

The vulnerable Western financial markets should learn from the strategies of China. Western markets need competent and honest leadership who will focus on the issues at hand and resolve the causes of the issues. A change in the landscape of Politics might be the only chance they have.

Harvey Russell has been writing for kinds of topic for several years now. He is currently working as a full-time content writer.

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