all, continued economic growth is vital to social peace and the legitimacy of the
extant political system. These could be in jeopardy, particularly in the less devel-
oped regions, without continued job and wealth creation and distribution.
Two strains of thinking, one economic and one security related, contribute to
this sense of insecurity on the part of policymakers in Beijing. The economic
issue arises from the lack of appreciation of or understanding of market forces
in the energy sector. Energy market analysts are not widespread throughout the
bureaucracy, and in general there is a lack of confidence in markets for solving
the myriad problems associated with supply. A lack of expertise is compounded
by a dearth of low-cost, accurate information, incomplete privatization, limits
imposed on foreign participation and ownership, and a decentralized fiscal and
political system.^3
On the more traditional security side, spikes in price and the general political
environment following the start of the 2003 Iraq war made perfectly clear, just
as the demand issue was exploding, the extent of China’s reliance on both a stable
political and economic environment in the Middle East and the long transporta-
tion lines from there to its major distribution centers. Beijing did not like what it
saw as a unilaterally initiated war (despite the UN’s long involvement in the
problem, right up to the start of the conflict) to secure a U.S. vision of energy
security which more likely than not would threaten China’s arrangements with
Iraq and other countries in the region. The Middle East still holds 60 percent of
proven oil reserves and is the source of nearly 40 percent of China’s oil imports.
Saudi Arabia and others are planning to ramp up production so that the region’s
share of world production could increase to nearly 50 percent by 2030. Without
corrective measures, Middle Eastern oil could increase to 70–80 percent of
China’s imports by 2015.^4
Beijing’s recent arrangements with Iran, Sudan, Myanmar, Uzbekistan, Russia,
Argentina, Canada, Venezuela, and most recently Saudi Arabia flow from these
concerns. The ‘‘pipeline politics’’ of the Shanghai Cooperation Organization,
which encompasses proposed links from Kazakhstan and Iran, as well as an
Asian Free Trade Area proposal intended to promote access to Indonesian and
Malaysian oil and gas and to Singapore’s refinery capacity, is also part of this
post–Iraq war strategy. And China has begun extracting offshore resources from
the waters surrounding the Diaoyutai/Senkaku islands, where its territorial claims
overlap with those of Japan; from the Xisha/Paracels, where Chinese claims over-
lap with Vietnam’s; and from the Nansha/Spratly area, where several countries
assert sovereign rights. Gas pipelines from Irkutsk and Sakhalin and new liquefied
natural gas terminals in Guangdong and Fujian contribute to the provision of
energy security.
Roughly 75 percent of Chinese oil imports passes through the Malacca Strait.
Recent concerns for piracy and terrorist attacks there have been a major impetus
to China’s creation of a Strategic Petroleum Reserve, as well as its consideration
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