China made its move into Sudan’s oil sector in the 1990s, after Washington accused al-Bashir’s regime of promoting and financing international terrorism. Before becoming the number one enemy of the West, Osama bin Laden had free rein in Sudan, a country that became radicalized in political and religious terms (including introducing Islamic Sharia law across the whole territory) after the coup d’état supported by Brigadier al-Bashir in 1989. That was when American companies such as Chevron chose to pull out of Sudan, just before the United Nations and the United States imposed parallel sanctions on the country. The regime was forced into a corner and started desperately looking for investments for its oil industry, which is now the main source of state financing. As has happened in so many other places, China came to the rescue. “Sudan’s main problem in the 1990s was capital investment. China and other partners such as Malaysia came here with their investments and today they are considered partners,” explains Salah Elding Ali Mohammed, a government adviser on energy affairs, when we meet him in his office near the Ministry of Oil. “We couldn’t have investments from Western companies because of the embargo.”
Chinese investments arrived in the country just when the West was attempting to isolate Sudan, strangling the economy by withdrawing investment as it did with the apartheid South Africa of the 1980s. While Europe and the United States were pulling out of Sudan to put pressure on a regime which, like neighboring Libya, was encouraging Islamic fundamentalism and jihad, China was busy taking advantage of the opportunities emerging from this vacuum. For Beijing, which became a net importer of crude oil in 1993, Sudan represented an ideal opportunity to boost its energy security by entering decisively into the Sudanese oil sector under exceptional conditions: CNPC, Sinopec and other Chinese oil companies managed to obtain shares in around 40 percent of the country’s oil assets, despite their obsolete technology and limited experience in the international crude oil industry.24 According to Ali Mohammed, China was not the best option; it was the only one. “China is the only choice for Sudan. The Western companies didn’t want to co-operate with us for political reasons,” he explains.
Since then, China has become “the only player or the dominant player” in Sudanese oil wells, according to a Western diplomat who we interviewed in Khartoum. Furthermore, China also played an exceptional role in the construction of two new infrastructure projects of undeniable political and economic importance: an oil refinery close to the capital and the only oil pipeline that transports crude oil from the south of the country as far as Port Sudan at the edge of the Red Sea.
Beijing has played the part of loyal squire to al-Bashir’s regime for many years as a result of its interests in the Sudanese desert. In fact, this is even true in issues that go beyond the energy sector. Firstly, China’s investment and technology have provided highly significant economic support to the regime, which took advantage of the “wind from the east” to start exporting crude oil for the first time at the end of the 1990s.25 Since the end of the last century, the vast income provided by oil sales has provided a huge boost to the Sudanese economy, which was previously reliant on agriculture.26 However, Chinese capital did not just help Sudan to escape the bankruptcy that the Western embargo threatened to cause. It also propped up al-Bashir’s regime in other ways, helping the country to rearm itself thanks to the arsenal of weapons supplied largely by the state-owned China North Industries Corporation (NORINCO). These weapons helped the dictator to successfully carry out several incursions into the south of the country during the civil war that ravaged Sudan until 2005. Most significantly of all, the weapons allowed the regime’s followers to commit the first act of genocide of the twenty-first century, in Darfur.27 Chinese money indirectly stained Sudanese oil red with the blood of the people killed in this unequal war in the west of the country. China’s vote at the Security Council of the United Nations in favor of imposing an embargo on arms sales to the Islamic country didn’t count for much. This double game, in which Beijing acts as a supposedly responsible power on the one hand and as a loyal ally of al-Bashir on the other, has allowed Chinese military trucks, fighter aircraft and semi-automatic weapons to fall into the hands of China’s Sudanese associates. According to several reports by the United Nations, these weapons have contributed to the deaths of at least 300,000 people.28
As if that were not enough, those same weapons were used by groups sympathetic to the Sudanese regime when fighting against the peacekeeping troops of the African Union and the United Nations, which paradoxically included soldiers sent by Beijing.29 “China is very much implicated in the human suffering in Darfur. China is one of the biggest powers now emerging in the international arena and a member of the UN Security Council, which means they have responsibilities towards peace and the security of individuals,” argued the Darfur-born human rights lawyer Salih Mahmoud Osman, winner of the 2007 Sakharov Prize for his activism during the conflict, when we met him in his modest office in Khartoum.
Against this background, it makes perfect sense that Chinese diplomats should have felt some misgivings about the independence of South Sudan, the world’s newest state. China has been a staunch ally of President al-Bashir and the northern Arab government and, with its eyes fixed on its objectives, Beijing wanted anything but a change in the status quo. China feared that the secession would lead to millions of dollars of investment going down the drain, as 80 percent of the oil reserves are in the South, on a border that is still in dispute and in a territory threatened by the possibility of future conflicts.
However, as 90 percent of South Sudan’s budget depends on sales of crude oil, the country is not in any position to put the brakes on production. What is more, it depends on the North to export its oil produce, as the oil has to travel through northern territory to get to the sea. “There’s a feeling on both sides that the oil must be exploited and they have to co-operate,” explains Harry Verhoeven, an expert in Sudan at Oxford University. China has already set its chameleon-like diplomacy in motion to start building relationships with the government of Juba, the capital of South Sudan, in order to get the biggest possible return on its investment. A phone interview with a Western scholar based in Juba carried out in December 2012 confirmed that, despite China’s record in Sudan, the new country’s government is very willing to engage with China. Sudan still contains fifteen years’ worth of oil, and China—whose responsibility as an international power has been thrown into serious doubt over Sudan—does not plan to leave the party until the music stops playing.
CHINA COURTS THE OIL OF THE AYATOLLAHS
Despite the sweltering heat and the dense cloud of pollution, Tehran’s exasperating traffic jams do at least offer an interesting visual spectacle. It’s dusk and there is no room to breathe on the so-called Ashrafi Esfahani “high speed road” that links the north and south of the Iranian capital. Cars are charging across each other on every side, making life very difficult for our imperturbable taxi driver in his worn-out Peykan car. Propaganda posters are dotted along the side of the road, along with hand-painted murals immortalizing the heroes of the 1979 Islamic Revolution, with the Republic’s founder Ruhollah Khomeini as the main protagonist. There are also plenty of witticisms and ingenious drawings, similar to those seen all over the Malecon Boulevard in Havana, alluding to the imperialist United States and its Israeli “henchman.” “Down with the USA,” blurts one classic. Another more evocative image shows the American flag hanging upside down, with the original stars and red stripes replaced by bombs and spurts of blood.
These words and images offer a picturesque summary of the state of mutual antagonism that has existed between the Islamic Republic and the United States throughout three long decades, after diplomatic ties went up in smoke as a result of the “Embassy Hostage Crisis.” China has benefited from the fact that this official enmity has not only spread to other Western countries but has also intensified since President Mahmoud Ahmadinejad rose to power in 2005, embarking on a nuclear adventure that has led to direct
confrontations with the international community. Under these circumstances, there is no doubt that China’s role is fundamental. In the context of an embargo that has left Iran severely isolated, the constant flirting between China’s diplomats and the ayatollahs has allowed Beijing to become a key economic player in a country that boasts the world’s fourth largest proven oil reserves (after Saudi Arabia, Venezuela and Canada) and the second largest reserves of natural gas (after Russia).30
“Five years ago there were no Chinese people here,” explained an executive at one of the biggest Western oil companies in Iran, demonstrating how quickly Chinese influence has progressed in the country. The figures speak for themselves: while the flow of trade between the two countries was insignificant just a decade ago, China is now Iran’s biggest trade partner, generating an annual trade volume of around $36 billion—including both the official trade and that which enters the country via Dubai. The tightening of sanctions against Tehran has led to a lack of investment in the natural resources sector which, as in the case of Sudan, has left the door wide open for China. Under pressure from the United States, the oil companies ENI, Total, Repsol, Shell, BP and others have had to put the brakes on their business in Iran to avoid jeopardizing their position in the American market. “The Americans say: it’s either the Iranians or us. And so we’re all either on stand-by here or we’ve left the country31 out of fear of compromising our commercial interests in the United States,” our source explains.32
An example of the dilemma faced by the Western oil companies is seen in the case of the Spanish company Repsol, which reacted to United States pressure by gradually pulling out of Iran in order to safeguard its interests in the Gulf of Mexico. According to what we heard on the Tehran grapevine, exiting the country must have cost the company no less than 300 million euros. Under these circumstances, it is not surprising that Chinese state-owned oil companies have been able to make a triumphant entry into the sector, despite the fact that their technology is far from a match for its Western competitors.33 “Yes, the Chinese have become a major player in Iran, but only because they arrived in an empty playing field,” the executive points out. “The sanctions represent a sine qua non condition for China’s presence in Iran. If there were no sanctions, Western technology would have taken over the sector,” adds a French expert in Iranian affairs, Clément Therme. As such, China makes up for what it lacks in technology with two valuable wild cards: political connections and financial clout.
“The alternative would be Russia as they have the technology, but they don’t have the capital,” concludes John Garver, a professor of international relations at the Georgia Institute of Technology and adviser to the United States government. Mehdi Fakheri, vice-president of the Iran Chamber of Commerce, Industry and Mines, argued along the same lines when we met him in Tehran: “There aren’t many options in terms of gaining access to technology and ready money. The Chinese cannot easily be replaced.” Protected by the state and the unlimited resources of the Chinese public banks, the oil companies CNPC, Sinopec and China National Offshore Oil Corporation (CNOOC) have partially filled the void left by Western companies with investments that could amount to $40 billion, according to official Iranian sources.34 In addition, China became the world’s largest buyer of Iranian oil in mid-2012, when the exports of Iranian crude oil collapsed as a consequence of the new wave of sanctions passed by the United States and the EU—separate from the UN’s sanctions and rejected by Beijing—to block the international trade of Iranian hydrocarbons.35 This is a great relief for the ayatollahs’ regime which—given that hydrocarbon exports make up 27 percent of Iran’s GDP—has no choice but to pin its hopes on China. The total investment has allowed Iran to keep up its production of crude oil and to continue as one of China’s biggest oil suppliers.36 This is all despite the fact that—as China itself has recognized—Tehran’s income from sales of natural resources could be “potentially linked” to Iran’s nuclear program.37
As China is conquering Iran as quickly as Western companies are abandoning the country, the situation raises an infuriating question for the European oil companies: with the international embargo in full swing, how have Chinese oil companies managed to get hold of the safe-conducts that give them preferential entry into the energy sector of a top oil producer in the world? In other words, why do Sinopec, PetroChina and CNOOC have free and easy access to Iranian oil fields while Shell, Total, ENI and Repsol are forced to pack their bags? The answer, of course, lies in the influence of the all-powerful Chinese state, even when it comes to facing up to Washington. The Chinese regime has not hesitated to use its political power to protect its businesses from American initiatives to isolate Iran, demonstrating the extent of its growing international influence. Proof can be seen in a revealing diplomatic cable sent by the United States embassy in Beijing on March 26, 2008. The cable refers to a warning made by a high-ranking Chinese government employee to an American diplomat in reference to any attempt Washington might make to impose sanctions on Sinopec for its operations in Iran: “It is a very serious issue and I can’t imagine” the consequences that it could have for bilateral relations, he said.38
This cable confirms that Beijing has marked out the boundaries very clearly for Washington: under no circumstances may the sanctions affect China’s large oil companies. In the light of these events, Washington seems to have given in to pressure to avoid these “unimaginable” reprisals, allowing China privileges that would lead to sanctions for any Western company. The fact that the Chinese government has put its foot down on this subject is, of course, closely linked to the great importance that Beijing gives to its energy security. However, in practice these events have paradoxically led Sinopec and the CNPC to replace Western corporations in supplying Iran with 30 percent of its petrol consumption, which technically isn’t related to Beijing’s energy security. The Islamic Republic’s capacity to refine oil has been reduced by the United States’ sanctions and so the country needs to buy petrol from foreign suppliers.39 Therefore, China is ready for business.
“The number of Chinese companies sanctioned by the United States has fallen since 2002. At the beginning of the century, fifteen or sixteen Chinese companies were sanctioned each year. Now it’s barely three or four per year, and none of the big Chinese oil companies are included in that number,” John Garver tells us, explaining Beijing’s influence in the sector. “China has a greater capacity to resist the pressure of the United States than any other country,” Clément Therme concludes. All this no doubt has something to do with the fact that, as Secretary of State Hillary Clinton herself admitted, it is difficult to stand up to the world’s banker.40 What will be the consequences of all this? An executive of a European oil company in Tehran ventured a guess at what the future might hold if the current situation continues: “In five years’ time, the whole energy sector will be in the hands of the Chinese.”
TWO-HEADED CHINA TAKES ON ANGOLA
With an unmistakable touch of alchemy, a gentle breeze mixes with the smell of lobster, spiced chicken and sautéed broccoli on the terrace of the Shanghai Baia restaurant, complete with fabulous views over Luanda and the Atlantic Ocean. It is summer 2010. A noisy group of Chinese businessmen are wolfing down their food like there’s no tomorrow, while the glimmer of lights reflected from skyscrapers plays across their faces—skyscrapers whose apartments are squabbled over by expat oil-sector employees for rents of no less than $10,000 per month. The businessmen keep coming out with expressions such as “duo shao qian?” (“how much?”), including one man in particular who asks the question with his mouth full, sending little bits of food flying out across the table. Just a few meters away, luxury yachts are moored outside the Ilha de Luanda Nautical Club, allowing business magnates based in the second most expensive city in the world to set sail for the open sea and escape the chaos of the Angolan capital.41
It is impossible to walk through Luanda’s city center without wondering how things got like this so quickly. Back in
2002, Angola was just coming to the end of Africa’s longest civil war: twenty-seven years of conflict which not only caused irreparable social and economic damage to this country of 18 million inhabitants, but also swept away a significant part of the infrastructure built by the Portuguese before the country’s independence in 1975. For example, an estimated 300 bridges were destroyed throughout the country as a result of the conflict. Less than a decade later, hordes of cement lorries have brought the city’s main roads to a complete standstill, unable to cope with the demand for the several hundred road works which are being carried out all over the country. Over fifty Chinese state-owned companies and 400 private Chinese companies are frantically carrying out construction projects, building stadiums, repairing roads, constructing new housing and sprucing up ministries. The money needed to finance all this comes from the country’s subsoil: sales of crude oil from Africa’s second largest oil producer generate $52 billion each year.42 A large chunk of these earnings comes from the sale of crude oil to China, as Angola is now its second biggest oil supplier after Saudi Arabia.
The World Bank has come up with the term “the Angola model” to describe this revolution, which aims at giving structure to the country with a brand new network of roads, railways and universities. This is part of a direct exchange of oil for infrastructure that has been taking place since the 1980s and which is used by several other countries as well as China. It is a model which Angola’s autocratic government led by President Jose Eduardo dos Santos43 has been strongly promoting since 2004, coinciding with China’s arrival in the country. The intergovernmental agreements between Luanda and Beijing function on the basis of a simple pact: Chinese construction companies carry out projects across the country and receive payment directly from the Chinese Exim Bank (representing a transaction between Chinese entities), while Angola uses its state-owned energy company Sonangol and its subsidiaries to supply China with the stipulated quantity of oil needed to pay off the Chinese loan.
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