Among the swathe of Chinese entities last week placed by the U.S. Department of Defense (DOD) on a blacklist of firms believed to be supporting Beijing’s military were several from its energy sector. Most notable of all, perhaps, were the China National Offshore Oil Corporation’s (CNOOC) international oil trading arm and the COSCO Shipping Corporation. As the DOD blacklist focuses on companies deemed a threat to U.S. national security, it should not surprise anyone that such Chinese firms are now on it. As highlighted by OilPrice.com back in the first presidency of Donald Trump, a sea-change had already emerged in China’s political and economic organisational structure following Xi Jinping’s assumption to the role of General Secretary of the Communist Party in November 2012, and then to President in March 2013. A key element of this was the increasingly pivotal role of the Communist Party in all main areas of economic and commercial management in the country.
This aligned with Xi’s statement that: “Government, military, civilian, and academic, east, west, south, north, and centre, the [Communist] Party leads everything.” In practical terms, this meant that from that point board directors and company executives -- including those in the energy sector -- were under the standing instruction to ‘execute the will of the Party’. And as China expert Jonathan Fenby exclusively told OilPrice.com at the time: “This political-economic nexus is set to bring growing divergence from the U.S. as part of the wider agenda of the ‘national strengthening’ being pursued by Xi Jinping.” He added: “Beijing is shifting from being an economic adversary to the U.S. to a geopolitical alternative and this could result in a step change in the nature of the confrontation between the two countries.”
President-elect Trump has long seen China as at minimum an ‘adversary’ rather than as a ‘competitor’ as President Joe Biden did, and this has not changed, according to senior sources in his first and current presidential team exclusively spoken to by OilPrice.com. Given the metamorphosis in the degree of interconnectivity in China’s political, economic and military elements during Xi’s rise in 2012/2013, Trump’s view appears well-founded. Even more so in one of Beijing’s national priority areas of securing its energy needs to power future economic growth. This is turn is used to expand its allied territories under the umbrella of the ‘Belt and Road Initiative’ (BRI), which in turn was always eventually aimed at enabling China to establish itself as a viable superpower alternative to the U.S., as analysed in full in my latest book on the new global oil market order.
A taste of what was to come for the world’s greatest repository of oil and gas – the Middle East – came in December 2022 when former key ally of the U.S., Saudi Arabia’s Crown Prince Mohammed bin Salman, hosted a series of meetings in Riyadh between President Xi and the leaders of countries in the Arab League. This expanded upon all the key themes stated in January of that year when senior officials from the Chinese government met with foreign ministers from Saudi Arabia, Kuwait, Oman, Bahrain, and the secretary-general of the Gulf Cooperation Council (GCC).
The basic theme was to forge a “deeper strategic cooperation in a region where U.S. dominance is showing signs of retreat” -- in this instance centred on the signing of a China-GCC Free Trade Agreement. The new pact pledged cooperation in just about everything a country does, including finance and investment, innovation, science and technology, aerospace, oil, gas, and renewable energy, and language and culture. Following the signing of these all-consuming cooperation agreements, Xi then identified two priority areas that he believed should be addressed as quickly as possible: first, transitioning to using the Chinese renminbi currency in oil and gas deals done between the Arab League countries and China; and second, bringing nuclear technology to targeted countries, beginning with Saudi Arabia. On the first of these, China has also long been acutely aware that as the largest annual gross crude oil importer in the world since 2017 it is subject to the vagaries of U.S. foreign policy tangentially through the oil pricing mechanism of the U.S. dollar. This view of the greenback as a weapon was reinforced after Russia’s invasion of Ukraine and the accompanying U.S.-led sanctions that followed, the most severe of which was exclusion from use of the U.S. dollar.
As the former executive vice-president of the Bank of China, Zhang Yanling, suggested in a speech in April 2022, China should help the world “get rid of the dollar hegemony sooner rather than later.” The second of Xi’s announced priorities at that time caused equal consternation in Washington, as it followed the discovery by U.S. intelligence agencies that Saudi Arabia was manufacturing its own ballistic missiles with the help of China. Even more concerning was that the same intelligence agencies also found that China had been building a secret military facility in and around the UAE port of Khalifa. The subsequent advance of China’s influence across the Middle East via the mechanism of the BRI and other levers had, in the zero-sum game of superpower supremacy, marginalised the influence of the U.S. and its allies in the former key cooperative states of Saudi Arabia and the UAE. It had also cemented existing opposition to it in Iran, Iraq, and Oman, among others, as detailed in full in my latest book on the new global oil market order.
Crucially for Trump’s second term as president that begins on 20 January, China has yet to fully recover economically from its disastrous three years of Covid, which is constraining its ability to reach the finish line in the superpower race. As a senior source who works closely with the new presidential team exclusively told OilPrice.com recently: “China’s finances are failing [with struggling economic growth], Russia’s military has failed [in Ukraine and Syria], Iran’s proxies have been incapacitated [Hezbollah, Hamas, Houthis et al], North Korea is on the sidelines, and now Trump is back.”
The White House’s 2017 ‘National Security Strategy’ document and the DOD’s 2018 ‘National Defense Strategy’ analysis both echoed Trump’s personal view that China had “for decades…expanded its power at the expense of the sovereignty of others,” and was “undermining the international order from within the system by exploiting its benefits while simultaneously undercutting its principles and ‘rules of the road’”. Some of Trump’s major early initiatives in his first presidential term were also aimed at curtailing China’s burgeoning global influence by going after its ability to finance them. Wide-ranging tariffs were introduced in 2018 that covered around 13% of the value of the U.S.’s Chinese imports the year before. And sanctions were imposed on China’s telecommunications giant Huawei for its alleged connection to espionage activities and for alleged violations of sanctions against Iran. National security implications with much broader geopolitical ramifications, then, were at the centre of these actions undertaken by the U.S., just as they were with last week’s actions against CNOOC’s international oil trading arm and the COSCO Shipping Corporation. An additional element was the vulnerability of the U.S. and its allies to breaks in the supply chain from China’s side, which Washington realised could be weaponised by Beijing in times of crisis.
Consequently, it is highly likely that a quickly-scalable ladder of consequences – tariffs, sanctions, and other measures – will be used on China and its allies for perceived breaches of what Trump’s new Presidential Administration deems acceptable policies with relation to the U.S. and its own allies. This will be an integral part of a broader new initiative to “put Beijing back in its box”, as the Washington source told OilPrice.com, and neutering the threat from its ‘Axis of Upheaval’ into the bargain. With effective control over the Senate, House of Representatives, and Supreme Court, Trump’s new government is unlikely to encounter any significant problem in imposing both tariffs and sanctions virtually at will against any country it wants.
Aside from having already stated his intention of imposing tariffs on various countries, including China, Trump has also addressed Beijing’s desire to replace the U.S. dollar, stating at the beginning of December that any moves to do so by any of the ‘BRICS’ group of countries would be met with the immediate imposition of 100% tariffs on their goods and services. The BRICS group currently comprises Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Indonesia, Iran and the United Arab Emirates, while Saudi Arabia said in January last year that it was ‘still considering’ the matter. The promise of what will happen to any other country embarking on such a course of action is implicit in the statement, and Trump’s follow-up Tweet: “The idea that the BRICS countries are trying to move away from the Dollar while we stand by and watch is OVER.”
By Simon Watkins for Oilprice.com
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