China's Mideast Headache

By ANDREW CRITCHLOW

SYDNEY—Saudi Arabian police fired live ammunition in the air last week to disperse Shiite Muslim protesters in the kingdom's eastern province. That will sound alarm bells in China and much of Asia.
The newly crowned world's second-largest economy surpassed the U.S. as the biggest importer of oil from Saudi Arabia in 2009, and the kingdom's crude is an increasingly important factor in powering the nation's growth. Considering the economic importance of the Middle East for Asia as a whole, Beijing and its neighbors remain unable to influence the course of events in the Arab world, while being arguably the most exposed to the changes under way.
Despite China's best efforts to diversify, most of the imported crude it needs to fuel growth comes from Saudi Arabia, according to the U.S. Energy Information Administration, and the kingdom's energy-rich Shiite Eastern province plays a key role in the nation's production. The Middle East provides 2.9 million barrels of oil a day to China, more than half its total imports, and Saudi Arabia alone accounts for about 1.1 million barrels a day.
Chinese officials say they want to boost trade with Saudi Arabia by about 50% to $60 billion by 2015, further increasing Beijing's dependence on the kingdom.
China isn't alone. Japan has long depended on imported oil and gas from the region. South Korea is among the world's biggest importers of liquefied natural gas from the Persian Gulf, and the country's engineering conglomerates have built most of the Middle East's refineries and network of spigots in the desert. Even Australia, one of Asia-Pacific's wealthiest in terms of resources, depends on Middle East oil.
Seoul pulled off a political coup last year by securing a $20 billion deal for an engineering consortium led by Korea Electric Power Corp. to build the Arab world's first nuclear power plant in Abu Dhabi. But Seoul and Tokyo have close ties with the U.S., which has considerable influence in the Middle East. Beijing right now has little.
As China depends more on the Middle East, the U.S. economy has done reasonably well weaning itself off energy from the politically volatile region. Policies to encourage domestic exploration and production such as deep-water drilling in the Gulf of Mexico, while exposing the U.S. to environmental risks, have helped to reduce North America's vulnerability to Middle East turmoil. U.S. consumers have also played their part. Americans have increasingly embraced more energy-efficient vehicles since the last spike in prices that pushed oil to a record $146.65 a barrel. Consumption of crude has fallen as the use of natural gas has increased in North America.
But as Asia's commercial links with the Middle East have increased, its political influence in the region has remained negligible. China cannot match U.S. military power in the region, or Washington's deep and longstanding diplomatic experience in dealing with the Arab world. Riyadh's ties with the U.S. have endured since the founder of modern-day Saudi Arabia, King Abdul-Aziz, met President Franklin D. Roosevelt in 1945.
While those ties are being tested by the political unease sweeping across the Middle East, China doesn't present a viable replacement for the U.S. role. "Asia has been something of a bystander in the Middle East and importantly, in the case of China, an increasingly anxious bystander," said Andrew Shearer, director of studies at Australia's Lowy Institute for International Policy.
That anxiety comes from the economic implications of possible major disruption to energy supplies coming through the Persian Gulf's Strait of Hormuz and Beijing's unease that the calls for democratic change sweeping across the Middle East will set an unwelcome precedent at home. According to Mr. Shearer, the U.S. still has the military capability to intervene if the flow of oil from the region was threatened.
In an extreme scenario, U.S. troops could seize control of oil installations in the region, leaving China and most of Asia dependent on the goodwill of Washington to guarantee their supplies. In such circumstances, "the oil would follow the gray naval ships" of U.S. forces in the Persian Gulf, Mr. Shearer said.
China may be racing to catch up. It has increased defense spending by almost 13% and is developing its own aircraft carriers. But its ability to project power beyond the South China Sea remains limited. Beijing sent one of its latest and most powerful warships, the Xuzhou, to help evacuate its nationals from the fighting raging in Libya, but this effort was dwarfed by the rapid U.S. navy buildup off the North African coast. "China has naval aspirations but they're still a long way from realizing that," said Mr. Shearer.
To be sure, Saudi and Chinese officials together succeeded in toning down support for democratic change in the Middle East expressed at the last meeting of the Group of 20 nations in Paris, but Beijing will struggle to influence any further international response should events see more regimes fall. Any military support from the U.S. and North Atlantic Treaty Organization nations for opposition groups fighting against the government of Col. Moammar Gadhafi in Libya would go ahead with or without China's backing.
Write to Andrew Critchlow at andrew.critchlow@dowjones.com