China Was Prepared for an Oil Crisis

China Was Prepared for an Oil Crisis as a Whole

With the growing tensions in the Middle East region between Iran and America, it must be noted that there is one superpower country that has decided to take up a cautiously optimistic stance, and that country is China. While they have always been swift to say that it has nothing to do with the fight between Iran and America, it seems that it has always been ready for these situations since years back.

“Iran’s paralysis of the Strait of Hormuz has continued to upend global oil and gas markets as the United States-Israeli war on the country enters its second month,” according to AlJazeera.

A War Outside Their Direct Interests

There is no military engagement at this point in time. In contrast with other players, there are no forces present and no alliances that could drag them into participating in the current affair. China, in all perspectives, has always promoted the concept of reducing conflict and maintaining stability in the international arena.

This does not imply, however, that the stakes are relatively low just because they are not engaged in the conflict. It should be observed that they are a major participant in the international economic arena, particularly when it comes to trading and energy production.

Energy Security as a Strategic Priority

The main risk to the economy of China is the problem of energy insecurity as the country is one of the largest consumers of crude oil in the world. Most of its sources are in the Middle East region.

Being aware of this, the authorities of the capital have been planning ways to secure energy supply in the long run by building huge reserves of strategic petroleum and energy diversification.

The most important route of energy shipment is the Strait of Hormuz, where there can be disruptions that will significantly affect the energy security of the country.

Diversifying Supply Chains

Apart from energy security, China has made attempts aimed at reducing threats posed by disruptions in international supply chains. Trade disputes, alongside the impact of the virus, have forced China to implement strategies aimed at strengthening and diversifying its supply chains.

Among the strategies that have helped China achieve its goal is the Belt and Road project. The strategy focuses on developing alternative supply routes by investing in trade and infrastructure development in Europe, Asia, and Africa.

Therefore, the strategies employed by China have helped protect the country from any form of political threat. This ensures continuous trade despite political unrest in some regions. “China’s ruling Communist Party has long viewed its industries as the foundation of its national security strategy. It has sharpened — and expanded — that approach since President Trump’s first term,” according to The New York Times.

Financial and Currency Preparations

Additionally, China has prepared itself financially. In this regard, for over ten years, Beijing has tried to internationalize its national currency – the yuan, as well as to minimize its dependency on the dollar during business transactions with other countries.

This process encompasses increasing the number of bilateral agreements which involve the utilization of national currency as a means of payment, as well as introducing new financial systems which would not depend on the current ones controlled by the West.

In a world-scale crisis situation, China might profit from this approach and prevent possible currency devaluation or sanctions.

Strategic Positioning in Global Diplomacy

As a diplomat, it seems like China is an intermediary in this conflict, not a party to it. It has connections with Iran and other nations of the Middle East, making it capable of mediating disputes among the various parties involved in the conflict.

This would enable it to become more influential on the global stage while at the same time maintaining its neutral stance. Nevertheless, it should be noted that any sort of collaboration with either of the disputing sides might affect the diplomatic standing of China in the long run.

Economic Implications at Home

Despite all its elaborate preparations, China cannot insulate itself from the economic consequences brought by the war. Higher oil prices will lead to cost-push inflation and hurt China’s economic growth.

Chinese industries that rely heavily on low-cost inputs will be adversely affected in case energy prices remain high. Consumers might also suffer as they will have to spend more on transportation and commodities.

However, due to its preparedness, China is expected to incur fewer economic losses compared to other nations.

Lessons from Past Crises

In terms of the current crisis, China’s policy takes into account its experiences from previous world crises. The Global Financial Crisis and the latest pandemic have shown China that world systems may be fragile, particularly when there is no preparation for the crisis.

China’s new policy is evident in the manner in which Beijing is prepared should any geopolitical disturbances arise. It is well-prepared to handle any problems, regardless of whether they are not immediately relevant to it.

A Delicate Balancing Act

The best way of looking at the role of China in this current crisis lies in analyzing whether it is able to maintain an equilibrium between two opposing factors. On one hand, it will have to secure its investments while ensuring stability; on the other, it should avoid getting into a mire that might cost it dearly.

This approach provides China with a certain amount of maneuverability, yet it will need to constantly assess itself based on any changing circumstances.

Conclusion

“Indeed, this is not a war for China, as people believe.” But this is indeed a war for which China has already made its plans in response to various circumstances.

Certainly, one should keep in mind that even though such preparations will not protect from all possible risks, they provide Beijing with quite a lot of opportunities to deal with uncertainties. Nevertheless, taking into account that today everything happens in the world, readiness and adaptability may be important elements of Chinese nation’s future success.

Currently, it is important for any nation not only to react to problems but also to be prepared for them.

By David Loran Jr

A successful Editor-in-Chief, journalist for over 6 years, writing about important topics that are going on within the U.S. and beyond

Sources:

The New York Times: This Is Not China’s War, but Beijing Started Preparing for It Years Ago

AlJazeera: How China’s ‘teapot’ refineries are cushioning it from Iran war oil crisis

Featured Image Courtesy of Christine‘s Flickr Page – Creative Commons License

Inset Image Courtesy of Martin Schulz‘s Flickr Page – Creative Commons License