U.S. Opposition to Unocal Bid May Push China Toward Iran, Sudan
Aug. 3 (Bloomberg) -- An outcry by U.S. lawmakers that forced Cnooc Ltd., the third-largest Chinese oil company, to drop its bid for Unocal Corp. may encourage China to do more deals in countries such as Iran or Sudan, energy policy analysts said.
``If the U.S. cuts off China from trading with and buying Western companies, it's going to push them to politicize their energy even more,'' said Michael Klare, author of ``Blood and Oil: The Dangers and Consequences of America's Growing Dependency on Imported Petroleum.''
The Unocal defeat may force China into ``alliances with rogue states,'' said Klare, a professor at Hampshire College in Amherst, Massachusetts. China has offered military assistance to Sudan and missile technology to Iran in return for access to oil, Klare said. China signed a $70 billion oil-and-gas deal with Iran last October.
Cnooc, which is 71 percent-owned by state-controlled China National Offshore Oil Corp., yesterday dropped its $18.5 billion bid for Unocal because of what it called a hostile ``political environment'' in Washington. Last week, Congress passed a measure that would have delayed a Cnooc acquisition for four months.
Cnooc's withdrawal clears the way for Chevron Corp. to buy the company with a cash-and-stock offer worth about $17.5 billion. Unocal on July 19 endorsed Chevron's bid, saying the higher all- cash offer from Cnooc didn't compensate for the uncertainty about when an acquisition with the Chinese suitor might be completed.
Unocal, based in El Segundo, California, has oil and gas reserves in Indonesia, Thailand and Myanmar, as well as in the U.S. Gulf of Mexico.
`Bad Actors'
China now may turn to anti-U.S. countries to satisfy its resource needs, said Jerry Taylor, director of natural resource studies at the Cato Institute in Washington.
``The Chinese government has been engaged previously in making agreements with producer states in the Third World, and many of these were very bad actors,'' he said. ``If we see Chinese oil money flowing to bad or dubious actors around the world, we will have very few people to blame but ourselves.''
China is believed in the past to have sold Iran several hundred missiles, mostly for attacking ships, said Siemon Wezeman of the Stockholm International Peace Research Institute, a government-funded research group in Sweden. Neither China nor Iran admits to the sales.
Last September, China blocked a U.S. proposal for UN Security Council action against Sudan, where two decades of civil war have claimed more than 2 million lives. Sudan supplies 7 percent of Chinese oil imports, and China is the chief investor in the country's biggest oil pipeline, according to the U.S. Energy Department. The pipeline carries 75 percent of Sudan's oil production of 345,000 barrels per day.
Lawmaker Opposed
The Bush administration is also seeking international support for its effort to get Iran to abandon a nuclear power program, amid concern it could be used to make weapons.
Surging demand has made China the world's second-largest oil consumer behind the U.S. The country has acquired oil concessions in Kazakhstan, Venezuela, Sudan, Iraq, Iran, Peru and Azerbaijan, according to the Energy Department.
U.S. Representative Richard Pombo, a Republican from the California district that includes San Ramon, where Chevron is located, said China will more closely follow international business practices because the Cnooc bid was derailed.
Pombo criticized the interest-free financing that Cnooc's parent would have provided for the acquisition. A resolution sponsored by Pombo called the loans an unfair trade practice.
The Chinese may be forced into ``reexamining some of their policies in terms of competing internationally,'' Pombo, who led congressional opposition to Cnooc, said in an interview.
International Trade
Beijing may come away with an understanding that ``there are international rules of trade and procedures, and that they should follow them,'' said Amy Jaffe, an energy expert at the James A. Baker III Institute for Public Policy at Rice University, who visited China last month.
Had its bid been submitted on time and without the $7 billion of loans at below-market interest rates, Cnooc would have been in a better position to counter congressional criticism, Jaffe said.
The possibility that Congress's opposition to the Cnooc bid will push China into deals with states that the U.S. considers unfriendly is a risk, Jaffe said in an interview. ``It's going to take good diplomacy by the United States.''
While Unocal's oil production is small, equal to about 0.3 percent of U.S. oil demand, its technology and expertise would have aided Chinese efforts to do business, particularly in countries under U.S. trade sanctions, Larry Kumins, an energy policy analyst at the Congressional Research Service said.
``This was an opportunity to line up all kinds of expertise,'' Kumins said in an interview. ``Now they're left scrambling around trying line up preferential access to resources without technology to do the development.''
To contact the reporter on this story: Jim Efstathiou Jr. at jefstathiou@bloomberg.net. Last Updated: August 2, 2005 20:56 EDT
Market Data 
Markets 
AI
