Events in the Persian Gulf show how fraught the world of big oil is becoming. Going along with U.S. policy aids the American quest for hegemony today, but diminishes Canadian options as the world shifts to a multipolar order.
Updated: July 29, 2019
In this Sunday, July 21, 2019 photo, an aerial view shows a speedboat of Iran’s Revolutionary Guard moving around the British-flagged oil tanker Stena Impero which was seized in the Strait of Hormuz on Friday by the Guard, in the Iranian port of Bandar Abbas. Global stock markets were subdued Monday while the price of oil climbed as tensions in the Persian Gulf escalated. MORTEZA AKHOONDI / THE ASSOCIATED PRESS
While the United States is doling out sanctions and tariffs, China and Russia have been cooperating with each other, recently signing a comprehensive strategic partnership. The level of Eurasian integration they envisage through infrastructure and economic cooperation would have been unimaginable two decades ago. They see petroleum – both oil and natural gas – as a key area of cooperation.
For the United States, this partnership offers new challenges. Petroleum is the most valuable commodity in world trade. In oil, China and Russia are trading in rubles and yuan – not petrodollars, the crucial driver of U.S. world financial dominance.
The U.S., China and Russia dominate the world’s geopolitics. Petroleum is vital to each country’s economy. As the world’s biggest oil importer, China is concerned about potential blockades of sea routes bringing oil from the Middle East. And with its NATO allies, the U.S. patrols several narrow waterways including the Persian Gulf and the South China Sea. Canada is supportive, with a frigate recently in the Taiwan Strait. The current Iran-Britain tanker standoff shows fears about tanker safety aren’t without merit.
Petroleum is the most valuable commodity in world trade. In oil, China and Russia are trading in rubles and yuan – not petrodollars, the crucial driver of U.S. world financial dominance.
To reduce its vulnerability, China has invested in alternative routes — oil and gas pipelines from Central Asia, others from Siberia, and yet others across Myanmar. Russia has become China’s largest source of oil and gas. Even so, China is heavily reliant on Middle East oil. It continues to import Iranian oil, despite U.S. threats of sanctions against countries who buy it.
Russia is a petro-state, the world’s largest exporter of oil and gas. Pipelines and sea routes to market are vital to its economy. Russia is building pipelines to China and trying to build new pipelines to Europe. Former U.S. interior secretary Ryan Zinke said last year the U.S. Navy can blockade Russia if need be, “to make sure that their energy does not go to market.”
The United States is the world’s largest user of petroleum and regards the resource as a vital interest. Petroleum features in “America First” policies. In 2017, President Donald Trump said the U.S. “will seek not only American energy independence … but American energy dominance.” The U.S. pays exceptional attention to petroleum worldwide.
The U.S. has become the world’s largest oil producer because of fracking. In a dozen years, it dramatically reduced its dependence on foreign oil. Even so, it is also the world’s second-largest oil importer. Canada provides almost half of those imports.
With the expansion in production of fracked gas, the U.S. wants to export it to Europe, displacing Russian gas. The Department of Energy recently branded U.S. gas exports as “Freedom Gas.”
For Europe, Russian gas is cheaper. Yet Moscow’s efforts to build new pipelines to Europe – Nord Stream 2 and TurkStream – have been opposed by Washington and Brussels. Both pipelines would bypass routes through Ukraine, hostile since its change of government in 2014. Washington claims the new pipelines endanger European energy security. It threatens sanctions on participating European corporations. Both pipelines are going ahead anyway.
China and Russia are taking actions to reduce carbon emissions. China has ratified the Paris climate accord. Russia plans to do so this year. The U.S. has pulled out.
China is switching from coal to gas. Canada is looking to export gas from British Columbia to China – and bitumen from Alberta via the Trans Mountain Pipeline. Canada’s arrest of Huawei’s Meng Wanzhou chilled relations with China, with implications for future trade. With the world awash in higher quality oil, will China want Alberta’s bitumen?
Petroleum, power and politics all go together. New levels of cooperation between China and Russia are a stark contrast to U.S. punitive policies. Although the U.S. claims benevolent intentions, its threats, sanctions, trade wars and history of interventions make other countries wary. Countries in Washington’s crosshairs – Iran, Syria, Venezuela – have turned to China and Russia for support.
Canada is in a tricky position, trying to maintain a close alliance with the U.S. while opening oil trade opportunities with China and opposing Russia through NATO. Going along with U.S. policy aids the American quest for hegemony today, but diminishes Canadian options as the world shifts to a multipolar order.
John Foster is author of Oil and World Politics: The real story of today’s conflict zones.