Hitting the Latin American oil piñata – Underrated indicators of how China and the EU’s energy policies are slowly merging

PiñataMuch has been written about the ‘EU’s decline’ and ‘China’s rise’ in international relations – quite rightly, especially as to energy security!

Current examples are:

1. The European economy continuous to flag, hereby decreasing Europe’s attractiveness for energy partners and indirectly increasing China’s profile.
2. The Ukrainian crisis shatters the EU’s relations with Russia, its largest energy supplier, and redirects Moscow’s eyes on export markets in the East.
3. Energy security is a traditional field of hard power in which China is currently playing a much more dominant international role.

It is generally accepted that this can only lead to rising competition and conflicts between the regions that are increasingly dependent on energy imports. But the contrary might be true. Having a closer look behind mainstream media coverage even reveals indications of merging foreign energy policies.

On April 2nd 2014, the Chinese government published its second EU strategy paper. The renewed five to ten years road map highlights energy cooperation which has become a dominant feature in many bilateral agreements. Mysteriously, the paper remained almost unnoticed in Europe although it clearly outlines ways to an improved energy partnership such as the China-EU Energy Policy Dialogue.

Luckily, the economy has progressed farther than politics as is shown by the example of Latin America’s oil sector. With Venezuela’s bitumen boom, Mexico’s extensive energy reform and Brazil’s pre-salt discoveries, the continent is becoming a world energy player. Both, Chinese and European companies have intensified business in the continent’s oil industry and started to work together. The winner for the bit of Brazil’s giant oil field “Libra”, for example, is a consortium made up by SHELL (England/Netherlands) and TOTAL (French) representing 20% each, and CNPC and CNOOC (China) with 10% each (with the remaining 40% for Brazil’s Petrobras).

Interestingly, the booming oil industry in Latin America provides China the chance to enter new markets at eye level with western companies. Before, Chinese companies were pushed into risky – and often less attractive – oil markets avoided by western companies for political reasons such as Kazakhstan, Iran and Sudan. Now, they engage in more lucrative deals and save markets bypassing controversial loans-for-oil deals. Even more astonishing, however, is this new willingness of European and Chinese companies to cooperate. Self-evidently, these companies remain economic rivals. But an invisible wall that had prohibited such cooperation is slowly falling – and hereby making future political cooperation more likely. With increasing economic cooperation and competition in the same markets, economic and political interests become inevitably more similar such as protecting financial investments.

Against this background, the much discussed topic of increasing Chinese power and share of international responsibilities seems overrated. The more Chinese and European economic interests compete in third markets the merrier political cooperation becomes pendent and foreign energy policies merge.

The three above mentioned examples are therefore not necessarily indicators of an increasing rivalry but could be steps to a deeper Sino-European energy cooperation. Why?

1. The current economic crisis is transforming the EU and accelerates its willingness to cooperate with former ‘unorthodox’ partners such as China.
2. The Ukrainian crisis underlines the vulnerability of EU energy security and will hence push European energy policy integration in the long run.
3. Energy security is becoming a shared area between hard and soft power which leads to an increasing number of cooperation areas such as development policy and strategic commodity partnerships.