Oil on troubled waters
FT.com / Comment & analysis / Editorial comment - Oil on troubled waters
Published: July 27 2005 03:00 | Last updated: July 27 2005 03:00
The energy bill before the US Congress has been amended to block a Chinese takeover of Unocal pending the outcome of a study on the implications of China's energy needs for US security. This is a blatant attempt to rig the ongoing battle between CNOOC and Chevron for control of the US oil company that will do nothing to improve US security.
The amendment threatens to increase the time it would take for a CNOOC to complete the regulatory process necessary to buy Unocal from a maximum of 90 days to at least 141 days. It will also broaden the set of issues to be considered beyond a narrow definition of national security. The extra uncertainty will probably kill the bid, which is evidently the intention.
Some lawmakers want to go further and require the committee on foreign investments to consider economic security alongside national security in all cases - a thinly disguised move to block further Chinese takeovers. Although this would be less arbitrary, it would serve only to generalise a serious mistake.
If the US wants to improve its energy security there is plenty it could do. It could increase domestic oil production, subsidise alternative fuels or reduce consumption by imposing gasoline taxes or higher fuel efficiency standards. These are the kind of measures that should be in the energy bill but are mostly noticeable by their absence.
The US also has a strong interest in pushing other countries to open their reserves to foreign investment. But now it will be hard to do this if it is blocking foreign investment in its own oil industry.
Chinese acquisition of oil companies poses no economic danger to the US. Oil is the ultimate fungible commodity: for every barrel of Unocal oil China might divert for its exclusive use, it would import one barrel less from other sources. The global price and availability of oil to the US would be exactly as before.
While denial of access to oil can be used as a military tool in times of conflict, this depends not on ownership but on the ability to secure installations and blockade oil lanes. China is vastly more vulnerable to this than the US, with its unchallenged navy.
There is a national security issue here but it cuts the other way. Blocking takeovers plays into the hands of those in Beijing who argue that it must prepare for an inevitable confrontation with the west because it will never permit China to enjoy a peaceful rise.
Congress's move puts the White House in a bind. It should threaten to veto the bill unless the amendment is removed but wants the bill too badly. What is evident is that President George W. Bush has been silent on China too long, allowing military hawks and congressional protectionists to make the running. It is time for Mr Bush to take back control of the agenda.
Published: July 27 2005 03:00 | Last updated: July 27 2005 03:00
The energy bill before the US Congress has been amended to block a Chinese takeover of Unocal pending the outcome of a study on the implications of China's energy needs for US security. This is a blatant attempt to rig the ongoing battle between CNOOC and Chevron for control of the US oil company that will do nothing to improve US security.
The amendment threatens to increase the time it would take for a CNOOC to complete the regulatory process necessary to buy Unocal from a maximum of 90 days to at least 141 days. It will also broaden the set of issues to be considered beyond a narrow definition of national security. The extra uncertainty will probably kill the bid, which is evidently the intention.
Some lawmakers want to go further and require the committee on foreign investments to consider economic security alongside national security in all cases - a thinly disguised move to block further Chinese takeovers. Although this would be less arbitrary, it would serve only to generalise a serious mistake.
If the US wants to improve its energy security there is plenty it could do. It could increase domestic oil production, subsidise alternative fuels or reduce consumption by imposing gasoline taxes or higher fuel efficiency standards. These are the kind of measures that should be in the energy bill but are mostly noticeable by their absence.
The US also has a strong interest in pushing other countries to open their reserves to foreign investment. But now it will be hard to do this if it is blocking foreign investment in its own oil industry.
Chinese acquisition of oil companies poses no economic danger to the US. Oil is the ultimate fungible commodity: for every barrel of Unocal oil China might divert for its exclusive use, it would import one barrel less from other sources. The global price and availability of oil to the US would be exactly as before.
While denial of access to oil can be used as a military tool in times of conflict, this depends not on ownership but on the ability to secure installations and blockade oil lanes. China is vastly more vulnerable to this than the US, with its unchallenged navy.
There is a national security issue here but it cuts the other way. Blocking takeovers plays into the hands of those in Beijing who argue that it must prepare for an inevitable confrontation with the west because it will never permit China to enjoy a peaceful rise.
Congress's move puts the White House in a bind. It should threaten to veto the bill unless the amendment is removed but wants the bill too badly. What is evident is that President George W. Bush has been silent on China too long, allowing military hawks and congressional protectionists to make the running. It is time for Mr Bush to take back control of the agenda.
posted by Marcel at 4:02 AM
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