A Maoist survival guide to the Iranian energy crisis

TO UNDERSTAND HOW China is weathering the energy shock from the Iran war, turn back five years to Xi Jinping’s visit to an ageing oilfield on China’s eastern coast. “We must hold the energy rice bowl firmly in our hands,” he said as he toured a drilling platform. His meaning was plain. Officials normally refer to controlling the rice bowl as shorthand for China producing enough grain to feed itself. Mr Xi’s extension of the metaphor meant that China should seek self-sufficiency in energy, too.

Easier said than done, especially for the world’s biggest importer of oil. But Mr Xi’s words came on top of decades of work to confront what the Communist Party sees as a major vulnerability: reliance on the fickle outside world for China’s essential needs.

When peace prevails, an obsession with self-reliance can seem faintly paranoid. As Mr Xi is fond of telling his fellow cadres, “one must at all times maintain a sense of foreboding and a sense of crisis.” Yet one leader’s paranoia is another’s prudence. From Beijing’s vantage-point there is little doubt that the bombing of Iran and the resulting closure of the Strait of Hormuz, conduit for roughly a fifth of the world’s oil, illustrate the virtue of having a permanent sense of crisis. It is a philosophy that makes China well-prepared to cope with the Iranian fallout. The crisis also sheds light on what self-sufficiency actually means for China.

Consider China’s exposure to Iranian oil and the Strait of Hormuz. On the one hand, it stands to suffer. Iran exports more than 80% of its crude to China, accounting for roughly a tenth of China’s oil imports. Overall, about 40% of China’s oil imports come through the strait. On the other hand, Iran was always just one source of energy among many for China, and China also has other supply routes. Any loss is damaging but, by design, not crippling.

For starters, China’s crude purchases are less geographically concentrated than those of many other big oil importers: it gets about half of its crude from the Middle East (not all via Hormuz), compared with 95% for Japan. It helps that China has no inhibitions, despite Western sanctions, about buying from Russia. Indeed, it is likely to purchase more from Russia now. China has also accumulated hefty reserves, enough to meet at least three months’ demand. Last year it sensibly stocked up when crude prices were low. But it has also shifted away from oil. Investing in renewables is often seen as an environmental policy, but the Iran crisis has highlighted China’s primary motivation: to lessen its external dependencies. At the same time it will not abandon coal when it has abundant supplies of the black rock, which is still used to supply more than 50% of its energy. Mr Xi has called this a “multi-wheel drive” solution to energy security.

This gets to the heart of Chinese self-sufficiency, often misconstrued by observers. The idea is not that China should strive for total autarky, which would be costly even if it were possible. Rather, when it comes to things that truly matter, China believes it must trust only itself. If it can make what it needs, that is best. If not, it must manage its vulnerabilities. Food, the most existential of needs, proves this point. In the 1990s China aimed for self-sufficiency in a range of products including soyabeans and potatoes. But in the 2010s, it bowed to its farming constraints and declared that it would seek “absolute security” only for wheat and rice. For everything else, China cultivates a mix of diverse global suppliers, domestic reserves and alternatives—the exact template now being applied to energy.

Self-reliance is a concept that many diplomats and business executives now associate with Mr Xi, as if he has dusted off the old Maoist manual to steer China through tumultuous times. Certainly, he has striven to get China to break free from Western technology, above all by pouring vast sums into the semiconductor industry. But Mr Xi is far from alone among China’s post-Mao leaders. Deng Xiaoping, Jiang Zemin and Hu Jintao all crafted strategies for China to acquire the know-how and resources to stand on its own feet. That Mr Xi can unabashedly talk of grasping the “energy rice bowl” is a credit to these efforts.

The pursuit of self-reliance can be costly and potentially inefficient. Why construct oil pipelines from Myanmar or Russia when the stuff can be shipped so easily? Why develop semiconductor fabs when you can buy from chip foundries abroad? Because unfettered access to foreign markets is never guaranteed—something China is all too familiar with.

A decade ago there were those in China, such as Zhang Weiying, a liberal economist, who railed against state-led industrial investments as wasteful. After a decade of fending off American sanctions and coping with disruptions to supply chains—first from covid-19 and now from the Iran war—such criticism has lost its bite. Indeed, many in the West have come around to the Communist Party’s way of seeing things. Corporate bosses in America and Europe may not be inclined to use terminology with autarkic undertones. But building redundancy into supply chains? That is a formulation they can get behind.

The importance of self-reliance in China’s strategic thinking also helps explain why, when things go awry, it can seem distant from its partners. China values Iran as a supplier of energy, not an ideological soulmate, and the essence of its planning is that it must avoid over-exposure to any one supplier. In a true allied relationship, the explicit goal is reliance: one country can count on the other in a pinch. Mutual reliance, however, also leads to mutual vulnerability, which is exactly what China wants to minimise. It can make for a cold and lonely world. But the Iran crisis will only harden the Communist Party’s convictions that China must be the master of its own rice bowl. ■