Red Oil?

So the Chinese government, through a state-owned proxy (CNOOC) is making a bid for UNOCAL. This has led to some diplomatic rumblings, including this less-than-diplomatic quote:

But Gal Luft, executive director of Institute for the Analysis of Global Security, said it would be "suicidal" at a time of $60-a-barrel oil for the United States to let a Chinese state-run firm control oil sources by buying Unocal.

Now, Gal Luft and the IAGS have written a lot of smart things (they're one of the go-to places for plug-in hybrid information, for one thing) but Luft is not making a lot of sense here. There's a very simple reason for this - UNOCAL isn't that big, to begin with. (Scroll down to the second table.) It's not Exxon or Shell, certainly. Rather, the reason Beijing is interested in Unocal probably has more to do with this:

Unocal was one of the key players in the CentGas consortium, an attempt to build a pipeline to run from the Caspian area, through Afghanistan and probably Pakistan, to the Persian Gulf. One of the consultants to Unocal at that time is Zalmay Khalilzad, now appointed US ambassador to Afghanistan. The CentGas pipeline was not built, due to inability of CentGas and the Taliban to come to a mutually acceptable economic understanding, despite pressure from Washington. Shortly thereafter, the US invaded Afghanistan, removing Taliban control from Afghanistan and making moot the question of their renumeration.

Unocal is also the third largest member of the recently completed and opened Baku-Tbilisi-Ceyhan pipeline from the Caspian to the Mediterranean Sea.

Beijing is very interested in natural gas as an alternative to dirty and inefficient oil. However, it makes no sense to ship that NG all the way to the meditteranean when it's already in Central Asia. So I imagine what we'll see is plans for a second pipeline leading from Baku to Iran - the Iranians already deal with China, and the Indian Ocean route allows easy(er) shipping to Asian ports. Of course, NG is still a very difficult to ship over the ocean, so we might even see an overland pipeline in to Xinjiang - it would be extremely pricey, but no more so than the Russian pipeline planned to end in Nakhodka.

More broadly, since when does America deserve oil? Luft's entire quote only makes sense if you believe that the US deserves the front place in any queue for oil. I mean, we know this is how they feel, but they're not usually so open about it. Sadly, even Paul Krugman falls in to this trap:

The China National Offshore Oil Corporation, a company that is 70 percent owned by the Chinese government, is seeking to acquire control of Unocal, an energy company with global reach. In particular, Unocal has a history - oddly ignored in much reporting on the Chinese offer - of doing business with problematic regimes in difficult places, including the Burmese junta and the Taliban. One indication of Unocal's reach: Zalmay Khalilzad, who was U.S. ambassador to Afghanistan for 18 months and was just confirmed as ambassador to Iraq, was a Unocal consultant.

Unocal sounds, in other words, like exactly the kind of company the Chinese government might want to control if it envisions a sort of "great game" in which major economic powers scramble for access to far-flung oil and natural gas reserves. (Buying a company is a lot cheaper, in lives and money, than invading an oil-producing country.) So the Unocal story gains extra resonance from the latest surge in oil prices.

Well, in an era of tight oil supplies, it's not just Beijing that's acting like it envisions a "great game". Last I checked, the US had a little something called the Carter Doctrine, which states pretty baldly that the US will go to war over oil. Period. Now, I know that UNOCAL is a US company, so in this case there actually is something the US government can do about this situation. But it's kind of a sad state of affairs when the Colossus of the 21st century has to maintain it's economic integrity through a foreign ownership review board.

Note Krugman's paranthetical quote, too: "Buying a company is a lot cheaper, in lives and money, than invading an oil-producing country." True, but if China really wanted to save money, they'd get off the oil train entirely - the $18 billion they're spending to get UNOCAL's measly 150 million barrels of oil per year could easily save that much oil and then some.