As China premier Wen visits India, tension over oil markets not far from surface

By Emily Wax

Washington Post Foreign Service

NEW DELHI - During Chinese Premier Wen Jiabao's visit to the Indian capital this week, he won over high school students with a declaration rendered in his perfect Chinese calligraphy: "India and China are friends."

That seems to be the theme of his three-day trip here, which many Indians see as a charm offensive by China to promote what Wen called "cooperation, not competition," between Asia's two fast-rising giants.

The Chinese leader's visit follows similar forays to India in recent months by President Obama, British Prime Minister David Cameron and French President Nicolas Sarkozy, all of whom were trying to gain unfettered access to the country's booming markets to help pull their economies out of a global slowdown.

Yet despite this week's feel-good slogans and ambitious agreements to boost bilateral trade, the wary friendship between India and China is under growing strain as the two energy-starved nations compete for oil markets in Africa, Southeast Asia, Russia and Latin America.

Although their own infrastructure remains relatively inadequate, both are rushing to build roads, schools and community centers throughout countries such as Sudan and Nigeria, hoping to sweeten deals for guaranteed oil supplies.

China has built a massive "friendship center" in Sudan's desert capital, Khartoum, one of the city's largest and most modern facilities. In Nigeria, India has agreed to spend as much as $6 billion on roads, railway lines and power plants in exchange for oil deals.

Competition between India and China as they seek bigger shares of the world's dwindling supply of oil is likely to accelerate the rise in oil prices, economists say. It also has the potential to ignite lingering tension between the two countries going back to China's 1962 invasion of India and exacerbated by hundreds of border incursions since then.

A disputed stretch of border between India and China is just one point of tension. India is increasingly irked by China's military and economic relationship with Pakistan, India's arch-enemy, which Wen is expected to visit Friday. There is also tension over water supplies near their shared border and over China's seemingly pro-Pakistan position on the disputed region of Kashmir, which is claimed by both India and Pakistan.

Few issues, however, are more potentially long-lasting and divisive than oil, experts said.

"There's going to be huge energy consumption in India and China and only so much oil on Earth as these massive economies grow. Competition between them for oil will become more of an irritant in their relationship," said Zorawar Daulet Singh, co-author of "Chasing the Dragon: Will India Catch up with China?"

Together, China and India make up more than 40 percent of the world's population. In both countries, hundreds of millions of people are being lifted out of poverty and into the middle classes, where they require more and more energy to power their computers and air conditioners and fuel their cars.

India imports 75 percent of its oil while China imports a little more than half of its requirements, according to a U.S. Energy Department report. By 2025, China's oil demand will double to about 14.2 million barrels a day, the department estimates. By contrast, India imports only about 1.4 million barrels a day, but imports are expected to rise to 5 million barrels a day in the next decade.

Around the globe, India and China are both trying to hammer out deals in war-scarred oil fields in Iraq, southern Sudan, Nigeria and Angola. They are also seeking oil contracts closer to home, in Burma and Russia.

With its huge reserves of cash, China appears to hold a bargaining advantage, experts say.

"China has much deeper pockets when competing for the same resources. India tends to lose out," said Vikram Sood, a China expert and former head of the Research Analysis Wing, India's foreign intelligence agency. "This will, long-term, be a real source of tension."

In Angola, for instance, China beat out India's oil corporation last year in bidding for a patch of land for oil exploration that was being sold by Shell.

Both New Delhi and Beijing negotiated with Moscow in late December last year, but China ended up lending the Russian government $6 billion in return for a guaranteed supply of oil.

One of the few areas of cooperation between India and China is coal, which is plentiful and cheap in both countries. It accounts for nearly 40 percent of India's total energy consumption.

Days before Wen's visit here, China announced an $8.3 billion sale of coal-fired power generators to India, a major milestone in Beijing's quest to boost bilateral trade to $100 billion in the next five years. Already, China is India's largest trading partner.

Indian and Chinese officials say that with increased trade come warming relations.

Speaking at the India-China Business Cooperation Summit in New Delhi on Wednesday, Wen said, "There is enough space in the world for the development of both countries."

Experts here are asking whether there's enough oil.