Why America Should Allow China’s Oil Investment

As U.S. lawmakers continue to scrutinize potential Chinese investments in North America, including this week’s report asserting that telecom giants Huawei and ZTE could threaten U.S. national security interests, Erica Downs at the Brookings Institution addresses growing anxiety over CNOOC’s proposed takeover of Canada’s Nexen, an oil company with American assets. Downs asserts that the CNOOC acquisition “is a friendly one” and gives four reasons why U.S. lawmakers should welcome, not block, the proposed transaction. From Foreign Policy:

2. It won’t help CNOOC in the South China Sea.

After CNOOC announced its plans to buy Nexen, the Wall Street Journal and Reuters published articles asserting that Nexen’s operations in the Gulf of Mexico would provide CNOOC with deepwater drilling expertise applicable to disputed areas of the South China Sea. This vast body of water, potentially rich in oil and natural gas, is the subject of overlapping claims to territory and maritime rights by six governments, including China’s.

The argument is that CNOOC’s deployment of its newly acquired deepwater expertise to these areas could increase instability in the region and might prompt other claimants to further entangle the United States in a territorial dispute; therefore, CNOOC’s takeover of Nexen is inimical to American interests. CNOOC itself hasn’t helped matters. In May, the company’s chairman, Wang Yilin, said large deepwater drilling rigs are “mobile national territory” and a “strategic weapon” for developing China’s offshore oil industry.

Nexen, however, does not possess the technical capabilities that CNOOC needs to operate in the deep waters of the South China Sea. The Canadian firm is a newcomer to deepwater exploration and production. It does not own any drilling rigs and relies on outside contractors to perform most of the technical work involved in exploring and developing its acreage in the Gulf of Mexico — contractors that CNOOC could legally hire anytime it wants. In any case, the geological differences between the Gulf of Mexico and the South China Sea limit the portability of U.S.-gained expertise.

Downs also explains why CNOOC’s investment would give the U.S. leverage over Iran, not threaten the continued flow of Nexen’s oil to the U.S. and, perhaps most importantly, would signal that the U.S. is open to accepting capital from Chinese companies eager to provide it in America.