Hedging Against Oil Dependency: New Perspectives on China’s Energy Security Policy

Abstract

Analysts debate if China will address its increasing reliance on overseas oil supplies and associated vulnerabilities through strategic steps that could lead to conflict or through accommodating market mechanisms. This article utilises on traditional ‘market’ and ‘strategic’ approaches, but adds to this analysis the concept of hedging, and links hedging to risk management. It is argued that such an alternative approach provides a better explanation and a more comprehensive understanding of China’s energy security behaviour. By drawing on hedging and risk management, new perspectives on China’s strategies to access energy resources in Sudan and Iran, and the importance of a Chinese state-owned tanker fleet in China’s energy security policy are presented. Hedging strategies also incorporate more scope for limiting and managing risk than traditional strategies of diversification and a comprehensive approach that loosely mixes strategic and market approaches.