Critics see security threat in China oil bid

By Paul Eckert

WASHINGTON (Reuters) – The bid by China’s state-run CNOOC
Ltd. to buy U.S. oil producer Unocal Corp. is part of a
calculated drive to overtake America economically and
politically and would severely limit U.S. influence in Asia,
American critics of the attempt said on Wednesday.

“I believe the PRC’s aim is inexorably to supplant the
United States as the world’s premier economic power and, if
necessary, to defeat us militarily,” Frank Gaffney, a Pentagon
strategist under the late President Ronald Reagan, told a
congressional hearing.

Gaffney, a consistent critic of communist China, was one of
several witnesses who testified at a hearing of the U.S. House
of Representatives Armed Services Committee whose chairman
opposes the deal.

The chairman, Duncan Hunter, told the meeting said a
successful completion of CNOOC Ltd.’s $18.5 billion takeover
bid for Unocal would greatly boost China’s leverage over U.S.
interests in Central Asia.

Marshalling national-security arguments against the offer,
which ultimately will be decided by an administration review
panel, Hunter charged that the chairman of CNOOC’s parent
company, Fu Chengyu, answered to the ruling Chinese Communist
Party’s Politburo.

As an example of where China’s power could rise, Hunter, a
California Republican, cited investments by California-based
Unocal in pipelines running from Cental Asian oil fields
through Azerbaijan, Georgia and Turkey.

“China’s purchase of Unocal would dramatically increase its
leverage over these countries, and therefore its leverage over
U.S. interests in those regions,” he said in an opening
statement at the first congressional hearing on CNOOC’s bid.

Another critic, Richard D’Amato, chairman of the
congressionally created U.S.-China Economic and Security Review
Commission, said China’s strategy for meeting its energy needs
flies in the face of U.S. policy to rely on open markets, to
promote energy security for all and to promote sharing
arrangements in case of supply disruptions.

But Jerry Taylor, director of natural resource studies at
the free-market-oriented CATO Institute, disputed the idea that
a CNOOC-UNOCAL linkup would give China an “oil weapon.”

“Only a naval blockade could prevent (the United States)
from buying all the oil it needs from international oil
markets,” he said.

CNOOC’s cash bid exceeds a $16 billion-plus cash and stock
offer from Chevron Corp., which has been recommended by
Unocal’s board and gained U.S. regulatory approval.

Sources close to the deal have told Reuters they expect
both suitors for Unocal to adjust their offers.

Although Congress has been vocal against CNOOC it would be
the Committee on Foreign Investments in the United States
(CFIUS) that would review whether a foreign purchase of Unocal
would harm U.S. national security.

The Wall Street Journal on Wednesday reported that the
multi-agency panel chaired by the U.S. Treasury Department, has
declined to begin an early review of CNOOC’s bid for Unocal,
preferring to wait until the companies reach a deal.

House lawmakers last month backed a spending measure that
would block CFIUS from approving CNOOC’s bid but it is not yet
clear if the provision has sufficient support in the Senate to
become law.

President Bush has declined to take a stand on the issue,
saying he will await the review process.

(Additional reporting by Jim Wolf)