Unocal 101

Terry Jeffrey
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Posted: Jul 06, 2005 12:00 AM

You don't need to be Carl von Clausewitz to figure out that it could damage U.S. security interests if the communists in Beijing defeat Chevron in their competing bids to purchase Unocal, the ninth-largest U.S. oil-and-gas company.

 Just as Clausewitz, the 19th-century Prussian strategist, argued that war is the continuation of politics by other means, the People's Republic of China has discovered that acquiring certain assets on the world market is politics by other means.

 It does not matter whether the asset the regime seeks is state-of-the-art missile technology or old-fashioned crude, the ultimate question is whether the acquisition increases the PRC's likelihood of controlling the outcome in a matter of contention with one or more rival nations.

 Consider this scenario: The PRC buys Unocal, the majority of whose energy reserves are in Asia, closer to China than to the United States. With the U.S. military stretched thin by the conflict in Iraq, the PRC mobilizes to invade Taiwan, a democratic island over which the PRC still claims sovereignty and which the PRC has repeatedly asserted it has a right to seize by force. Following up on President Bush's 2001 statement that we would do "(w)hatever it took to help Taiwan defend herself," the United States takes steps to deter the imminent invasion and prevent a catastrophic war.

 Would the United States be in a stronger or weaker position to deter the PRC from invading Taiwan if it no longer had the power -- short of using force -- to shut down the sale of Unocal oil and gas to the PRC?

 To which army would the PRC-controlled Unocal sell its petroleum: the U.S. Army or the People's Liberation Army?

 If war did break out, whose troops would Unocal gasoline help kill? Ours? Or theirs?

 Consider a second scenario: Crude is hovering near $60 per barrel; in parts of the United States, gasoline is selling at well over $2 a gallon. A revolution erupts in Saudi Arabia. Osama bin Laden-types overthrow the royal family. The new regime in Riyadh orders an oil embargo on Western nations. As crude skyrockets, the PRC devotes all Unocal production to Chinese consumption. 

 What would that do to the cost of gas at the pump in U.S. suburbs? Would it help trigger or deepen a U.S. economic crisis?

 Last month, CNOOC, an oil company 70.6 percent owned by the PRC government, announced an offer to buy Unocal for $67 dollars per share (or $18.5 billion) in cash.

 "And to finance its offer," reports the Los Angeles Times, "CNOOC's state-owned parent company, Beijing-based China National Offshore Oil Corp., committed to providing $7 billion in loans, with an additional $6 billion coming from a state-owned bank." This bettered the offer by U.S.-based Chevron to buy Unocal for $62 per share (about $16.6 billion) to be paid in both Chevron stock and cash.

 On June 30, the U.S. House, responding to the PRC's Unocal bid, voted 398 to 15 to express its sense "that a Chinese state-owned energy company could take action that would threaten the United States." Citing the Defense Procurement Act, the resolution says the president already has legal authority "to suspend or prohibit any foreign acquisition, merger or takeover of a United States corporation that threatens the national security of the United States."

 The communists in Beijing reacted indignantly, condemning Congress for interfering in the workings of capitalism. "We demand that the U.S. Congress correct its mistaken ways of politicizing economic and trade issues and stop interfering in the normal commercial exchanges between enterprises of the two countries," said the PRC's foreign ministry. "CNOOC's bid to take over the U.S. Unocal company is a normal commercial activity between enterprises and should not fall victim to political interference."

 Who do they think they are fooling?

 When a communist regime using government money tries "to take over" a U.S. company with large Asian oil and gas reserves, it is not a "normal commercial activity." It is a strategic maneuver to gain advantage over the United States and other would-be rivals in future contingencies and crises.

 If the PRC's bid for Unocal goes forward, President Bush should use his legal authority to stop it.