ALTERNATIVE SOURCES OF POL SUPPLY FOR COMMUNIST CHINA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01003A001700030002-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 8
• Document Creation Date: December 14, 2016
• Document Release Date: October 15, 2002
• Sequence Number: 2
• Publication Date: June 27, 1963
• Content Type: BRIEF

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Current Support Brief
ALTERNATIVE SOURCES OF POL SUPPLY
FOR COMMUNIST CHINA
CIA/RR CB 63-58
27 June 1963
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
25X1
State Department review completed
SECRET
GROUP 1
Excluded from automatic
downgrading and
declassification
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This material contains information affecting
the National Defense of the United States
within. the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
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ALTERNATIVE SOURCES OF POL SUPPLY
FOR COMMUNIST CHINA
Communist China in recent years has supplemented its domestic
supplies of petroleum products with imports obtained almost exclu-
sively from other Bloc countries. In 1962, China imported petroleum
products (there have been no significant imports of crude oil in the
last 2 years) equivalent to a rate of about 37, 000 barrels per day (bpd),
virtually all from the USSR. The peak of Communist China's imports
of petroleum occurred in 1960, when deliveries from other countries
averaged 63, 000 bpd.
The only sizable recent imports of petroleum from non-Bloc sources
occurred late in 1960 and early in 1961, when British and French sup-
pliers shipped about 800, 000 barrels of products to China. China also
has imported small quantities of lubricating oils through brokers in the
UK for the past several years.
Since about 1958, there have been recurring reports regarding the
possible sale of crude oil and/or petroleum products to China by Iraq,
Egypt, Japan, Indonesia, and the UK. There is no evidence, however,
that any sales have been consummated.
1. Alternative Sources of POL Supply
In addition to the US, there are a number of non-Bloc suppliers
who have the capability to supply, in whole or in part, China's demand
for imports of petroleum products. Although only a few of these sup-
pliers could provide aviation gasoline, many of them probably could
provide jet fuel.
Indonesia
The Government of Indonesia does not now own or control refining
capacity sufficient to meet China's requirements for imports of petroleum
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products. The Shell Oil Company alone has refining capacity sufficient
to supply all of China's import-demand, including China's relatively
small demand for aviation gasoline. In 1962, Shell refineries in Indo-
nesia operated at a level of about 160, 000 bpd and had unused capacity
equivalent to about 30, 000 bpd, or about 80 percent of China's total im-
ports of petroleum products in that year.
Japan
The Shell Oil Company owns or controls refining capacity in Japan
that could provide products (except aviation gasoline) to China. Idemitsu
Kosan, the largest independent oil company in Japan, also has refining
capacity sufficient to provide products (except aviation gasoline) to China.
Idemitsu Kosan procures some of its crude oil from the Gulf Oil Corpora-
tion (and some from the USSR).
Egypt has refining capacity at Suez (on the Gulf of Suez) that could
provide petroleum products (except aviation gasoline). Egypt's re-
fineries have imbalances in product output that occasionally result in
surpluses of certain products -- for example, three cargoes of motor
gasoline were shipped to China in 1962 on the Soviet account. These
deliveries were effected under a Soviet-Egyptian arrangement whereby
the USSR agreed to help Egypt dispose of excess motor gasoline.
Syria, too, has a surplus of some products, but toll charges for the
Suez Canal would add to the total cost of delivery.
The British Petroleum Company refinery at Aden represents a pos-
sible source of supply of petroleum products (except aviation gasoline)
for China. The Consortium refinery at Abadan (Iran), in which both
British Petroleum and Shell have an interest, also represents a possible
source for products, including aviation gasoline.
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Italy
Although Suez toll charges and added ocean freight would militate
against Italy as a source of products for China, there are several in-
dependent oil companies, as well as ENI (Ente Nazionkle Idrocarburi),
which could contribute to China's supply of petroleum.
For the past several years, trade agreements between Iraq and
China have provided for the sale of crude oil to China, but no deliveries
of crude oil under these agreements have actually been made. The
government-owned refinery at Baghdad does not have sufficient capacity
to provide products to China.
Ceylon also has been mentioned as a possible intermediate sup-
plier for China. Recent reports, for example, discuss construction
of a refinery at Colombo that might process Indonesian crude oil,
which China in turn could purchase. Such an arrangement, however,
probably could not be implemented for at least 2 years.
2. Prospects for US Attempts to Block Sales to China
As long as China refrains from overt aggressive action, it is
unlikely that the US could get sufficient international cooperation to
block sales of oil to China. Even under conditions of Chinese aggres-
sion, there may be difficulties in limiting shipments from certain sup-
pliers. There are no established international agreements -- to which
the US is a signatory -- that could be implemented to prevent such sales.
The petroleum products that China would want to import are not on the
COCOM embargo list, and there is practically no possiblility that such
products could be added to the list. Reestablishment of a denial list to
apply only to China (and only to petroleum) is considered politically
impossible. Under present circumstances an attempt by the US alone
to impose on its NATO allies and Japan its position with respect to
petroleum shipments to Communist China would provoke at the least
an extremely unfavorable reaction and probably would be ineffective.
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A recent message from Averell Harriman, Under Secretary of State
for Political Affairs, to Mr. Wilkinson, a director of Shell Oil, made
known to Shell, US anxiety at the possible sale of oil to China by Shell
(from Indonesia or elsewhere). Wilkinson in reply indicated that although
Shell is not now interested in sales to China, he could not say that there
would be no change in Shell's attitude toward such sales.
3. Problems with Respect to Alternative Sources of Supply
Communist China's selection of alternative sources of supply of
petroleum would necessitate a shift from almost complete dependence
on rail transport, which characterizes the current pattern of imports,
to dependence on ocean transport. China has a very limited tanker
lift capability that is now fully employed in coastal service. In the
continuing soft tanker market, however, China probably would have
no difficulty in chartering Free World tankers.
A shift to non-Bloc suppliers in most instances probably would
require that China pay for its petroleum imports (and transport) in
hard currency. Considering the estimated value of its POL imports
in 1962 (about $80 million -- based on prices f. o. b. Singapore), China
could generate sufficient foreign exchange to purchase these imports
from Free World sources by diverting its export trade from the Bloc
to non-Bloc areas. Moreover, immediate requirements for hard cur-
rency could be provided from current foreign exchange holdings.
Analyst:
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