US sanctions threat may drive Burma closer to China

The threat of new US sanctions against Myanmar (Burma) following a military coup earlier this week could push the southeast Asian country further into the embrace of China, its largest trading partner and closest ally.

Myanmar's armed forces have arrested de facto leader Aung San Suu Kyi and other officials in the ruling National League for Democracy (NLD) and declared a year-long state of emergency, placing commander-in-chief Min Aung Hlaing in power.

China has consistently provided cover for Myanmar in the UN Security Council, said Lucas Myers, a programme associate with the US-based Woodrow Wilson International Center for Scholars. "China will likely continue to support Myanmar against Western pressure in order to defend its own interests," he said. China blocked a UN Security Council statement on 2 February condemning the military takeover.

Beijing's interests include the China-Myanmar Economic Corridor (CMEC) project, which is part of a wider push by China to secure access to the Indian Ocean and reduce its dependence on the strait of Malacca as a conduit for oil imports. "This oil [from the Middle East] travels to China via the Malacca strait, which is vulnerable to blockade in the event of a conflict. By establishing a route to Myanmar, China can diversify its access to the Indian Ocean and offset the ‘Malacca dilemma'," Myers said.

The Burma Road oil and gas import pipelines — which are part of the CMEC project — carried 200,000 b/d of crude to state-run PetroChina's Anning refinery in 2020, or around 2pc of China's total crude imports last year.

"With the likely Western sanctions, I imagine that Myanmar's military government will continue to grow closer to China economically," Myers said.

That does not necessarily mean that China-Myanmar trade relations will be "good", but they will be even more tightly linked, said Simon Hudes, a southeast Asia-focused analyst at US-based think-tank the Center for Strategic and International Studies (CSIS). "China just spent the last decade investing time and energy in developing a relationship with the NLD. This doesn't just mean friendly relations. This means contracts signed. Those are all up [in] the air now," Hudes said.

China will do what it must to maintain a relationship that continues to advance its business interests, he said. "China really cares about the CMEC… Min Aung Hlaing was very friendly with Chinese foreign minister Wang Yi during his recent visit [in January], promising wholehearted cooperation on getting [the] CMEC done."

But the military has flip-flopped on these issues in the past. "After coming under enormous popular pressure, [former president] Thein Sein abandoned the unpopular [6GW] Myitsone dam project, also funded by China," Hudes said. "The military highly values sovereignty, and they won't want to be perceived as a puppet of Beijing."

Rallying partners in Asia

The military is unlikely to overtly oppose China, as Beijing is of one Myanmar's few important international backers, Myers said. And "China's economic weight and geographic closeness will likely reduce the bite of Western sanctions on Myanmar," he added.

But China will come under increased pressure to join any collective effort to respond to the coup, rather than be an outlier, said William Reinsch, a former senior US Commerce Department official and trade expert at the CSIS. "But it is too soon to say if that will occur."

Thailand's state-controlled PTTEP, Malaysia's state-owned Petronas and Indian and Japanese companies are some of the other major Asian investors in Myanmar's oil and gas sector. "I expect the Biden administration to try to bring those governments into a sanctions program," Reinsch said.

But it will likely be difficult for the US administration to get Asian countries to withdraw their investments in Myanmar or engage in strident criticism, Myers said. "Thailand's government has adopted a relatively warm position towards what it argues are ‘internal affairs'. The Philippines and Cambodia also."

The US may be able to influence Japan but getting the rest to go along will be tough, Hudes said. "The US lacks sufficient influence over Malaysia, Thailand and India to convince them to pull out their investments from Myanmar," he said.

The scope and extent of any new US sanctions will also play a big role. "The US could sanction individuals or local energy companies in which these other countries are heavily invested, thereby pressuring them to cut ties," Hudes said. But doing so could affect Washington's bilateral relationships with these countries. "So it's a trade-off. We'll see how far the US is willing to go."

By Reena Nathan