US sanctions threat may tighten Burma's China ties

New sanctions could upset the long-established relationships Myanmar has with international firms, leaving it reliant on China for imports, write Reena Nathan, Kevin Foster and Aldric Chew

The threat of new US sanctions against Myanmar (Burma) following a military coup on 1 February 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. The coup derailed uneven moves to establish democratic rule in recent years that helped the NLD to win power in 2015 and encouraged Washington to lift long-standing sanctions on the country. US president Joe Biden has promised an "immediate review" of sanctions against Myanmar, potentially complicating foreign energy investment in the country.

Asia-Pacific energy firms are the biggest investors in Myanmar's oil and gas sector, notably Thailand's state-controlled PTTEP, Malaysia's state-owned Petronas and Indian and Japanese companies. Many invested in Myanmar under the previous military government and have long-established relationships in the country. PTTEP last year committed to a $2bn investment in upstream gas projects, pipelines and power plants. Other foreign firms with upstream investments include Chevron, Total, Shell, Italy's Eni and Australian independent Woodside Petroleum.

Total operates Myanmar's largest gas field, the offshore Yadana project, in which Chevron has a minority stake. The firms' investments in the country date back to the 1990s, and their Yadana investments were exempted from the previous sanctions regime. It is unclear how any new US sanctions might impact upstream investment. A more immediate impact could be on companies that sell oil products to Myanmar. The country has just three refineries — ageing plants that operate well below their combined nameplate capacity of around 50,000 b/d, leaving it reliant on imports to meet most of its fuel needs. Major suppliers include Chinese state-run PetroChina, trading company Vitol and South Korea's SK.

Beijing has consistently provided cover for Myanmar in the UN Security Council. "China will likely continue to support Myanmar against western pressure in order to defend its own interests," says Lucas Myers, a programme associate at US-based think-tank the Wilson Center. Those interests include the China-Myanmar Economic Corridor (CMEC) project, 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. The Burma Road oil and gas import pipelines — part of CMEC — carried 200,000 b/d of crude to PetroChina's Anning refinery in 2020, or around 2pc of China's total crude imports, as well as 4.2bn m³ of Myanmar's offshore gas production to China, making up around 9pc of China's total pipeline gas imports.

Sticking together "China just spent the last decade investing time and energy in developing a relationship with the NLD. This means contracts signed. Those are all up [in] the air now," says Simon Hudes, a southeast Asia-focused analyst at US-based think-tank the Center for Strategic and International Studies. China will do what it must to maintain a relationship that continues to advance its business interests, he says.

It will likely be difficult for the US administration to get southeast Asian countries to withdraw investments in Myanmar or engage in strident criticism, Myers says. "The US could sanction individuals or local energy firms in which these other countries are heavily invested, thereby pressuring them to cut ties," Hudes says. 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."

China-Myanmar crude infrastructure

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