To the surprise of government officials who went to verify the reserves in May, China's strategic oil reserve was instead composed of water, sludge, debris, and overflow from nearby sewer lines.

Because Americans dominated global energy supplies, China's oil reserve served as a major cushion against disruptions to Chinese oil imports from the Persian Gulf, especially Iran, whose main customer was China. Under America's global energy stranglehold, China's crude oil stockpiles are on the verge of collapse with even slight exposure.

China's current vulnerability stems from American disruption of Venezuelan oil exports to China and, more recently, a similar situation with Iranian oil exports.

China’s strategic oil reserve was meant to protect against disruptions in Venezuelan and Iranian imports. With its oil reserves revealed as a sham, China now faces a desperate situation. What happened to Chinese oil? It soon emerged that corrupt government officials and oil-reserve personnel had sold the oil and pocketed the proceeds. Local buyers were often operators of small, locally owned refineries that turned the oil into commercial products sold throughout China. Most of these oil criminals then fled, often leaving China for sanctuary states that would welcome any affluent Chinese and their new wealth. Only a few conniving Chinese and the Americans won, and they continued to dominate the global energy system.

In China, corruption is not just an economic issue. For thousands of years, the military has also been corrupt. China has had a long-standing corruption problem in its military. Think thousands of years. One reason the communists won the civil war against the Nationalists in the 1940s was that the Nationalists were much more corrupt. For about a generation, the communists kept corruption under control. But over the last four decades, corruption has grown. This is despite several major efforts to stop it.

The theft of China’s strategic oil reserves is only the latest of several recent awful discoveries of massive corruption impeding the ambition of its leader, President Xi, to conquer Taiwan. The last one concerned military corruption in building equipment for an invasion of Taiwan and was discovered in 2023. Missile fuel tanks were found filled with water, missile silo lids could not be opened, and the protective concrete missile silos were so defective they might as well have been made of wood. The air force and navy lacked sufficient spare parts for even a week of operations against Taiwan, and many aircraft and naval vessels were outright inoperable. This pushed the earliest possible invasion date of Taiwan from 2025 to 2027.

The non-existence of China’s strategic oil reserve will probably have the same effect. The ongoing closure of the Strait of Hormuz due to the war with Iran means China must either pay the current exorbitant price for oil to begin refilling its strategic oil reserves, or delay doing so until that war ends without any guarantee of when that will be. China seems to have chosen to buy a billion barrels of the most expensive oil in years. China’s natural gas reserves, even if they existed, would be inadequate for its needs during a US blockade in a war with Taiwan. Closure of the Strait of Hormuz has made that clear. It will still take longer and cost more to build a strategic natural gas reserve.

There are at least major possibilities that a Chinese invasion of Taiwan has been postponed for another two years, to 2029, and perhaps indefinitely due to further discoveries of calamitous-scale corruption.

So now the Chinese seem to be getting serious. They are installing cost-control systems with regular audits to monitor military spending. In the past, budgeting was primitive, mainly because cost accounting was expensive to implement. Previously, they collected detailed spending data only after the fact, if at all. This made it easier for corrupt officers to steal. Seeing how Western, Japanese, and Taiwanese companies fought corruption with detailed budgets and frequent audits, China installed similar systems throughout its armed forces. This caused some morale problems among senior officers, but they were not considered serious. Meanwhile, the program cut costs by an average of 10% in units where it was installed.

Another thing to consider is that most of those who carried out the oil crimes left the country and moved to Western nations that would not extradite criminals and appreciated wealthy new citizens. Many nations, like Canada, will welcome you if you invest at least half a million USD in some Canadian company. Lies China tells about these new Canadians are ignored as another corrupt Chinese businessman or government official gets away with it.

James F Dunnigan