The big news of the last week was the announcement by China National Offshore Oil Company (CNOOC) of an unsolicted $18bn USD bid to buy Unocal. This has huge implications for the United States in both political and economic terms. The American economy is driven by oil. Besides providing a source for electrical energy and transportation, much of the high tech sector is reliant on oil as well, whether you realize it or not. Plastics - made from oil. Medicines - made from oil. Fertilizer and pesticides - made from oil. The list goes on and on. Already the rising price of sweet crude (over $60 a barrel as of today) is putting a pinch on the economy. Oil is a commodity, but control of oil is a matter of national security. While many of the major oil corporations are American, the fact of the matter is that the majority of the reserve holdings that these companies possess don't lie anywhere within the United States. That marks oil as a very unusual commodity. I predict that within thirty years at least two wars will have broken out _explicitly_ over the control of oil - as demand continues to increase, and supply doesn't, countries will resort to force to ensure access to the drug of the nation. We currently import about two-thirds of the oil we use, and because the US passed its peak oil output in 1970, that ratio is only going to worsen. As powers like China and India industrialize, demand will continue to increase, while supply has more or less reached its peak. (Go read up on the concept of 'peak oil,' and get scared.) Clearly, allowing China to purchase an American oil company would seem to go counter to American interests. However, from a political and economic perspective, I'm not sure that there is much that we can do about it. We are hoping that China will apply pressure to North Korea to help with nuclear disarmament, and China-Taiwan policy also hangs in the balance. Economically, China is already one of the favored trading partners for Australia and Japan and has been building relations with many of the countries in OPEC. In fact they have been building pipelines and ports like crazy, with the clear intent of ramping up importation of oil and natural gas. Most significantly though, is the fact that China is one of the largest holders of the American debt. If they so chose, they could crash the American economy right now by simply unpegging the renminbi from the dollar, and divesting or diversifying its foreign currency holdings. China is holding all of the cards in this gambit, in part due to the poor playing of the current administration. It all seems rather grim, doesn't it? Well, that's because it is. We need to wake up, start conserving energy drastically, and begin looking to alternative sources of energy (it's already probably too late to prevent a recession, but we can at least prevent disaster). We need to reduce our both our national deficit and our trade deficit (don't look to the Bush administration to get it done) so that our economy can't be held hostage by any one country (except the oil producing ones). We needed to get it all done yesterday.