China’s motivations behind “loan-for-oil” deals

China has been undertaking a number of transactions with various countries referred to as “loan-for-oil” deals since 2009. In these deals, China extends a loan to a certain oil exporting country and expects loan repayments in the form of oil shipments at market prices. The aim of this thesis is to identify China’s motivations behind loan-for-oil deals. This paper analyzes each of two hypotheses separately. The first hypothesis is that “If China enters into loan-for-oil deals, then it is aiming to build friendships with oil-resource rich countries to advance its objective of energy security”. The second hypothesis is that “If China enters into loan-for-oil deals, then it is looking to diversify its financial investments from US treasury bills and views these deals as credible alternative investments”. The paper rejects both the hypotheses based on the information discussed in the thesis: the loan-for-oil deals do not enhance China’s oil linked energy security, nor are they a viable diversification from investments in U.S. treasury bills. However, by offering subsidized loans with relaxed conditions to oil exporting countries post the 2008 financial crisis, China is using these deals as an apparatus to develop friendships with oil exporting nations, thereby highlighting its interest in oil as a commodity. It can be speculated that the friendships formed as a result of these deals may contribute towards China's oil linked energy security goals in the future, however proving this conjecture is outside the scope of this thesis.