An oil pipeline carrying imported crude from Myanmar to China is facing a two-front crisis: armed conflict at home and a maritime blockade overseas.

The pipeline is connected to a crude oil terminal built to accommodate large tankers transporting fuel from the Middle East.  Earlier this year, artillery shells and other munitions reportedly landed in the port town of Kyaukphyu, a few miles from the pipeline and fuel storage tanks.

The Myanmar military’s frequent clashes with the Arakan Army, an insurgent group that now controls 90 percent of Rakhine State, pose a threat to China-funded energy projects in the region.

A slowdown in tanker traffic from the Persian Gulf has further dented the pipeline’s capacity to supply oil to China’s western provinces.

The maritime data firm Kpler reports that China’s oil imports, including deliveries from the Myanmar pipeline, were expected to fall to 6.78 million barrels per day for May, the “lowest level in almost a decade.”

Myanmar’s military currently controls only three coastal towns in Rakhine State. The Arakan Army (AA) won pivotal victories in December 2024, when its troops captured the military’s western command headquarters and took control of the 270-kilometer border with Bangladesh. “AA has emerged as the most powerful and influential rebel group in Myanmar’s decades-long civil war,” wrote a Dhaka-based academic in Jamestown, a defense policy publication in Washington, D.C.

The Arakan Army’s rapid consolidation of territory has “generated unease” in Beijing about the security of China-Myanmar projects in Rakhine State. In February, a power plant connected to the Kyaukphyu Special Economic Zone (SEZ) was dismantled for relocation.  “They are taking the plant apart as quickly as they can to avoid it getting damaged in the fighting,” a resident of Kyaukphyu township told Burma News International.  Clashes between the military and the AA took place three kilometers away from the project.

Myanmar’s State Administration Council passed a law in February 2025 permitting foreign private security firms to operate in the country. The legislation was reportedly passed to give China-affiliated ventures the option of reinforcing security arrangements at conflict-prone locations.

In June, Myanmar’s president was invited to Beijing for a state visit. Min Aung Hlaing was given a red-carpet welcome, but China’s President Xi Jinping hinted at the unrest in Rakhine State, urging the former army chief to “find a correct path of development that suits . . . national conditions.”

A joint statement glossed over the insurgency, focusing instead on “shared prosperity” through “timely implementation” of the China-Myanmar Economic Corridor. Three infrastructure projects were singled out as priority items: the Kyaukphyu Deep-Sea Port, the Muse-Mandalay Railway and the China-Myanmar oil and gas pipelines.

The Kyaukphyu SEZ, which includes the oil terminal and pipeline on Maday Island, is a dependable revenue source for the state-owned Myanma Oil and Gas Enterprise. Former deputy military chief Soe Win reportedly told a meeting of senior officials last March, “this project must succeed.” However, the June 2025 deadline for completion of the project has passed, and satellite photos show limited activity at the main site.

Beijing remains hopeful that some components of the SEZ can be salvaged. The Myanmar oil pipeline has reliably supplied crude to Yunnan Petrochemical, a state-owned energy enterprise near Kunming. The refinery manufactures petroleum products such as diesel and jet fuel for the domestic and Southeast Asian markets.

To protect its $1.2 billion investment in the energy project, China has pursued a “dual-track” approach, engaging with both the Myanmar military as well as the AA.  Beijing has come to terms with the AA’s control over Rakhine State and, in a “delicate balancing act,” attempts to restrain both sides from derailing China’s projects.

In an opinion piece for the Daily Star, Mohammad Sufiur Rahman, Dhaka’s former ambassador to Myanmar, wrote, “regardless of the political future of Rakhine State, it is likely that the Arakan Army and the Myanmar government will eventually reach an understanding on the completion of the project.” He added that Beijing “will seek to use its good offices” with both warring parties to protect its energy-related assets.

The Kyaukphyu SEZ was once a flagship Belt and Road project, designed to open China’s landlocked western states to a wider market. The oil pipeline, completed in 2014, was built as a “strategic hedge” against a potential disruption in the Strait of Malacca, the maritime artery that supplies 80 percent of China’s crude oil imports.

A decade later, Kyaukphyu’s Special Economic Zone has turned into a de facto war zone.