Jan 27th 2016

China’s Bold Moves on the Middle Eastern Chess Board

by Daniel Wagner

Daniel Wagner is CEO of Country Risk Solutions, a Connecticut-based cross-border risk advisory firm and author of the book Managing Country Risk. CRS provides a range of services related to the management of cross-border risk. He is also Senior Advisor with Gnarus Advisors.

China has long mastered the art of casually sitting on the sidelines while regional and global economic and political forces clash, then deliberately and swiftly swooping in to scoop up the spoils. That was best exemplified when Chinese oil companies won a variety of contracts from the Iraqi government following the end of the Iraq War. The precipitous fall in the price of oil has presented China with no less of an opportunity to do so. As President Xi’s tour through the Middle East has once again demonstrated, China has carefully chosen the right time to re-embrace the region, with special emphasis this time on Iran.

China’s relationship with the Middle East dates back to the Rashidun Caliphate, following the death of Muhammad in 632, and China has had diplomatic and trade relations with the region in one form or another since that time. More recently, Jiang Zemin became the first Chinese leader to visit the Arab League in 1996, and the Sino-Arab Cooperation Forum was first established in 2004. Chinese leaders have regularly visited the region’s capitals for many years.President Xi made his first visit to the Middle East and Pakistan in 2015, setting the stage for this current tour through the region. China clearly sees the region’s shifting political sands as an opportunity to enhance its economic and political role, particularly as America’s power and influence continues to decline.

Xi’s visit to Tehran came just days after global sanctions were officially lifted (Beijing literally is not wasting a single day in attempting to establish a foothold with Iran) which apparently resulted in some $600 billion worth of contracts for Chinese firms. China has already becomeIran's number one export partner. By visiting both Iran and Saudi Arabia in the same trip, Xi is  attempting to play off of both countries’ proxy regional conflicts for its own benefit, keeping both sides in its camp. 

China is clearly the future growth market for Saudi petroleum. Saudi oil exports to China exceeded those to the U.S. for the first time in 2009, and the kingdom exports in excess of three times more to five Asian countries (China, Japan, South Korea, India and Singapore) than to Europe and North America combined. By 2030 Chinese demand for oil is expected to reach more than 16 million barrels per day, while U.S. oil imports are expected to continue to dwindle in the era of fracking. In shifting its oil export focus, Saudi Arabia is joining the world's major Muslim powers (Egypt, Indonesia, Iran, Iraq, Kazakhstan, Malaysia, Mauritania, Nigeria, Pakistan, Sudan and Turkey) that have also deepened their economic ties with China over the past decade.

Given its severe economic crisis, the Saudis need the Chinese to continue to buy as much of its crude as possible. The Saudis are similarly unlikely to risk a total disconnect from Washington, as Riyadh knows doing so would not be in its own long term interest. The Saudis are thus also hoping to have their cake and eat it too, by giving themselves the freedom to pursue alternative economic and political relationships while maintaining a functional relationship with Washington.

From the U.S. perspective, Saudi Arabia is simply too important geopolitically, and for the global economy, to write off. In any event, China's military lacks the capacity to police the Persian Gulf and safeguard shipping, and no country other than the U.S. has the capacity to provide a security umbrella to countries in the region. The Saudis will therefore remain dependent on the U.S. in that regard, which also suits Beijing's interests for the time being. China has been content not to be seen as actively promoting regional stability, but rather to ride the coat tails of the U.S. militarily.

China, Saudi Arabia and the U.S. are likely to continue to practice a rather awkward triangular balance of power in the Persian Gulf, reflective of an understanding of their mutual and interwoven dependencies, which limits their mutual capacity to deny each other a preeminent role in the region. China and Saudi Arabia realize that with U.S. military bases in all of Saudi Arabia's fellow Gulf Cooperation Council member states, neither Beijing nor Riyadh are capable of removing the U.S. from its position as the most dominant military actor in the Persian Gulf. Of course, neither China nor Saudi Arabia would benefit from a change in the U.S. role, as America is willingly bearing the burden and cost of policing the region.

The path China is blazing in the Middle East is rewriting the rule book on how to become important and influential -- economically, politically, and diplomatically – without using military force to either project power or use it as a bargaining chip. No other country in the world would dare to visit Riyadh and Tehran in the same trip and hope to maintain favorable relations with both, yet China is doing just that. China has become masterful at using a variety of approaches to get what it wants. There is every reason to believe that, by virtue of its size, importance and approach, China will be successful in achieving its objectives in the Middle East.


Daniel Wagner is CEO of Country Risk Solutions and co-author of the forthcoming book “Global Risk Agility and Decision Making” (Macmillan, May 2016).

For Country Risk Solutions' web site, please click here.

You can follow Daniel Wagner on Twitter: www.twitter.com/countryriskmgmt

 


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