CommentInsight & Opinion

China carving a role in Middle Eastern affairs

Robert Lawrence Kuhn and Florence Eid-Oakden say as US interest in the Middle East apparently wanes, China's appetite for its oil means it is beginning to play a bigger role in its affairs

PUBLISHED : Friday, 20 December, 2013, 6:35pm
UPDATED : Saturday, 21 December, 2013, 3:15am
 

Chinese Foreign Minister Wang Yi's visit to the Middle East and North Africa - Palestine, Israel, Algeria, Morocco and Saudi Arabia - is noteworthy on several levels. It recognises the importance of the region for China's energy security and it reflects the country's growing participation in world affairs.

Both trends are likely to continue as China's position in the world rises and as it feels pressure to protect its vital interests. It is in this context that we explore China's Middle East strategy.

In past decades, it was the United States that needed to immerse itself deeply in Middle Eastern affairs, due to its dependence on oil imports. In a historic turn of fortunes, now it is China's chance.

China imports about 60 per cent of its oil from Middle East countries. This compares with about 25 per cent of US oil imports from the region. With the upsurge in American domestic oil and natural gas production, US oil imports from the Middle East are projected to drop to almost zero. China, by contrast, could see its Middle East oil imports more than double, to nearly 7 million barrels per day, becoming a major dependency for China.

Saudi Arabia is China's largest supplier, accounting for about 20 per cent of crude oil imports. Happily, the kingdom is a secure and reliable source, navigating intelligently the volatility that surrounds it. However, China needs more oil, including from Iran and Iraq, each with its own set of problems.

Especially worrying are threats to the free flows of oil and the uptick in violence directed towards Chinese oil installations. China's non-interference policy no longer serves its national interests.

Since the introduction of its "Going Out" policy in the 1990s, China has pursued a strategy of gaining influence in the Middle East through the soft power of economic interdependence. By refraining from intervening in the region's complex politics, China managed to reap the benefits of abundant natural resources while mitigating risks of backlash. But with conflicts mounting, particularly in the protracted Syrian crisis, China is no longer shielded from repercussions - physical attacks as well as political backlash.

The regional dynamics underscore the significance for China of the nuclear deal with Iran. Even as an interim arrangement, with a shelf life of six months, it can provide substantial relief to Iran's battered economy and has already affected forward contracts for oil. If Iran fulfils its commitments and the world rewards it, there will be incentive to craft a larger deal. Should sanctions be incrementally lifted, investment opportunities in this diversified and under-served market of almost 80 million people will abound.

Iran is the third largest source of Chinese oil imports. Chinese firms also have sizeable vested interests in the Iranian hydrocarbon industry, such as the China National Petroleum Corporation contract to drill 19 natural gas wells in Iran's southern fields.

But the major impact from a nuclear deal will be on regional security. We can think of Iran today as holding two bombs: One has to do with its nuclear programme, and the other with the sectarian proxy wars it is fuelling regionally against its Sunni rivals. With the Gulf Co-operation Council (GCC) states arming rival factions, the fighting in Syria and resultant spill-over into Lebanon and Iraq have taken a deeply sectarian and radical turn.

As a framework for understanding the region, three potential scenarios could affect China.

One, nuclear negotiations fail and, after the six-month deal expires, sanctions are reinforced and expanded. China would be pressured not to deal with Iran for oil and other business.

Two, nuclear negotiations succeed. Iran strikes a deal with the West but continues to be broadly hostile to its Sunni neighbours in the region. This could prolong the war in Syria and intensify security concerns in the GCC. While easing sanctions would enable China to seek energy investment opportunities, the geopolitical risk will remain high and likely increase.

The third potential scenario is of course somewhere in between, which could leave a climate of uncertainty and continued volatility.

None of these scenarios are especially good for China, although successful negotiations are obviously best. Better still, of course, would be a changing mindset in Iran's regional policies. Should the Syria war wind down, reconstruction can begin, with Lebanon and Iraq spared. This would then facilitate regional opportunities and reduce the geopolitical risk.

What about the historic reversal between China and US interests in Middle East oil? No one is predicting a large-scale American withdrawal, because concerns over terrorism, nuclear proliferation, free-flowing oil and Israel will continue. Yet China must plan for the unexpected.

What if US budgetary constraints combine with wavering public opinion to pressure the administration to reduce substantially its military commitment that keeps the oil flowing? What if China's energy lifeline were threatened by local events? What if the Strait of Hormuz were closed? What if the US were no longer the world's policeman?

More broadly, as China becomes the world's largest economic power, it will have an obligation to humanity as well as to itself.

China needs world stability to continue its massive domestic development. Foreign Minister Wang's trip to Israel and Palestine, as the highest-level Chinese official to visit in years, focused on Iran and Israeli-Palestinian negotiations.

China has a new supporting role on the world's diplomatic stage, and the contesting parties, at least initially, seem to appreciate it. China's entry into the Middle East is a new factor in world geopolitics. It's worth watching.

Dr Robert Lawrence Kuhn is an international corporate strategist and investment banker who has long-term relationships with China's leaders and the Chinese government. Dr Florence Eid-Oakden is chief economist of Arabia Monitor, a research advisory firm focused on the Middle East & North Africa

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