January 20, 2011

In Middle East, China's Notable Connections

Far more so than with Latin America, China has historical ties to the Middle East dating back to the Silk Road trading route and beyond. Over the past two decades China has been working hard to reestablish its historical presence in the region, and for good reason: The Middle East is critical for China’s energy security. In fact, its entrance into Africa, which Bailey discussed on Tuesday, was driven by a desire to decrease its dependence on Middle Eastern oil.

More so than in other regions, China must compete with already well entrenched oil relationships in the Middle East. Consequently, it has not been able to purchase stakes in oil fields to the same extent it has elsewhere. One way in which Beijing has tried to overcome the established interests in the region in recent decades is by courting the countries the West has shunned, most notably Iran. Chinese companies have replaced the Western and Asian companies that have by and large left Tehran to comply with sanctions (though in the past year its position on sanctions compliance has laudably changed). As a result, Iranian-Chinese trade spiked from 4 billion dollars in 2003, to over 20 billion dollars in 2009. That same year, Iran constituted 11 percent of China’s total oil imports, making it Beijing’s third largest supplier.  

At the same time, it has certainly not shied away from establishing relations with traditional Western allies. First is its significant relationship with Saudi Arabia. Since the two countries established diplomatic ties in 1990, trade has grown from 290 million dollars to an estimated 40 billion dollars by 2008. Not only is Saudi Arabia China’s largest oil supplier but, since November 2009 when it passed the United States, China has been Saudi Arabia’s largest oil costumer.  Despite China’s best efforts to diversify its oil suppliers, its reliance on the Persian Gulf will only grow in coming years. By 2015, for instance, China will import 70 percent of its oil from the six GCC countries, according to the International Energy Agency.

Iraq is sort of a wildcard in China’s regional strategy. Beijing had made a few oil deals with Saddam’s Iraq in the late 1990s.It then remained mostly silent in the run-up to the Iraq war after 9/11, offering only sporadic and minor criticism of the Bush administration’s policies. As Baghdad slipped into civil war during the next few years Beijing mainly stayed on the sidelines as it focused on its own development. Since Iraq has become more secure following the surge, however, the Chinese companies have made an aggressive push for Iraqi oil.  More so than their Western counterparts, Chinese oil companies are willing to accept a high level of risk to operate and invest there. They feel they will be able to handle what is sure to be an unpredictable future for the Iraqi state.    

It’s worth remembering that this is not necessarily a bad thing. China now has at least as great a stake as the U.S. and the rest of the Western world in the stability of the Middle East. Thus it would have just as much to lose as the United States were Al Qaeda in the Arabian Peninsula (AQAP) or other groups to successfully attack Saudi oil facilities; or were Iraq to slip back into war; or if Iran tried to halt trade through the Strait of Hormuz. As one expert put it, “If you want China to be a responsible stakeholder in the world, you need to let China buy stakes in the world.”