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China mediated the agreement between Saudi Arabia and Iran recently, demonstrating the confidence of a global power. The declared result commits the two countries to restore full diplomatic relations -- after seven years of stalemate -- and implement old agreements for expanding ties. If it mitigates long-standing rivalries between the two Gulf giants and ends the horrific war in Yemen, it could impact the larger West Asian region, and extend China’s global clout.
The US, the pre-eminent power in the region for the last five decades, reacted coolly; but the CIA chief’s complaints in Riyadh that the US was “blindsided”, suggest they are worried. India, equally surprised, has been cautious, only approving of diplomacy to resolve differences.
The West, and we in India, should have been less surprised by just how important China has become to all countries in West Asia. The US shale oil revolution, followed by the Western push for energy transition away from oil, has made China the principal market for Gulf oil exports. China’s crude oil imports from the Gulf have grown eight times since 2000 to over 250 million tonnes (mt) in 2021. Meanwhile, the US and EU’s sourcing of oil from this region has declined from about 250 mt to less than 100 million in the same period.
Oil and oil products account for 87 per cent of Saudi Arabia’s exports and 40-45 per cent of its gross domestic product (GDP). The figures for Iran, a more diversified economy are 70 per cent and 20-25 per cent. China- the world’s largest oil importer, is crucial to both.
The Gulf countries all seek to diversify and reduce their dependence on oil. And China has just what they need in building new renewable energy, industrial capacity, and infrastructure (also weaponry as an alternative to traditional Western suppliers…). China has over 80 per cent of the world's manufacturing capacity for solar power, and similar dominance in EVs, batteries, wind turbines etc. As a US analyst put it, China is now the centre of gravity of global energy trade. And it has made West Asia a focus area for its foreign policy.
The Vision 2030 of Saudi Arabia’s Crown Prince Mohammed bin Salman aims to transform the country by leveraging oil revenue to stimulate a new phase of industrialization, build new cities, exploit mineral wealth etc. China has worked on synergies with its own Belt and Road Initiative, offering competitively industrial capacity, new sources of energy and complete projects.
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China has found Saudi Arabia to be a safe, dependable oil source. It has imported up to 1.8 million barrels per day, or 17 per cent of its imports in the last two years from the Saudis. Riyadh values the Chinese market, which takes 25 per cent of its oil exports and is locking in refinery capacity there.
Meanwhile, Saudi relations with the US have deteriorated as the Biden administration alienated the leadership with prescriptive lectures on domestic affairs and OPEC policies. It complains about ties with Russia, while that country is an ally of the Saudis in keeping oil prices elevated. The disastrous Saudi intervention in the Yemen war not only exacerbated tensions with Iran but brought Houthi rocket attacks on Saudi infrastructure. The US did not respond effectively, opening its historic role as a security guarantor to question. As Riyadh sought political options, China walked in through an open door.
In Iran, back in 2016, President Xi mooted plans for a 25-year strategic cooperation agreement, and in 2019 the proposal was revived with outlines of $400 billion in Chinese investments. This grand scheme ran into difficulties as a vocal section in Iran (led by former President Ahmedinejad) claimed it had security elements disallowed by the Iranian Constitution. Clearly the Iranian revolutionary slogan “neither East nor West” is still in play. Apart from the fact that the Iranian oil and gas industries prefer Western technology, its labyrinthine bureaucracy moves slowly on any new projects. While the agreement was finally concluded in 2021, only $185 million of the 400 billion has materialized!
A somewhat frustrated China seems to have chosen between the two great Gulf rivals, in favour of Saudi Arabia. In December 2022, President Xi visited Riyadh where he participated in three summits: China-Saudi Arabia, China-GCC, and China-Arab States. This clearly acknowledged Saudi Arabia’s leading role and presented China as a partner, for the entire Arab world. The Joint Statement issued after the China-GCC meeting showed a tilt against Iran on 1) the three islands near the Straits of Hormuz occupied by Iran, but claimed by UAE; 2) Yemen, where China condemned attacks by the Iranian-backed Houthi militia on Saudi Arabia and UAE; and 3) while “addressing the Iran nuclear file and destabilising regional activities”!
Clearly taken aback, the Iranians called in the Chinese Ambassador, and conveyed “strong dissatisfaction”. But the Chinese knew that Tehran, hemmed in by sanctions blocking oil sales to others, anti-regime protests, and persisting threats of possible Israeli-US attack, had limited options. In February 2023, President Raisi paid a standalone state visit to China, the first in twenty years. He agreed to a roadmap to implement the 2021 agreement. And probably agreed to Chinese mediation with Saudi Arabia over their differences.
As always, the Iranians bargained shrewdly. First, the Saudi-owned Iran International’s London bureau, whose broadcasts were feeding the anti-regime protests inside Iran, was closed ("relocated"). Then, Iran signalled to the Houthis in Yemen a possible reduction in arms supplies. With the agreements following swiftly thereafter, China pulled off a diplomatic coup.
The result is a setback for the US and Israel, who had sought to draw Saudi Arabia into the Abraham Accords against Iran. The US, currently obsessed with its campaigns against Russia and oil, may respond over time. But Iran, which accepted the deal “with caution” (as the Tehran Times put it), and Israel, are both capable of surprise manoeuvres. For the present, the deal marks the arrival of China as a major political actor in West Asia.
The author is a former foreign secretary