China Smells Opportunity in the Middle East’s Crisis

China Smells Opportunity in the Middle East’s Crisis

As the Middle East becomes ever more unstable, a surprising victor may be emerging: China. Under President Xi Jinping, China has accelerated its engagement with the Middle East — a region Beijing once treated as peripheral to its interests. Increased trade and investment, invigorated diplomatic exchanges, and expanded military ties are gradually transforming China’s position in the Middle East. Unless Washington can free its focus from the crises of the moment, Beijing may realize its ambitions: a Middle East more squarely within its own economic and diplomatic orbit, where the United States remains responsible for addressing the region’s most intractable challenges.

Oil has traditionally served as the glue holding together America’s relationships with key Arab states. Yet while the United States has revitalized its domestic petroleum production through the fracking revolution and reduced its dependence on foreign oil, China’s energy imports from the region have surged as the Middle East’s demand for energy at home has grown. Today, even as Beijing seeks to diversify its sources of foreign oil away from the region, it remains the among the top three importers from Saudi Arabia, Iraq, and Iran.

China’s appetite for Middle Eastern energy is creating the conditions for economic interdependence that mirrors the ties that have bound the United States to Saudi Arabia and other Gulf countries. This co-dependency runs the risk of curbing U.S. influence and rendering key Arab states more susceptible to Chinese demands. Indeed, Beijing has not shied away from using its leverage as a leading energy importer — in a recent example, it threatened to scale back oil imports from Saudi Arabia over a pricing dispute.

Beyond energy trade, China’s economic influence across the Middle East has expanded through its investment. Arab countries, eager to reduce their dependency on oil exports and diversify their economies through creating new industries, are welcoming Chinese investment. Saudi Arabia and Jordan are both in discussions with Beijing to harmonize their development plans with the Belt and Road Initiative — Xi’s signature piece of economic statecraft.

In the case of Saudi Arabia, this alignment of strategic visions has translated into a strong commercial signing package during King Salman’s March 2017 state visit to Beijing, totaling $65 billion of bilateral agreements in the oil, space, and renewable energy sectors. Additionally, Egyptian collaborationwith China on a new Suez Canal cooperation zone is underway. In Duqm, Oman, Chinese capital inflows transformed a backwater fishing village into a $10.7 billion “Sino-Oman Industrial City” featuring an oil refinery capable of processing 235,000 barrels per day.

In positioning its engagement with the Middle East as purely commercial in nature, China has enhanced its economic relations with the Arab states without endangering its similarly growing ties with Israel and Iran.

In Israel, China has invested in ports and railways, and it has become a growing player in the Israeli high-tech sector. At a time when the United States and its allies in Europe, Australia, and Japan increasingly regard Chinese investment as a threat to their long-term innovation edge, Israel, without taking appropriate precautions, could become a backdoor for China to obtain the technology it needs to realize its ambitions to dominate the critical industries of the 21st century.

China’s economic relationship with Iran, for which it is the No. 1 trading partner, has continued to deepen. As European firms fretted last year about a return of U.S. sanctions under President Donald Trump, Chinese state-owned investment arm CITIC Group established a $10 billion credit line for Iran. In 2017, China-Iran trade exceeded $37 billion, with year-on-year growth of 19 percent. U.S. withdrawal from the Iran nuclear deal and the threat of new sanctions puts all foreign companies under growing pressure to scale down their presence in Iran. Yet the specter of sanctions does not appear to have dissuaded Beijing from continuing to enhance its trade and investment relationship with Tehran, which will — as it did prior to the nuclear deal — have few alternatives to China going forward.

China’s burgeoning ties with the Middle East — though still primarily economic — are not limited to commercial and financial activity. Xi is augmenting the country’s economic gains with diplomatic exchanges, notably his January 2016 tour of Saudi Arabia, Egypt, and Iran. Xi subsequently welcomed Saudi Arabia’s King Salman and Israeli Prime Minister Benjamin Netanyahu to Beijing for official visits. China has also demonstrated a new, if cautious, willingness to make forays into some of the region’s disputes. For example, Beijing has given the Bashar al-Assad regime and its patron in Moscow diplomatic backing as well as consistent support in the Chinese media. Beijing has also hosted Israelis and Palestinians for a Peace Symposium. Although it is unlikely that China will ever play a prominent role as a mediator in either of these crises, its increasing willingness to wade into divisive regional issues demonstrates Beijing’s changing perception of its role in the region.

Beyond these diplomatic overtures, China has ramped up its military engagement across the Middle East.

Beyond these diplomatic overtures, China has ramped up its military engagement across the Middle East.

The Chinese navy has made efforts to demonstrate its presence in the vicinity of strategic chokepoints such as the Strait of Hormuz, the Bab el-Mandeb strait, and the Suez Canal. Since 2010, the navy has conducted port calls in every nation in the Gulf Cooperation Council (GCC), Egypt, Israel, and Iran. In June 2017, China and Iran conducted a joint naval exercise on the fringe of the Strait of Hormuz. Building on port visits and exercises, and leveraging dual-use infrastructure created by its regional investments, China could ultimately seek to obtain military access in the region — much as it did in nearby Djibouti.

China has also emerged as a boutique source of armaments for the Middle East, given its willingness to supply military-grade unmanned aerial vehicles (UAVs) that until very recently were subject to U.S. export controls. Preliminary open-source satellite imagery indicates that China recently sold such UAVs to the United Arab Emirates. Reporting from Yemen indicates that these drones are being actively employed in the ongoing campaign to eliminate prominent Houthi leaders.

Moreover, China has reportedly inked an agreement to open a new facility in Saudi Arabia to manufacture military drones. Although China has little hope of displacing the United States as the region’s preeminent arms supplier, military sales to the Middle East generate new markets for China’s low-cost, high-tech weapons systems, which further incentivize Chinese indigenous research, development, and production. And China’s willingness to sellweapons to nearly any actor, regardless of its intentions, could exacerbate regional conflicts by providing countries with the means to wage war at attractive prices.

Now is the time for the United States to engage key regional allies and partners on China’s growing involvement in the Middle East. This can start by debunking Beijing’s narrative that it is a purely commercial actor without a geopolitical agenda.

 The Trump administration should, in particular, publicly and privately highlight to the GCC members and Israel the nature of China’s relationship with Iran, which has too often remained overlooked. The United States should also have a quiet — and candid — dialogue with Israel on the challenges posed by China’s investment in its high-tech sector, and it should work to align their screening processes.

In the economic domain, the United States need not match the level of Chinese trade and investment. But it must advance a positive vision for the Middle East. This could take the form of a new infrastructure initiative in partnership with Saudi Arabia and the UAE, U.S. allies that are keen to play the role of hubs linking the region both internally and to Africa and the Indian Ocean.

With many countries in the Middle East eager to diversify their sources of domestic energy production away from fossil fuels, the United States should consider a regional energy agenda premised on efficiency and the use of renewables. On both infrastructure and energy, Japan, which ranks among the top five export destinations for all GCC countries, could play a pivotal — and reinforcing — role in counterbalancing China’s regional economic influence.

Finally, the United States should continue pressing China to expand the Belt and Road Initiative to countries in need of reconstruction assistance, such as Iraq, Syria, and Yemen. Washington should be unafraid of comparing the hypocrisy of Xi’s “community with shared future for mankind” with Beijing’s tepid interest in post-conflict reconstruction efforts.

With tensions roiling the Middle East, it would be easy for the United States to simply ignore China’s quiet power play. But that would be a mistake — one that will enable Beijing to continue to capitalize on economic opportunities across the region and solidify its diplomatic influence while leaving Washington to carry the burden of crisis management.

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