China's Geo-Economic Interests and the Middle East Energy Industry

Strategically located near most of the major energy consuming countries in Europe and Asia, the Middle East plays an intrinsic geo-economic role. However, since 2014, ups and downs in oil prices have disturbed the dynamics of the Middle Eastern energy industry.

As the political climate changed the regional equation, it evoked concern in countries dependent on the Middle East for their energy supply. Most of all, China’s energy security became prone to risks and this factor raised its stakes in the geopolitics of the Middle East.

Being one of the fastest growing global economies today, China needs dependable energy to keep its 6 percent growth rate sustainable. Consuming nearly one fourth of global energy supplies per annum, China cannot afford to lose its energy supply for any reason.

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At home, it has limited domestic energy reserves with oil supplies at just 1.5 percent and gas at only 2.9 percent. Trying out alternative means of energy such as nuclear and renewables while working on energy efficiency, China has tried to reduce its energy security risks since a while.

Nevertheless, China is heavily dependent on imported energy supplies and is a major trade partner of most of the oil and gas producing nations in the Middle East. Even as China’s energy imports surge, the domestic demand for energy also grows in Middle Eastern countries.

Considering other options, China tried to diversify its sources of oil supply since 2015 but remains one of the top three importers from Saudi Arabia, Iraq and Iran. Thus, helping maintain peace and prosperity in the Middle East is China’s top-most priority.

China is heavily dependent on imported energy supplies and is a major trade partner of most of oil and gas producing nations in the Middle East

Sabena Siddiqui

Investor in the Arab world

Consequently, China increased its investments in infrastructure and construction projects such as ports, pipelines and roads worth $29.5 billion, becoming the largest investor in the Arab world since 2016.

Creating new industries not only extended China’s economic interests beyond energy trade in the region, it also helped diversify the economies of the Arab world. During Saudi King Salman’s visit to Beijing in March 2017, commercial agreements totaling $65 billion were inked in renewable energy, oil and space sectors.

Planning a new Suez Canal, Egypt-China cooperation is also underway while a Sino-Oman Industrial City worth $10.7 billion has been built in Duqm, Oman, with Chinese investment.

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Planning development in line with the Belt and Road Initiative (BRI), both Jordan and Saudi Arabia are also engaged in consultations with China over various prospects.

Enhancing commercial engagement, an Arab Summit of 21 nations was recently arranged for foreign ministers in Beijing. Launching an “oil and gas plus” model to speed up economic growth in the region, President Xi pledged $20 billion in loans as well as $106 billion in financial aid to nations in the Middle East.

On the occasion, Saudi Arabian Foreign Minister Adil al-Jubeir said: “Beijing is a political, economic and security partner. The crises and challenges that China and the Arab world have experienced are identical, both the Arabs and the Chinese aspire to strengthen and intensify their co-operation in all fields.”

Elevating ties to a “strategic partnership”, Xi has also visited the Arab region recently on his first foreign trip abroad since his re-election this March. Providing strong trade routes according to the vision of BRI, countries of the Gulf Co-operation Council (GCC) can avail of the BRI as a bridge to market their commodities.

Cooperation forum

Policy coordination mechanisms such as the China-Arab Cooperation Forum and the Strategic Dialogue between China and the GCC states have been formulated to speed up the engagement.

According to Beijing, “any type of bilateral cooperation (with China) can be considered part of the Belt and Road”, a “1+2+3’ cooperation pattern was adopted under the Arab Policy Paper published in 2016 which specified collaborations in energy, construction, industry, renewable energy and trade as well as innovative fields of space and nuclear energy.

Presenting a slew of possibilities for the entire region, an international financial exchange would cater to BRI trade. A pioneer in “green development”, China plans green pilot zones along the BRI with the requirement that all participants comply with Chinese standards.

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Negotiating for a “free trade” agreement between China and the Arab nations, Beijing also plans to grant special trading privileges along with financing facilities. Thus, the economic relationship between China and the Middle East is on an upward trajectory as it expands beyond oil.

Finally, the demand for artificial intelligence, fintech, automated cars and renewable energy is growing in the Middle East. Leading in all these fields, China is the best option in all these sectors of development while it also provides financing.

In fact, a new financial consortium would be created with a $3 billion fund for an “industrial revival”. In the long run, trade expansion would strengthen relations between Arab countries and the rest of the world. 
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Sabena Siddiqui is a foreign affairs journalist and geopolitical analyst with special focus on the Belt and Road Initiative, CPEC and South Asia. She tweets @sabena_siddiqi.

Last Update: Wednesday, 29 August 2018 KSA 16:51 - GMT 13:51

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