Tiger in the Gulf

China’s economic relationship with the Persian Gulf goes back to the 8th century when maritime traders ferried goods between China and Baghdad, then the center of the Islamic Abbasid caliphate. However, nothing drastically altered the landscape for 1,200 years until Chairman Deng Xiaoping began a process of modernization and market reforms in 1978, which created an opening for a deeper modern day relationship between China and the Persian Gulf.Today, that relationship is driving a transformation in geopolitics. Energy sources in the Persian Gulf are fueling China’s growth, oil rich countries in the region have found a renewed legitimacy, and the United States is losing its traditional leverage.A country that had largely been self-sufficient since the discovery of the Daqing oil field in 1959, China’s rapid industrialization forced it to begin looking beyond its borders to meet its growing energy needs. In 1979, Chinese labor services companies began doing business in the Gulf Cooperation Council (GCC) market, which includes Saudi Arabia, Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates (UAE).In 1993 China became a net importer of oil and by 2003 it had surpassed Japan to become the second largest international oil consumer after the United States. Chinese oil consumption grew 85 percent from 1998-2007. All the while, Persian Gulf countries were looking for investors to prop up their oil-based economies. These two occurrences have lead to a natural partnership: China receives oil to fuel its expanding economy and its Persian Gulf partners get a non-interventionist purchaser of oil and natural gas that helps drive their economies.All this suggests realignment in the power structure of the region.Former U.S. ambassador to Saudi Arabia, Charles W. Freeman, Jr. has insightfully noted that in China, “The Arabs see a partner who will buy their oil without demanding that they accept a foreign ideology, abandon their way of life, or make other choices they’d rather avoid. They see a country that is far away and has no imperial agenda in their region, but which is internationally influential and likely in time to be militarily powerful.”Despite years of impressive economic growth, China has been slow to develop its own oil exploration and production capacities. This has lead to many deals with Persian Gulf countries able to support Chinese energy development – none more so than Saudi Arabia and Iran.China’s investment in Iran’s energy sector has given the Iranian government a dependable trading partner and political clout at a time when the United States and Europe are pushing hard to destabilize the government and disrupt their nuclear energy program through targeted sanctions. Iran is now China’s third largest supplier of oil, behind Saudi Arabia and Angola, while China is the second largest importer of Iranian oil.Economic relations between China and Persian Gulf countries have not been limited only to the exchange of oil and natural gas for development rights, however. As part of its larger economic strategy, China continues to promote its goods to the region, while the Persian Gulf looks to China and the rest of Asia for its own exports. Consulting group McKinsey & Company reports that trade between China and GCC states has broadened dramatically over the past decade and that by 2020 trade flows will climb to between $350 and $500 billion. The China GCC Business Forum reports that in 2009 Asia accounted for 55 percent of the GCC’s total trade of $758 billion.Peering beyond the immediate time frame, three major themes have the potential to significantly alter these trends: the ability of alternative energies to reduce states’ dependency on the Persian Gulf for energy; changes in governing systems; and U.S. response to its waning influence in the region.First, the countries of the Persian Gulf depend on the sale of their natural resources to fuel their economies and maintain legitimacy with their respective populaces. Citing the two most prominent examples, oil export revenues account for around 90 percent of Saudi Arabia’s state revenue and half of Iran’s.Recognizing its rising demand for energy and the inherent insecurity of relying on others to fuel its economic growth, China is taking a leading role in developing alternative energies. It is already the world’s largest manufacturer of wind turbines and solar panels. A tipping point may be on the horizon: if countries follow China’s lead by committing themselves to greater investment in alternative energy industries, Persian Gulf countries would be forced to begin considering diversifying their revenue streams.Second, the geopolitical reality of multi-polarity should not be confused with the notion that all states seek multilateral cooperation. The Middle East is as unpredictable now as ever, with countries – including China – variously combining democratic, authoritarian, monarchist, secular, sectarian, autocratic and religious elements into their governing structures.It will be interesting to see whether Islamic groups continue to take part in the political process or decide that their objectives can be more readily achieved through other means. The 1990s saw Islamic parties choose to enter the political fray in Morocco, Algeria, Egypt, Lebanon, Jordan, Kuwait, Bahrain, Yemen and Palestine; however, those same groups have had mixed results in their ability to impact policy change. Further, governance systems seem to be in flux throughout the region, from China and Iraq to Iran, Egypt and Yemen. How these myriad pieces unfold will substantially shape the character of the region.Finally, the rhetoric of U.S. presidents George W. Bush and Barack Obama has differed greatly, yet their policies are uncomfortably similar. How the United States utilizes its economic and military superiority in the region, manages its relationships with traditional non-democratic allies (e.g. Saudi Arabia and Egypt), and whether it can facilitate a resolution to the Arab-Israeli conflict will largely determine how it is perceived in the region.How the U.S. approaches the rise of China is greatly important. While the trajectory of China’s ascendance can be questioned, there is little doubt that the Asian power’s political and economic leverage will continue to grow. The United States’ engagement strategy with China during this period will have tremendous ramifications for the security and prosperity of not only the Persian Gulf region, but the entire world.The photo in this article is being used under licensing by Google Images. The original source can be found here.