September 8, 2020 | Washington Examiner

China’s growing influence in the Persian Gulf should worry Washington

September 8, 2020 | Washington Examiner

China’s growing influence in the Persian Gulf should worry Washington

China’s influence in the Persian Gulf region is increasing dramatically. In July 2020, Western media outlets reported that China and the Islamic Republic of Iran had drafted a tentative agreement that would significantly strengthen their economic and security partnership. Meanwhile, in August, reports indicated that Saudi Arabia, with the help of China, had built a previously undisclosed nuclear facility to extract uranium yellowcake.

Beijing’s actions coincide with increased trade and investment between China and other countries in the Persian Gulf, including Saudi Arabia. In fact, a closer look at the data shows that trade between China and Washington’s Persian Gulf allies, especially oil trade, far exceeds trade between China and Iran. By bolstering its economic influence in the region, Beijing hopes to augment its prestige and political power, thereby subverting the global leadership role of the United States.

In recent decades, the trade relationship between China and most Persian Gulf countries has grown significantly, far surpassing the level of trade between the U.S. and its regional allies. In 2018, for example, the value of trade between the U.S. and the United Arab Emirates was $24.5 billion, whereas the value of China-UAE trade was $46.1 billion. Similarly, in 2018, U.S.-Saudi trade totaled $37.7 billion, compared to a China-Saudi trade of $63 billion. By contrast, in 2003, U.S.-Saudi trade was $22.6 billion, and China-Saudi trade was $7.3 billion. In other words, between 2003 and 2018, U.S.-Saudi trade grew 66%, while China-Saudi trade grew 763%.

In this context, a key element of China-U.S.-Persian Gulf relations is Chinese oil imports from the region. The U.S. is a critical player in the energy market — the No. 1 oil producer, second-largest importer, and a significant exporter. China, on the other hand, is a net importer of oil and imported nearly a quarter of all globally exported oil in 2019.

According to the World Integrated Trade Solution and China’s General Administration of Customs, the value of China’s oil imports has grown exponentially over the last 25 years, from $3.4 billion in 1996 to $242.4 billion in 2019. At the same time, China’s import of oil from the Persian Gulf has increased not only in absolute value but also in the Persian Gulf’s share of Chinese total crude oil imports. In 1996, China imported $1.2 billion of oil from the Persian Gulf, 34.6% of its total imports. Nearly a quarter-century later, in 2019, Beijing imported $106.5 billion from Persian Gulf countries, 43.9% of its total imports. From 2010 to 2019, on average, Persian Gulf countries provided 48% of China’s oil imports.

In 2019, Saudi Arabia, Iraq, and Oman were the top three regional oil exporters to China. Tehran, in contrast, lost its position as the second top regional exporter to China in 2012 and never regained it. The decline was most likely driven by the U.S. sanctions that preceded the 2015 nuclear deal and that followed Washington’s withdrawal from it in 2018. Even if a Biden administration returns to the agreement, formally known as the Joint Comprehensive Plan of Action, it will likely take Iran years to recover its market share.

China’s dependence on Persian Gulf oil means that Beijing has a vital interest in exerting influence in the region. The Persian Gulf region has supplied almost half of the Chinese oil consumption over the last decade. Key U.S. allies in the area — Saudi Arabia, the UAE, and Kuwait — supplied a quarter of China’s oil in 2019. With the additional oil trade of Oman, Qatar, and Iraq, where the U.S. has military bases, China has imported 41% of its oil in 2019.

The bipartisan calls in Washington to reduce its presence and commitments in the Persian Gulf often stem from a stated desire to pivot to China. But a U.S. withdrawal from the region would actually benefit China. As trade has been growing between China and U.S. allies in the region, both sides have an economic interest in deepening their political-military ties. If Washington decreases or abandons its long-term commitment to its allies in the Persian Gulf, China will have the means and incentive to fill the gap.

Saeed Ghasseminejad is a senior Iran and financial economics adviser at the Foundation for Defense of Democracies, where he also contributes to FDD’s Center on Economic and Financial Power. Follow Saeed on Twitter @SGhasseminejad.

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Issues:

China Gulf States Iran Iran Global Threat Network Iran Politics and Economy Military and Political Power