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    Middle East
     May 18, 2010
The Iran chip in Sino-Saudi relations
By Chris Zambelis

The fourth joint meeting on economy and trade convened by China and Saudi Arabia in January 2010 in the Saudi capital of Riyadh came and went without much fanfare. Yet the meeting between China, the world's second-largest and fastest-growing oil consumer, and Saudi Arabia, the world's largest producer of oil, cemented a burgeoning bilateral relationship that is attracting increasing international attention for its potential impact on Middle East geopolitics and as a manifestation of China's growing power on the world stage.

China surpassed the United States by the end of 2009 as the top importer of Saudi oil. The January meeting, co-chaired by Chinese Minister of Commerce Chen Deming and Saudi Minister of Finance Ibrahim bin Abdel Aziz al-Asaf, saw both countries


highlight the bilateral economic and trade ties that have witnessed a marked expansion since the third meeting of the joint Sino-Saudi committee held in 2006; Saudi Arabia has been China's largest trading partner in the Middle East for eight years running, with bilateral trade reaching US$40 billion in 2010.

In demonstrating Beijing's commitment to strengthening the economic ties binding China and Saudi Arabia, Minister Chen also called for both countries to increase bilateral trade to $60 billion by 2015. Saudi Arabia also committed to allowing for an increased profile for Chinese energy giants in joint oil and gas exploration projects in the kingdom while China affirmed its interest in formulating a free-trade agreement (FTA) between Beijing and the Saudi-led Gulf Cooperation Council (GCC).

Strong relations with Saudi Arabia are becoming an integral part of China's strategy to achieve energy security and to further its broader foreign policy objectives in the Middle East. China's energy and overall economic interests in Saudi Arabia and the wider Middle East, however, are inseparable from the larger geopolitical issues that loom large in the region, namely the Iranian nuclear question.

While China may continue to insist that it is conducting relations under the principle of divorcing economics from politics, it is becoming increasingly clear, particularly in the Middle East, that it cannot remain aloof to the region's most contentious issues. As the de facto leader of the bloc of pro-US Arab regimes, Saudi Arabia (along with Israel) is on the forefront of opposing its regional rival Iran's nuclear program.

Recognizing the growing profile of Sino-Saudi relations, the United States enlisted the support of the Kingdom in convincing China to change course on Iran. US Secretary of State Hillary Clinton's February 2010 trip to Saudi Arabia and Qatar, its GCC partner and natural gas powerhouse, aimed to rally support for persuading China to back US-led efforts to sanction Tehran.

The root of China's concerns about US intentions toward Iran lie primarily on the impact of any potential disruption in Iranian supplies of oil and gas - either through sanctions or war - on Chinese and international markets. Washington's efforts to engage Saudi Arabia and Qatar were likely meant to convince the Chinese that the Saudi-led GCC would be prepared to offset any disruption in Iranian energy supplies to China following the imposition of sanctions. The flurry of US-led diplomatic activity in the Gulf states was reinforced by a February visit to Beijing by Bank of Israel governor Stanley Fischer and former Israeli military chief of staff and Minister for Strategic Threats Moshe Yalon to convince China to support sanctions on Iran.

In spite of the united front comprised of the US, Saudi Arabia and its GCC partners, and Israel to win over Beijing's support on isolating Tehran, the latest diplomatic efforts appear to have made little headway. To put the onus of the Iranian nuclear tussle on China, Saudi Foreign Minister Prince Saud al-Faisal quipped: "China is perfectly aware of the scope of its responsibilities and its obligations [with regards to Iran], including in the position it holds on the international stage and as a permanent member of the [United Nations] Security Council."

Evidently, however, China places a premium on maintaining strong relations with Iran; among other things, Iran is China's second-largest supplier of oil and Beijing is looking to tap the Islamic Republic's abundant natural gas resources. China is also a major investor in various sectors of the Iranian economy.

China's support for Iran amid US-led calls for crippling sanctions over Tehran's nuclear ambitions (and Israeli calls for military strikes) thrusts it into the middle of a simmering imbroglio that will test China's mettle as a global power; as a veto-wielding permanent member of the UN Security Council, China must sign on along with its fellow permanent members to any global sanctions regime that would be placed on the Islamic Republic.

At this point, China is the most resistant to adopting any form of crippling sanctions against Iran. In spite of Chinese President Hu Jintao's assurance to US President Barack Obama during their April 2010 discussions of China's commitment to "working together [with the United States] to ensure that Iran lives up to its international obligations," Beijing has yet to demonstrate a serious willingness to undermine its relationship with Iran by backing a US-led sanctions regime, let alone passively acquiescing to a US (or Israeli) invasion.

In fact, it appears that China is digging in to protect its vital interests in Iran. Incidentally, China reportedly opened a missile plant in Iran in March 2010, the latest in a series of expanding military ties between Beijing and Tehran. China also increased exports of gasoline to Iran in an effort to ease pressure on Tehran amid US efforts to target Iran's domestic gasoline industry through sanctions.

China also regularly counters calls for war against Iran emanating from Israel and some circles in the US with pleas for diplomacy and negotiations. China's continued support for Iran amid growing US opposition is also rooted in the larger Sino-US rivalry, particularly in the context of ongoing US military and diplomatic support for Taiwan. China was angered when the US announced in January 2010 that it agreed to a $6.4 billion deal to supply Taiwan with a host of advanced weapons platforms. In this regard, China's insistence on supporting Iran must also be seen as a form of retaliation against US policies it deems as threatening to its vital national interests and security in Asia.

The oil factor
Since the establishment of diplomatic relations in 1990, Sino-Saudi ties have become one of the most dynamic bilateral relationships in the region. The evolution of Sino-Saudi relations is emblematic of the impact of China's rapid economic development and its pursuit of energy resources in the Middle East to sustain its growth. In 2009, Saudi oil exports to China topped 1 million barrels per day (bpd), a figure representing 20% of China's total oil imports and nearly double the number of bpd imported by China in 2008. In contrast, US imports of Saudi oil dropped to below 1 million bpd in the same year for the first time in over two decades.
The peculiarities of the Saudi oil industry are also critical to understanding the kingdom's drive to cultivate closer ties to China. With one of the world's most developed energy sectors in terms of infrastructure and operating efficiency, Saudi Arabia is not desperate to attract foreign investment to help expand its capacity to produce and export oil. Instead, Saudi Arabia is keen on identifying a stream of steady, long-term demand, an urgent priority as the United States and other Western countries look to decrease their consumption of oil and incrementally adopt conservation methods and alternative fuels [1].

Saudi Arabia and other regional oil producers are counting on China (and other emerging Asian powers such as India) to offset their losses. In this regard, the Chinese are a perfect match for the Saudis, as China's demand for oil will only grow in the foreseeable future.

In June 2009, Saudi Aramco signed an agreement with state-owned China Petroleum and Chemical Corp (Sinopec) to increase exports of Saudi crude to 1.5 million bpd. Both countries also engaged in talks to allow Saudi Aramco to expand the capacity of Sinopec's existing oil refining facilities and other petrochemical complexes in China to handle Saudi oil.

While its premium grade light sweet crude reserves are highly sought after, Saudi Arabia is keen on securing a market for its medium grade crude oil - a product that is plentiful in the kingdom - in China, as well as other parts of Asia. Medium grade crude oil, while cheaper than its premium grade counterparts, is far denser and contains a higher amount of impurities and sulfur content compared to light sweet crude, meaning that it will yield less gasoline, diesel, and other finished products after what entails a more complex refining process.

Maximizing the potential of medium crude requires specialized refineries. While the United States and other countries have demonstrated no serious interest in expanding their respective refining capacity to tap medium crude (or heavy crude) sources in Saudi Arabia and elsewhere, the kingdom seems to have found a willing partner in China. Close relations driven by China's demand for oil will continue to shape Sino-Saudi ties in the foreseeable future.

Looking to China
While firmly bound in a strategic relationship with the United States, a relationship that continues to be underlined by energy interests and longstanding diplomatic and security ties, Saudi Arabia is nevertheless keen on diversifying its foreign relations to capitalize on China's growing reach in the region.

Saudi Arabia also understands that the global shift in economic and financial gravity away from the West toward Asia will drive up energy demand, particularly for oil, and will profoundly impact energy markets for decades to come. In addition, with the United States entangled in two simultaneous wars, there is a growing perception that American influence is on the decline in the Middle East and beyond, thus prompting Saudi Arabia to look for alternative partners.

The rise of Iran as the Gulf's most powerful actor following the overthrow of Saddam Hussein in Iraq is also impacting Saudi Arabia's strategic calculus. While Iran's nuclear program remains a concern for its neighbors in a military sense, in reality it is the brand of revolutionary Islamism couched in a resistance discourse that poses the greatest threat to the stability of Saudi Arabia and other pro-US Arab regimes in the region that enjoy little or no popular legitimacy among their citizens. Indeed, if Saudi Arabia represents the embodiment of the pro-US status quo in the Middle East, Iran signifies its polar opposite.

Indications that the United States may have come to accept - albeit reluctantly - the reality of a nuclear Iran are also likely figuring into the kingdom's strategic calculus with respect to its efforts to engage China. A leaked report of a secret memorandum drafted in January 2010 by US Secretary of Defense Robert Gates that was publicized in April suggests that senior officials in the Barack Obama administration have concluded that the United States has few realistic long-term options to preventing Iran from achieving a nuclear capability. As a result, a perception exists at least in some American policymaking circles that the United States will eventually be compelled to shift its focus from actively working to prevent Iran's acquisition of a nuclear capability to containing a nuclear Iran.

As Israel continues to threaten to attack Iran in the absence of the imposition of harsh sanctions, there is no evidence to suggest that Israel is capable of reversing, let alone limiting, Iran's nuclear course and potential. Moreover, the fallout of an Israeli attack, especially for US forces in Iraq and Afghanistan - who would surely bear the brunt of Iranian retribution - would be catastrophic for US interests in the region, as Iran is sure to retaliate for any potential Israeli strikes on its soil against Israel's chief ally in the region.

Saudi Arabia will continue to depend on US security guarantees and its longstanding diplomatic ties to Washington, areas that Beijing has steered clear of disrupting in any meaningful sense. At the same time, the kingdom has also concluded that engaging its regional rival's main ally in Beijing will help ensure that its interests are taken into account with respect to Iran and the shifting sands of Middle East geopolitics.

Notes 1. Jon B. Alterman and John W. Garver, The Vital Triangle: China, The United States, and the Middle East, Center for Strategic and International Studies, Significant Issues Series (2008), Vol. 30, No. 2, p. 58.

Chris Zambelis is an Associate with Helios Global, Inc., a risk analysis firm based in the Washington, DC area. The opinions expressed here are the author's alone and do not necessarily reflect the position of Helios Global, Inc.

(This article first appeared in The Jamestown Foundation. Used with permission.)

(Copyright 2010 The Jamestown Foundation.)

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