Sheikhs fall in love with
renminbi By M K Bhadrakumar
China and Qatar have been taking virtually
opposite positions apropos events in Libya and
Syria. Yet, they do not seem to be deterred by
this little difference and are bonding in a big
way in economic cooperation to mutual benefit.
Chinese Prime Minister Wen Jiabao, who
visited Doha last week, disclosed at a press
conference on Friday: a) China proposes to invest
in the manufacturing of ''downstream oil products,
which are most urgently needed by Qatar''; b)
China and Qatar signed an agreement to jointly
build a refinery in Taizhou, Zheijiang, in China;
c) Chinese companies propose to participate in
infrastructure projects in Qatar; and d) China and
Qatar are
discussing a "long-term,
stable and comprehensive cooperative partnership"
in natural gas.
Then, Wen quietly dropped
a bombshell. He revealed "one more important
point" as if it were an afterthought. He said:
In order to address investment
issues, we [China and Qatar] need financial
support. Therefore, we reached another
agreement, a cooperation agreement linking
finance with investment. Qatar also proposed the
use of local currency in trade settlement and
even a specific ratio. I think this proposal can
be studied.
The short point is, the
renminbi, the "people's currency" also known as
the yuan, is appearing in Doha. The China-United
Arab Emirates (UAE) currency swap deal which was
signed during Wen's visit to Abu Dhabi last week
already brings the yuan to the Emirates. The deal
with the UAE is worth US$5.5 billion and the
Chinese central bank statement said that it aims
at "strengthening bilateral financial cooperation,
promoting trade and investments and jointly
safeguarding regional financial stability".
Indeed, China is playing for the long
term. Addressing an energy summit in the UAE, Wen
made the startling proposal to create an
international body that is mandated to determine
the price of oil and which would regulate the
policies of the entire supply chain involving the
supplier countries, the consumers and even the
transit countries.
Iran and Russia have
already switched to their national currencies for
conducting bilateral trade. Tehran's ambassador to
Moscow Seyed Reza Sajjadi said on Friday, "[Trade]
with Russia is based on our national currencies.
We started this work long ago. Iranian businessmen
are buying products in Russia and are using the
rouble as [payment] currency] ... The US dollar
has no [economic] support base ... There is a
similar interest on the Russian side."
Last week, it also came to be known that
India proposes to allow Iran's central bank to
open rupee accounts with two Indian banks as a
long-term solution to the countries' payment
problems instigated by the US (which pressured New
Delhi to terminate the traditional payment
mechanism for Iran within the Asian Clearing
Union.) An Indian delegation visited Tehran last
week to finalize details.
The new
arrangement envisages that while the payments for
India's oil imports from Iran (roughly $12-14
billion annually) would be initially in Indian
rupees, they would subsequently be converted into
a separate designated currency. This is a pointed
snub to Washington, which forbids friendly
countries from dealings with Iran's central bank.
But, the UAE and Qatar are not to be
compared with Russia or India. They are widely
regarded as the anchor sheets of the Western
strategy in the Middle East and they provide very
substantial underpinnings to the petrodollar
recycling.
Aren't we missing something
here? Quite obviously, Persian Gulf countries are
slowly, steadily probing their options in the
Asia-Pacific to diversify their external relations
that have been traditionally riveted to the West.
With Europe in serious disarray and the US in
decline and its reputation in the Middle East
significantly dented, this trend is likely to
become pronounced.
Smells like Arabic
coffee ... Equally, Wen made some candid
remarks on Syria and Iran during his press
conference in Doha, fully realizing that his host
country would have a different point of view. Wen
said Beijing is "very concerned" about the Syrian
situation. He added in some detail:
Syria's turmoil has been going on
for quite some time. We have three comments on
the Syria issue. First, we need to strive to
seek a peaceful and political solution to the
Syria issue. We oppose the killing of innocent
civilians and should prevent it from happening.
The order in Syria should be restored as early
as possible.
Second, we must respect the
requests of the Syrian people for change and
their demands to safeguard their own interests.
Third, we need to give play to the LAS' [Arab
League's] role in this regard, especially its
investigation and mediation role on the Syria
issue, and enable LAS to provide help for the
peaceful resolution of the Syria issue through
dialogues and by political means.
Our
goal is to find solutions, including meeting the
requests of the people for change, continuing to
develop economy and improving people's
livelihood, so that states experiencing
instability such as Syria could achieve
stability and development.
This is the
first major policy pronouncement on Syria by the
Chinese leadership and, most interestingly, it was
made on Qatari soil. The impression one gets
increasingly is that China is quite comfortable
with both Iran and the Gulf Cooperation Council
(GCC) states and doesn't see the security paradigm
in the Persian Gulf in quite those zero-sum terms.
The GCC comprises Bahrain, Kuwait, Oman, Qatar,
Saudi Arabia and the UAE.)
Again, we are
blithely making assumptions on the basis of the
sustained Western propaganda regarding an
impassable Sunni-Shi'ite schism in the Persian
Gulf, which completely overlooks that Iran and the
GCC states (Saudi Arabia, in particular) have
always maintained back channels to keep their
discords in check.
Evidently, China is
placing itself in the middle of the divide in the
Persian Gulf while strengthening its interests on
both sides. How its newfound influence plays out
will be interesting to watch.
In turn, the
GCC states also do not seem to mind that China has
a strong strategic partnership with Iran. And, on
its part, China seems justified in assessing that
the GCC rulers are far from the one-dimensional
moronic anti-Shi'ite fanatics that Western
propaganda often makes them out to be. Beijing's
new thinking opens up a fantastic panorama of
China-GCC cooperation.
Wen said Iran
didn't figure in his conversations with the
leaderships in Saudi Arabia, the UAE or Qatar.
The Chinese commentaries have made it out
to be that continued Iranian oil supplies are
vital for China and implying that any increased
purchases from Big Oil operating out of the GCC
states would make China vulnerable to pressures.
The government-owned China Daily featured a
commentary on Saturday in a wrap-up of Wen's tour
of the Persian Gulf, which said:
US is lobbying the international
community to put the screws on Iran. But China
should read into this game and refrain from
succumbing under other big powers' pressure ...
China should follow its own course, for
Sino-Iranian trade is in accordance with
international laws ...
Iran is an
essential overseas market for goods, especially
technology-intensive ones, from China, which
built the subway in Tehran ... Oil imports from
Iran are very important for China. If China
stops importing oil from Iran, it will face an
immediate shortage of fuel. Even if China can
meet the shortage by importing from other
countries, it would have to pay high prices and
meet harsh conditions, which will deal a
terrible blow to its economy. China has long
suffered the whims of big oil-exporting
companies and it is time their monopoly was
curbed.
Wen was plainly dismissive
about Western media reports that he was scouting
for GCC oil to replace Iranian oil. "Some people
think I have come for the oil. I think they are
too narrow-minded. It should be said that I have
come for the friendship. The biggest harvest of my
trip is the enhanced mutual political trust."
Thus, a new matrix is shaping up whereby
within the framework of bilateral agreements,
Persian Gulf countries - Iran and the GCC alike -
are beginning to bypass the US dollar as an
intermediary in their oil trade with Asia.
Neither the UAE nor Qatar is embarking on
a strategic defiance of the US. But they know that
the yuan smells like good Arabic coffee and it
feels great to hold it in a volatile and ephemeral
world, given that its appreciation in value in the
future is a certainty.
Simply put, the UAE
and Qatar are creating a cushion from exchange
rate volatility. But the geopolitical reality is
also that the renminbi will look great sitting in
their vaults. The big question is when Saudi
Arabia might make its move.
Ambassador
M K Bhadrakumar was a career diplomat in
the Indian Foreign Service. His assignments
included the Soviet Union, South Korea, Sri Lanka,
Germany, Afghanistan, Pakistan, Uzbekistan, Kuwait
and Turkey.
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