The Big Picture

A Watershed Moment

Copyright © 2023 Energy Intelligence Group All rights reserved. Unauthorized access or electronic forwarding, even for internal use, is prohibited.
China's president Xi Jinping arrives in HK
Miyuki Yoshioka/AP
  • Last week’s China-brokered agreement between Saudi Arabia and Tehran to re-establish diplomatic ties is potentially transformational for the region’s politics.
  • Much uncertainty remains over what it means for the US’ traditional role as the region’s hegemon and the extent to which China will challenge it.
  • Diplomacy could well still falter, even fail. But the mere fact an agreement was made is significant in itself.

Riyadh and Tehran’s fierce rivalry has been a constant in the region for decades. The Mar. 10 Beijing agreement is a single, cautious step toward reconciliation — but shouldn’t be underplayed. There are drivers for both countries. Proxy conflicts in Yemen and Syria are proving unwinnable militarily, unaffordable economically and untenable politically. With a nuclear deal having slipped away, Iran needs allies not more enemies. While US security guarantees have not stopped drones from attacking critical Gulf infrastructure, de-escalation can.

Discussions with sources point to the regional protagonists taking the initiative and reaching out to China to mediate. In essence, they gave Beijing a high-profile win. Earlier efforts to de-escalate include 2021 talks mediated by Iraq. But there are compelling reasons why Beijing is uniquely well positioned to deliver. “It has credibility with Saudi [Arabia], and it has leverage over Iran,” notes Yun Sun of the Washington-based Stimson Center.

For Beijing, the deal represents a paradigm shift — a potential watershed moment on its journey to Great Power status after long taking a largely passive role in international diplomacy. For the first time it is the go-to broker in a region traditionally dominated by the US. It has done so "while skilfully avoiding becoming a security guarantor to the agreement," says Chas Freeman, a former US ambassador to both Beijing and Riyadh.

Details are murky, but it is clear the agreement to open embassies within two months involves commitments to tangibly de-escalate security tensions. The path of true diplomacy rarely runs smooth, so setbacks can be expected, but this has the feel of a deal with legs.

Xi’s Tilt to the Gulf

Despite a lighter military reach, China holds formidable sway with both protagonists. It completely dominates Iranian crude sales. As well as being the top buyer of Saudi crude, China is a key trade partner for Riyadh. It is also increasingly emerging as an arms supplier, committing last year to build drones in the kingdom, among other industrial and technological initiatives.

Chinese President Xi Jinping, who held China’s energy security portfolio before becoming paramount leader, is personally linked with the tilt toward the Mideast Gulf and close Saudi ties. It is an interest Xi has continued to cultivate, with China striking several energy deals following his visit to the kingdom late last year.

Prestige and its rivalry with the US aside, Beijing has some sound reasons for wanting to see de-escalation in the Gulf. Chinese dependency on Mideast Gulf crude is high and growing, with Gulf crude supplies (excluding Iran) brushing off China's increased Russian purchases to boost their share of Chinese imports from 50% to 53% last year. Heavier Chinese energy engagement with both Saudi Arabia and Tehran is also a likely driver of Beijing’s suggested shift away from dollar-linked oil trade.

Regional instability also undermines China’s grand economic vision, the Belt and Road Initiative. With this deal, Beijing can credibly present itself to states along the Belt and Road as not just an investor but a resolver of political problems.

A Less Hot Spot?

In line with its economic interests, Beijing very much wants to deter Iran from acquiring nuclear weapons. This is one of the few foreign policies it has in common with the US. But importantly, China’s now arguably expanded capacity to influence Tehran over its nuclear program theoretically gives it leverage vis-a-vis Washington.

For Riyadh, the real litmus test will be Yemen, where it has been working hard to extricate itself from a bloody and expensive eight-year war. Iran has been backing anti-Riyadh Houthi rebels. Saudi Arabia's multibillion-dollar investment drive as part of its Vision 2030 plan means security is even more vital than in the past.

Real de-escalation could also see movement on a range of regional fronts, including Syria, where momentum to lift the blockade on the Assad regime is already mounting, and Iraq, where Iran’s influence has deterred Riyadh from making good on a number of investment pledges. Saudi Finance Minister Mohammed Jaadan even stated Riyadh could invest directly in Iran. This would essentially undermine the current US sanctions regime, warns Freeman.

Manifest Destiny vs. Diplomatic Balancing

Greater Chinese diplomatic engagement with the Gulf is perhaps natural given Beijing’s growing economic power and its national security interests in the region. It goes hand in hand with a perceived US distancing from its Gulf security commitments, with Riyadh reassessing its security relationship with the US after the devastating 2019 attack on its central Abqaiq processing center that it blamed on Iran. This “has created a diplomatic vacuum,” says Freeman.

Beijing’s new role also highlights an ongoing shift in Saudi diplomacy. Washington's continued regional pre-eminence can no longer be taken for granted. Reports on Saudi conditions for normalization with Israel, leaked last week, included a clearer US security guarantee and rejection of US demands that Riyadh commit not to reprocess or enrich uranium as part of its nuclear program, on which an award is expected this year. Such conditions are seen as very hard to meet by the US, sources have indicated.

Ostensibly, this agreement is negative for Israel. At the very least, it can be assumed Israel would not get fly-over permission from Riyadh in the event it decided to attack an Iranian nuclear installation, says Freeman.

Of course, no matter how successful Beijing’s diplomacy proves, Washington’s economic, security, political and cultural heft in the region will endure. Riyadh might be pleased by the options a more engaged China brings, but it still needs time to see if the resumption of diplomatic ties with Iran will work. Saudi Arabia, like other Gulf states, does not view this as a zero-sum game, exchanging dependency on Washington for one on Beijing.

For its part, the US will view China’s diplomatic coup with concern, but will also be pleased by the prospect of regional de-escalation, as US officials have emphasized. However, Washington may have to work harder and concede more to retain influence in the Gulf as a result of increased Chinese diplomatic clout. At the same time, US energy independence and the low-carbon transition give it less incentive to do so. It will take time, but the historical ties that bind the region’s heavyweight producers' relationship to America are undergoing slow but fundamental change.

Security Risk , Nuclear Policy, Opec/Opec-Plus, Military Conflict
Wanda Ad #2 (article footer)
China's diplomatic coup in the Mideast Gulf and President Xi Jinping's trip to Moscow have raised Beijing's profile as potential peacemaker in Ukraine — but the West is skeptical.
Thu, Mar 23, 2023
Oilfield service companies in Russia expect reduced demand from customers as a result of Moscow's decision to scale back crude production.
Fri, Mar 24, 2023
Denmark has asked a Gazprom unit to take part in the salvage of an object found near the damaged Nord Stream 2 gas pipeline.
Fri, Mar 24, 2023