Creating new perspectives since 2009

The Middle East and the New Silk Road

September 22, 2016 at 9:53 am

“There lies a sleeping giant. Let him sleep! For when he wakes he will move the world,” Napoleon Bonaparte once said about China. Well, the giant in the east has been awake for some time now and it has a new foreign policy vision. Its “One Belt, One Road” (OBOR) initiative will certainly have a large impact on most of Asia and beyond. How will the Gulf Cooperation Council (GCC) states respond to it?

There have been very few in-depth studies done on the GCC’s place in this grandiose Chinese vision, leading us to conclude that this topic has been somewhat neglected until very recently. Since all the states and regions do not appear in the initiative to the same degree, this could mislead one to think that the OBOR does not provide equal opportunities for all states, but this is not necessarily the case.

(Un-) equal opportunities  

For Agatha Kratz, Associate Policy Fellow at the European Council on Foreign Relations Asia and China programme, OBOR is open to anyone and any country interested, at least on paper. Yet, it does follow two clearly conceptualised but very vaguely defined and delimited routes: the terrestrial Silk Road Economic Belt and the 21st Century Maritime Silk Road. “As such,” Kratz told MEMO, “countries most targeted by the OBOR initiative are those on these two roads. This does not mean that other countries cannot be part of the initiative and try to cooperate with China on infrastructure building (transport notably), or take part to the financing of the initiative (through the AIIB Asian Infrastructure Investment Bank, notably).”

China’s goal is to offer equal opportunities for all countries, explains Tong Zhao, an associate from the Carnegie–Tsinghua Centre for Global Policy. Depending on their specific circumstances the countries that would benefit most are those that need infrastructure improvement; can accommodate large construction projects; can import some of the industrial overcapacity from China; and can provide a good domestic environment for Chinese investment.china_silk_route_map

In the words of Dr Mohammadbaghe Forough, Assistant Professor of International Relations at Leiden University: “It’s a ‘competitive platform’ rolled out by China, which other countries and actors can add considerably to, thereby co-constructing the future of OBOR along with China. So, in that sense, the element of agency of each actor and the economic, political, (geo)strategic attributes, and capabilities of different countries involved in OBOR, plays a major role in terms of how (much) various countries can benefit from and contribute to it.” Since China has become the Gulf’s largest trading partner in recent years, reciprocal China-Gulf relations are expected to expand further, but given the fact that GCC economies are still for the most part energy-dependent and not yet highly diversified, the China-GCC relations and GCC contributions to OBOR still are and (for the foreseeable future) will be in the realm of energy security, he forecasts.

However, things are changing slowly. There are joint economic projects that China is developing with GCC countries (such as the UAE and Saudi Arabia) in the technology and sustainable energy and infrastructure sectors.

Iran the main beneficiary?

Some writers, like Jeffrey S. Payne, for example, expect that Iran will benefit from OBOR more than others, given its historic ties with China and longstanding opposition towards the United States, making it a trustworthy Chinese ally. This, of course, may cause regional imbalance and raise GCC suspicions toward the whole project. It is true that Iran’s geostrategic location and the possible economic windfall are too favourable for China to pass up. Beijing, for example, welcomed Iran back into the fold as a major Middle Eastern economic player following the nuclear energy deal and recently upgraded its relations to Comprehensive Strategic Partnership. Dr Forough lists numerous comparative advantages that Iran has over GCC states, including a more diversified economy than most GCC members and a market size of almost 80 million people that is attractive to Chinese investors. According to him, the country could also provide more energy security to China than the GCC states and has experienced fewer security issues in terms of terrorism on its soil and domestic political stability. Iran also boasts a very attractive geography in terms of access to the Arabian Gulf, being a bridge (together with Turkey) between Asia and Europe, access to Central Asia and the Caspian Sea.

China has also been known for its non-interference principles in foreign policy matters and has so far avoided being embroiled in regional conflicts; “When engaging in a conflict environment [China] prefers to avoid taking sides in favour of facilitating some type of political dialogue between competing actors,” reveals Payne in his study “The GCC and China’s One Belt One Road”. According to him, China’s increased orientation to its west may one day reach a level where security concerns become an essential factor in motivating Chinese policy, but OBOR was not designed to include security operations.

Despite Iran’s potential advantages, Agatha Kratz is not fully convinced that infrastructure investment in roads and rail, or even pipelines, will be able to upset the regional equilibrium. “It might lead to marginally increased economic activity in Iran, due to improved infrastructure,” she notes. “It might also lead to the continuation of good relations with China. But in any case, these are investments that would probably have happened even without OBOR being launched.” China has not made much progress in signing new contracts with Iran after the Iran nuclear deal was signed last year. Post-nuclear agreement, Chinese companies face much more fierce competition from the EU and other developed countries and so it is not necessarily true that other countries will benefit much less than Iran, Zhao adds.

China is very well aware of the sensitivity of this issue and has taken a very pragmatic approach to dealing with Middle East countries. For Forough, one example of this is the inclusion of Iran, GCC countries and Israel as founding members of AIIB. Another instance of such pragmatism is Xi Jinping’s latest visit to the Middle East in 2016, during which he went to both Saudi Arabia and Iran; normally, the leaders of great powers visit one or the other, but not both. As far as one can see into the future, there will be challenges in China-GCC relations, but no unsolvable problems.

GCC’s opportunities

OBOR unarguably offers great potential for the GCC. Even though it is a Beijing-led project, it is impossible for China to do everything by itself. There are plenty of opportunities for GCC businesses and sovereign wealth funds to evaluate investments that are mitigated by Chinese support. Although some observers are measuring GCC gains or losses carefully in comparison to Iran, the Gulf approach to the Chinese initiative must not be founded solely upon regional rivalry, especially as the volatile political environment and problematic government regulations in some Gulf States pose challenges for Chinese investors. Zhao thinks that Chinese companies will have to be cautious in marching into these new markets. This does not mean China will bypass the Middle East, but it will certainly take a gradualist approach and increase its investment incrementally as it becomes more familiar with the local environment. Security challenges will require Beijing to play a more active role in these issues, or at least pressure relevant stakeholders to resolve their rivalries; according to China’s special envoy to the Middle East, Gong Xiaosheng, OBOR could contribute significantly to the Middle East peace process.

According to Mohammadbaghe Forough, the GCC countries, especially Saudi Arabia, can play their financial and religious cards on the eastern front. The sharp drop in energy prices and the costly war in Yemen are putting a large dent in Saudi Arabia’s freedom to manoeuvre financially; nevertheless, in financial terms, GCC countries still have the upper hand over Iran. The China-Pakistan OBOR projects provide fertile ground for Saudi Arabia to contribute, especially given the close ties between the Pakistanis and the Saudis. The UAE is also doing very well in this regard, having close economic ties with China in developmental projects in Eurasia; indeed, Abu Dhabi has already launched its China Fund in cooperation with Chinese institutions. In addition, the UAE is Beijing’s most important non-trade partner in the Gulf, serving as a hub and re-export destination for the GCC countries, Iran, Africa and even Europe. It is a similar story with Saudi Arabia and Qatar, two of China’s largest suppliers of oil and gas; both are developing their “looking east” strategies and viewing China as one of the most important strategic markets. At the end of the day, therefore, “OBOR is all about (economic) development and the more GCC countries get involved in such developmental projects, the more they will succeed in shaping the future of OBOR,” concludes Dr Forough. The New Silk Road is opening up.

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.