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Simon Watkins

Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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China Is Expanding Its Energy Footprint In The Middle East

  • The top of China’s agenda in energy terms remains the Middle East.
  • The recent Shanghai Cooperation Organization (SCO) summit saw China enhance its influence with several of the world’s leading players in the oil and gas sector.
  • China is looking to forge a “deeper strategic cooperation in a region where U.S. dominance is showing signs of retreat”.

The recent Shanghai Cooperation Organization (SCO) summit saw China enhance its influence with several of the world’s leading players in the oil and gas sector. These included not just the stalwart full SCO members of Russia, Kazakhstan, and India (which was handed the presidency of the organisation for the coming year) but also new full member, Iran, whose new status in the group was announced at the end of the summit. Additionally, and crucial to China’s long-term plans for the SCO that run alongside its multi-generational ‘One Belt, One Road’ (OBOR) power-grab project, memoranda of understanding (MoUs) were signed granting Saudi Arabia, Qatar, and Egypt, among others, the status of SCO dialogue partners. Agreement was also reached on admitting, among others, Bahrain, the UAE, and Kuwait as upcoming SCO dialogue partners. Lest there be any misunderstanding about the true intention of all these manoeuvres by China, January saw foreign ministers from Saudi Arabia, Kuwait, Oman, and Bahrain, and the secretary-general of the Gulf Cooperation Council (GCC), arrive in Beijing for a five-day visit to push ahead on negotiations over the China-GCC Free Trade Agreement (FTA). At these meetings, the principal topics of conversation were to finally seal the China-GCC FTA and a “deeper strategic cooperation in a region where U.S. dominance is showing signs of retreat,” according to local news reports One element of the SCO that is particularly useful to China in its use of soft power, alongside its use of several hard power mechanisms, to co-opt countries into its sphere of influence is that the SCO is often overlooked by Western media. This lack of coverage, though, belies the SCO’s enormous scale and scope, which broadly is the China-led equivalent of the European Union (EU), the United States–Mexico–Canada Agreement (USMCA), and the North Atlantic Treaty Organization (NATO) all rolled into one. Founded in 2001, although pre-dated by the Shanghai Five group established in 1996 (comprising China, Russia, Kazakhstan, Kyrgyzstan, and Tajikistan), the SCO is the world’s biggest regional organisation both in terms of geographic scope and of population. It covers 60 percent of the Eurasian continent (the biggest single landmass on Earth), 40 percent of the world’s population, and more than 20 percent of global gross domestic product (GDP). The operational scope of the SCO ranges from collective security and military cooperation (in the mould of NATO) to economic and trade union (in the manner of the EU and the USMCA). 

Related: EU Ambassadors Agree On A Russian Oil Price Cap
The top of China’s agenda in energy terms remains the Middle East, with its immediate goal being to secure for itself the largest possible pools of oil and gas with which it can continue to fuel its economic growth. China’s goal economically is to surpass the U.S. in terms of gross domestic product (GDP) within the next 10 years to become the world’s leading economic power and, as a corollary of that, the world’s leading superpower. Therefore, it is not just enough for China to secure the largest possible pools of oil and gas that it can in the Middle East, which remains the world’s largest collective reservoir of such products, but also to secure these at the expense of the U.S., making it a zero-sum game for both countries. This model of exponential economic growth fuelled by Middle Eastern oil is the one that the U.S. itself used for many decades and it makes sense for China to do the same, taking advantage as well of the previous dithering in the West over the climate change impact of carbon emissions. The reluctance of the West to press ahead with oil and gas investment, whilst at the same time not building the infrastructure bridge required to move seamlessly into green energy as a substitute for these high carbon emissions products – notably the failure to invest in nuclear power – has allowed China’s sphere of influence to exploit two huge advantages. First, China itself has continued to use whatever fuel it wants to power its growth, usually at a much cheaper cost than the West’s green alternatives, and secondly the lack of building the transitional infrastructure bridge to green energy in the West has made core strategic parts of it – notably, the European Union – beholden to China’s great partner in this scheme, Russia.

At the very top of China’s power structure, Xi Jinping is a man who, aside from entirely understanding how the U.S. forged its growth over the last 100 years or so (buying in oil cheaply from the Middle East being a key component), also understands how the UK did it in the 100 years or so prior to that. “Xi is a great admirer of the [British] East India Company, and his knowledge of how it operated commercially, and effectively as a spearhead of British state interests, is extensive,” a senior energy security source from the European Union exclusively told OilPrice.com. Indeed, one lesson learned by Xi, it transpires, is the value of offering investment into countries initially and then leveraging this out into extensive political power, as the East India Company successfully did across India, southeast Asia, and east Asia as well, including in Hong Kong and China. 

Related: OPEC+ To Cut Oil Production By 2 Million Barrels Per Day

Top of China’s list in this regard is not Iran, although it is a useful country to have in its figurative back pocket, given both its huge and relatively under-developed oil and gas riches and its ability to cause chaos in the region and to U.S. interests there and elsewhere. The country that China is really after in the Middle East is Saudi Arabia and by signing an MoU with it, via the SCO, for it to become a full dialogue partner for the organisation, China is adding a layer of official organisational credence to what it has been busy doing with Saudi Arabia for years. Beijing’s efforts in this regard have been most effective since it stepped in to save Crown Prince Mohammed bin Salman (MbS) from domestic and international humiliation in his proposed initial public offering of Saudi Aramco, as analysed in depth in my latest book on the global oil markets. From this point onwards, MbS has been in China’s debt – as were the leaders of countries targeted and similarly helped by the East India Company – and Saudi Arabia’s positivity towards China increasing its influence there has followed. 

Not only is Saudi Arabia now a prime mover in advancing the China-GCC Free Trade Agreement (FTA) – a key aim of which is to forge a “deeper strategic cooperation in a region where U.S. dominance is showing signs of retreat” – but also the Kingdom is now a prime advocate for switching away from the hegemony of U.S. dollars in the pricing of global oil and gas. Just after China made the offer to MbS to privately buy the entire 5 percent stake in Saudi Aramco that he originally wanted to float, the then-Saudi Vice Minister of Economy and Planning, Mohammed al-Tuwaijri, told a Saudi-China conference in Jeddah that: “We will be very willing to consider funding in renminbi and other Chinese products.” He added: “China is by far one of the top markets’ to diversify the funding…[and] we will also access other technical markets in terms of unique funding opportunities, private placements, panda bonds and others.” 

These comments came at around the same time as the visit of high-ranking politicians and financiers from China to Saudi Arabia, which featured a meeting between King Salman and Chinese Vice Premier, Zhang Gaoli, in Jeddah. At these meetings, according to comments at the time from then-Saudi Energy Minister, Khalid al-Falih, it was also decided that Saudi Arabia and China would establish a US$20 billion investment fund on a 50:50 basis that would invest in sectors such as infrastructure, energy, mining, and materials, among other areas. The Jeddah meetings in August 2017 followed a landmark visit to China by Saudi Arabia’s King Salman in March of that year during which around US$65 billion of business deals were signed in sectors including oil refining, petrochemicals, light manufacturing, and electronics.

Since then, there have been a slew of deals done between the two countries, the most recent being the signing in August of a multi-pronged memorandum of understanding (MoU) between Saudi Aramco and the China Petroleum & Chemical Corporation (Sinopec). As the president of Sinopec, Yu Baocai, himself put it: “The signing of the MoU introduces a new chapter of our partnership in the Kingdom…The two companies will join hands in renewing the vitality and scoring new progress of the Belt and Road Initiative [BRI] and [Saudi Arabia’s] Vision 2030.” China also played a key role in engineering the five rounds of secret talks between Saudi Arabia and its historical nemesis, Iran, as reported by OilPrice.com.

By Simon Watkins for Oilprice.com

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  • Mamdouh Salameh on October 06 2022 said:
    Putting aside the rivalry and quest for global influence between China and the United States, it is logical for China to expand its footprint in the Middle East because China’s economy would falter without energy and the Middle Easy has the world’s biggest sources of energy. Moreover, China is benefiting a lot from the United States’ blunders in the Middle East.

    China’s President Xi Jinping is expected to be anointed for a third term in office, which would make him the most powerful Chinese leader since Mao Zedong.

    During his third term in office, President Xi will enhance further China’s international standing and make Chinese military even more formidable than now.

    President Xi is credited with having made China’s economy the largest in the world based on purchasing power parity (PPP) during his two previous terms in office or more than 31% bigger than the United States’.

    His objectives during his third term are:

    1- Accelerate the transition of the World Order from a unipolar system led by the United States to a multipolar one being ushered by the Chinese-Russian strategic alliance.

    2- Continue to promote the Belt & Road Initiative (BRI) to integrate further the Chinese economy into the global trade system and enhance its influence and benefits.

    3- Undermine the dominance of the petrodollar in the global oil trade and as a global reserve currency with help from Russia and establish the petro-yuan as the more dominant currency.

    4- Unite Taiwan with mainland China

    5- Strengthen further China’s strategic alliance with Russia

    May I draw the attention of the author to the fact that China’s economy at $30.18 trillion is already the world’s largest based PPP. There are two ways of measuring GDP: the PPP which is the more reliable measure used by both the World Bank and the International Monetary Fund (IMF) and the nominal one which gives GDP in current prices without adjustment for inflation. So when the US says its nominal GDP is $22.9 trillion in 2022, this figure hasn’t be adjusted for an inflation of 9% currently and therefore it is both exaggerated and inaccurate.

    I also draw the attention of the author to the fact that China’s Belt & Road Initiative (BRI) isn’t a power-grab project as the author demeaningly describes it. On the contrary, it is the most imaginative and beneficial project in the world based on ‘ let's grow together" meaning China helping developing countries build their infrastructure and wealth-creation projects with soft loans with it benefiting from the expansion of the markets. The United States and its Western allies are yet to come forward with such an initiative.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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