sino-russian quest for influence in west asia: decrypyting the future- syrian footwold
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This paper attempts to decode the underlying forces shaping the Sino-Russian motives in the Gulf region in general and active involvement in Syria in particular. It highlights various possible aspects that could give some insight why these remotely located countries have become so active in the Syrian quagmire. Various aspects and its future implications and possible alliances under new circumstances are delineated in this paper. This paper has been written nine months earlier.TRANSCRIPT
Sino-Russian Quest in the Gulf: Decrypting Future Dynamics
Syria as a Footstep
Zakir Hussain
Research Fellow
Indian Council of World Affairs Sapru House, Barakhamba Raod
New Delhi -110 001
Since the outbreak of the Arab Spring the authoritarian regimes in the Arab world find it
tough to claim their legitimacy, both in the eyes of the world and their own public. After the
fall of Ben Ali in Tunisia, Hoosni Mubarak in Egypt, Ali Abdullah Saleh in Yemen, and the
protest movement in Bahrain and the blood end of Gaddafi in Libya, the issue of regime
change in Syria have taken a wholly different turn. The rebel groups, around 30 in number,
agitating for regime change has not been able to boot out the five-decade-old house of Asad
from power, despite some Arab countries’ open insistence on arming the rebels.1 On the
external front, the situation has polarized into a big and diverse “policy stand” fight. Unlike in
the case of Iraq and Libya, this time around Russia and China have taken a stand totally
different from that of the US-Western alliance. Both have so far maintained status quo ante by
providing strong “diplomatic”2 cover to the Bashar al-Asad regime by vetoing twice to the
resolutions introduced by the US-West-Arab League in the UN Security Council against the
al-Asad regime. However, the resolution introduced in the UN General Assembly came up
with a totally different mandate: 137 countries for, 12 against, with 17 abstentions, called on
Bashar al-Asad “to immediately put an end to all human rights violations and attacks against
civilians”.3 Saudi King Abdullah also gave a call to the Asad regime to step down and expressed
anguish to the Russian Prime Minister Medvedev that Saudi Arabia “will never abandon its
religious and moral obligations towards what’s happening” in Syria.4
What made Russia and China create history by vetoing the resolutions twice? Why has Syria
become “core” to their West Asia policy? Is it a vindication of their Libya policy faux pas5 or a
protest note against the West or is an attempt to assert their positions in evolving new world
order? Myriad analogies might be drawn but a deeper analysis brings out some insights why
there is so much resonance and dissonance on Syria and Iran. Is Domino theory coming back
or is it the return of cold war 3.0.6
1 Saudi Arabia and Qatar lobby hard to arm the rebel groups to fight against the Basher regime.
2 For a detailed discussion see Zakir Hussain, Decoding the Syrian Blast, http://www.icwa.in/pdfs/VBzh.pdf
3 UN Adopts Resolution against Assad; gets Support from India, The Hindustan Times, 17 February 2012.
http://www.hindustantimes.com/world-news/NorthAmerica/India-votes-for-Syria-resolution-in-
UNGA/Article1-812884.aspx. 4 Jonathan Schanzer, Saudi Arabia Is Arming the Syrian Opposition: What could possibly go wrong?, February
27, 2012 The Foreign Policy.
.http://www.foreignpolicy.com/articles/2012/02/27/saudi_arabia_is_arming_the_syrian_opposition?page=full 5 For a detailed discussion see Zakir Hussain, Decoding the Syrian Blast, http://www.icwa.in/pdfs/VBzh.pdf
6 In the last six decades three phases of ‘cold war’ has seen. The first started with a tacit confrontation between
the former USSR and the US, thereafter a phase of detente occurred. Subsequently new dynamics in the form of
second cold war emerged when Chain and the US came together after the Vietnam War to curb the Soviet
influence. Now, this is the third phase of the cold war when Russia and Chain returned to experiment their
policy against the western dominance and prevent the possibility of insinuation of “localized” version of cold
war, may be termed as Cold War 3.0.
I: Russian Roulette in Syria and Iran
Russia’s Return to Strategic Configuration in the Region
After the fall of Saddam Hussein in Iraq, the current Syrian regime is the last standing
Ba’athist-communist dispensation in the region, providing the last ideological foothold to
Russia in West Asian politics. Both the US and Russia have in West Asia pursued a “two leg”
policy. The US had maintained Iran and Saudi Arabia, while the former USSR, Iraq and Syria.7
However, after the end of the cold war and the beginning of the Arab Spring, both exogenous
powers have lost one leg each in the region and the current diplomatic struggle seems to be
the continuation of restoring the past “two leg” policy in the region, i.e. Iran and Syria for
Russian influence and Saudi Arabia and Iraq to the US and its allies.8 The analysts like Cohen
believe:
“Flush with oil cash, Putin chose to confront the West and the Arab world over Syria and Iran. Together with China, he imposed two vetoes in the U.N Security Council against the Syrian sanctions...Moscow would like to see the US power so diminished in the Middle East and Europe that America could not act without Russian permission.” 9
Geo-Strategic Compulsions
Syria offers Russia a significant strategic foothold in the region. Syria’s Tartus port provides
Russia access to the warm water port of the Mediterranean Sea. The Mediterranean Sea also
provides direct access to Syria from the disturbed regions of Russia like Dagestan and
Chechnya. It is believed that if the hardliners/Islamists, whose presence is expected to
increase after US withdrawal from Iraq, succeed in toppling the al-Asad regime, would extend
and intensify their support, both ideologically and in resources, to the rebels groups active in
the disturbed regions of Russia. The deteriorating security condition in Syria has already
convinced Russia to take proactive policy steps towards Damascus. Recently, there is news in
rife that Russia has replaced its ships deployed in November 2011 at the Tartus port in
Mediterranean Sea by sending Black Sea fleet’s Iman tanker. Although Russia has denied any
such deployments, the UN Security Council has termed this move as “a bomb” bound to
“create certain serious repercussion” in the region and beyond.10
Arms Market
7 Other countries where the former USSR maintained its presence in the region were Yemen.
8 This author believes that due several reasons the new trifurcated Iraq (Sunni Iraq, Shia Iraq and Kurd Iraq) has
minimised the geo-strategic positions of both Iran and Saudi Arabia in the region. 9 Ariel Cohen (2012) How the US Should deal with Putin’s Russia”, Issue Brief, No. 3530, March 7, The
Heritage Foundation. 10
Kirit Radia and Rym Momtaz, Russian Anti-Terror Troops Arrive in Syria, March 20,
2012.http://news.yahoo.com/russian-anti-terror-troops-arrive-syria-164035966--abc-news.html
Syria and Iran are also lucrative arms markets for Russia. Since the Islamic Revolution in Iran
(1979) as well as due to Syria’s sustained support to Iran, the US and the major European
countries have imposed an arms embargo over both. Russia has benefited from this market for
its weapons, joined later on by China as well. According to Richard F. Grimmett, a veteran
international security specialist at the Congressional Research Service in Washington, “from
2007 to 2010, the value of Russian arms deals with Syria more than doubled – $4.7 billion from
$2.1 billion – compared with 2003 to 2006”.11 It is noted that before al-Asad’s crackdown, 50 per
cent of the Syrian arms market was captured by Russia, 30 per cent by China and North Korea
and 20 per cent by Iran.12 Despite stiff opposition to stop arms supply to Syria by the US-West,
the Russian Deputy Defence Minister Anatoly Antonov said “Russia will abide by the existing
contracts to deliver weapons to Syria”. He added that “Russia enjoys good, strong military
technical cooperation with Syria, and we see no reason to reconsider it”.13
Data reveal that Syria is the largest Russian arms buyer in West Asia. According to Richard
Galpin, BBC World Correspondent, approximately “10 percent of Russia’s global arms sales go
to Syria.”14 Since the crisis started in the region, Syria concluded $3.5 billion arms deal with
Russia. The arms deal involves the supply of two Bastion anti-ship missile systems with 72
Yakhont supersonic missiles, the prototype of the Indo-Russian BrahMos Missile.15 16
Regarding Iran, between 1995 and 2005, Russia supplied 70 percent of the Iranian arms
purchase. Effectively, the arms relations between Russia and Iran existed even before the end
of the Cold War. Between 1989 and 1991, according to Alla (2006), the Soviet Union signed
major arms deal with Iran; it supplied Iran MIG-29 and SU-24 fighter aircraft missiles, S-200
11
David M. Herszenhorn, “For Syria, Reliant on Russia for Weapons and Food, Old Bonds Run Deep”,
February 18, 2010. The New York Times. http://www.nytimes.com/2012/02/19/world/middleeast/for-russia-and-
syria-bonds-are-old-and-deep.html?pagewanted=all 12
Thomas Grove and Erika Solomon, “Russia boosts arms sales to Syria despite world pressure, Reuters”,
February 21, 2012. http://www.reuters.com/article/2012/02/21/us-syria-russia-arms-idUSTRE81K13420120221 13
Russia Says Arms Sales to Syria Will Continue Despite Uproar, The Moscow Times, march 14, 2012.
:http://www.themoscowtimes.com/news/article/russia-says-arms-sales-to-syria-will-continue-despite-
uproar/454617.html#ixzz1pMSOBn9l 14
Richard Galpin, “Russian Arms Shipments Bolster Syria’s Embattled Assad”, The BBC News Middle East,
January 30, 2012.http://www.bbc.co.uk/news/world-middle-east-16797818 15
Vladimir Radyuhin, “Russian arms deal with Syria stays despite clashes”, The Hindu, November 13, 2011
http://www.thehindu.com/news/international/article2624802.ece 16
Since the crisis started in the Gulf, an arm race has also started. US, Russia have signed billions’ dollar arms
deal with their respective allies. For instance, US made commitment to supply $30 billion worth of arms sales to
Saudi Arabia, nearly $11.5 billion to Iraq and $3.5 billion to the UEA by supplying it the THAAD (Theatre
High Altitude Area Defense)- the only system designed to destroy short- and intermediate-range ballistic
missiles both inside and outside the Earth's atmosphere. Jim Wolf, “ U.S. in $3.5 billion arms sale to UAE amid
Iran tensions”, December 31, 2011, The Reuters. http://www.reuters.com/article/2011/12/31/us-usa-uae-iran-
idUSTRE7BU0BF20111231
air defence complexes, three diesel submarines, and hundreds of tanks and armoured vehicles
as well as various munitions.17
Inelasticity of Iran’s Nuclear Urge and Creation of Huge Enriched Fuel Market in West Asia
Iran’s nuclear programme, in both cases either for military purposes or civilian uses, offers
huge incentives to Russia to supply that country both enriched fuel and uranium.18
Technologically, Iran has low nuclear capability. Russia and other countries will be the
choicest partners of Iran to furnish enriched nuclear fuel, reactors and other nuclear
equipment. Iran had earlier approached Russian, Argentine, Brazilian, Chinese and Pakistani
companies either for completion of work on the Bushehr reactors or to acquire research
reactors.19
In its recent report, October 2011, the IAEA has indirectly underlined the role of a Russian
nuclear expert20 in developing and assisting the Iranian nuclear programme:
Strong indications that the development by Iran of the high explosives initiation system, and its development of the high speed diagnostic configuration used to monitor related experiments were assisted by the work of a foreign expert. [The expert] was not only knowledgeable in these technologies... (but) worked for much of his career with this technology in the nuclear weapon programme of the country of his origin.21
In case Iran succeeds in developing nuclear capability, it will generate a different kind of
atmosphere in the region. Foremost, it will drastically transform the political and security
architecture of the region. Second, it will reduce the US preponderance in the region. As a
result, the small but resource-rich countries might evolve a different foreign policy mechanism
and, possibly, they would likely maintain an “equidistance” policy between the US-Israel and
Iran. Third, it will wage a “psychological” war on Saudi Arabia and force the Kingdom to
develop its own nuclear capability, a growing desire that could expansively be noticed among
17
Kassianov Alla (2006) Russian Weapons Sales to Iran: Why they are unlikely to Stop, PONARS Policy Memo
427, http://csis.org/files/media/csis/pubs/pm_0427.pdf. 18
Another country which would likely to share the Iranian nuclear pie will be Kazakhstan, sitting over 16 per
cent global uranium deposits. 19
Asli Bali, “The US and the Iranian Nuclear Impasse”, MER241, http://www.merip.org/mer/mer241/us-
iranian-nuclear-impasse. The Iranian nuclear programme for peaceful purposes was established in 1957 under
US supervision. In 1974, the Shah announced a target of 23,000 MWe of nuclear capacity to free up oil and gas
for export. At Darkhovin, two French companies started building two 910 MWe units; however, after the
Islamic Revolution not only the French but almost all the Western countries denied nuclear assistance to Iran. In
1992, the Iranian government signed an agreement with China to build two 300 MW reactors at Darkhovin, but
after US intervention, “China withdrew before construction started”. 20
The US-based Institute for Science and International Security (ISIS) has identified Vycheslav Danilenko, a
Russian scientist, as the expert.20
Danilenko is reported to have been living in Iran for the last five years. 21
http://www.straitstimes.com/BreakingNews/World/Story/STIStory_734076.html.
the Saudi thinkers.22 Again, the Saudi nuclear quest might be opposed by the US-Israel. This
may force Saudi Arabia to clamber aboard the Russian/Chinese boat, which again might not
be liked by the US to lose Saudi Arabia. The US has to placate the Saudi monarch by doing
some extra security adventure in the region as well as soothe the pride as well as help
maintain the legitimacy of the Arab Gulf monarchs.
In case, the US support Saudi Arabia to go nuclear, the region will witness some likely
ramifications: (i) Collapse of NPT (Non-Proliferation Treaty) will be imminent as both Saudi
Arabia and Iran are the signatories of the treaty; (ii) Owning nuclear technology may became a
case of national pride; consequently, other regional powers like Turkey, Egypt might also
attempt for developing nuclear capabilities; (iii) The region would generate huge markets for
enriched fuels, nuclear reactors and equipments; and Russia, China and other uranium rich
countries would enter the Middle East enriched nuclear fuel market. Going by the IAEA
information, eighteen Middle East countries have already applied for Nuclear Power Plant
(NPP). This may trigger a new dynamics of enriched fuel market in the world. 23
Energy Dynamics
Another significant point of Russian interest in the Persian Gulf might be “energy”. Russia and
Iran are two hydrocarbon giants. Their combined reserves of oil account approximately for 15
per cent of world reserves: Russia, 214 billion barrels (15 per cent) and Iran 137 billion barrels
(9.9 per cent). Their combined natural gas deposits exceed 40 per cent of the global deposits:
Russia 24 per cent (44.8 trillion cubic metres – tcm) and Iran 16 per cent (29.6 tcm). At the
current reserve/production ratio, their shelf lives of gas deposits are estimated to be more
than 21.4 and 88.4 years respectively.24
Besides this, both countries have a significant say in the global production of oil and gas. In
recent years, Russia has emerged as a top oil-producing and –exporting country, even ahead of
Saudi Arabia. It contributes around 12.9 per cent (10.2 million barrels per day–mbd) oil to the
22
Perkovich, et al (2005) have also listed Saudi Arabia under “Intention Suspected but no Weapon Programmee
identified”, page 20, table 1.1., George Perkovich, et.al. (2005) Universal Compliance: A Strategy For Nuclear
Security, Carnegie Endowment for International Peace., Washington, USA.
Jason Burke, “Saudi Arabia worries about stability, security and Iran”, The Guardian, June 29, 2011.
http://www.guardian.co.uk/world/2011/jun/29/saudi-arabia-prince-turki-arab-spring-iran; HRH Prince Turki
AlFaisal, A Tour d' Horizon of the Saudi Political Seas
December 15, 2011. http://idsa.in/keyspeeches/ATourdHorizonoftheSaudiPoliticalSeas . 23
Hussain, Zakir GCC Going Nuclear: Motives and Implications, Middle East Studies, Marine Corps
University, Virginia, USA Monograph, (forthcoming). 24
BP Annual Report, 2011.
http://www.bp.com/liveassets/bp_internet/globalbp/globalbp_uk_english/reports_and_publications/statistical_en
ergy_review_2011/STAGING/local_assets/pdf/statistical_review_of_world_energy_full_report_2011.pdf.
total world oil production, while Iran contributes approximately 5.2 per cent, nearly 4.2 mbd
to the total 82 mbd demand in the world.25
In both cases, either Russia and Iran cooperate with each other or remain isolated, Russian
Federation will largely benefit in international energy market.
Possible Scenarios
Scenario I – Non-Alliance: A mishap in the Persian Gulf, including an attack on Iran, would
massively benefit Russia. Oil prices will shoot up. The spare capacities with Saudi Arabia, the
UAE, Kuwait, Libya and Venezuela, accounting for 80 per cent of world spare capacity, can
compensate to the loss of the Iranian oil (3 mbd, 3 per cent) but they cannot cover up the
Russian share, which stands at nearly 12.9 per cent. According to Andrew E. Kramer, “Analysts
estimate that Iran jitters have added $5 to $15 a barrel to the global price of oil, which means
an extra $35 million to $105 million a day for the Russian industry.”26 Quoting Jesse Mercer, a
senior oil analyst based in Houston with PFC Energy, Kramer notes, “‘It is good for Putin. In
US when oil prices go up, the President’s ratings go down. In Russia, it’s the opposite’. The
extra money has [already] helped [Russia] further subsidize domestic energy consumption,
tempering down inflation.”27 Russia also enjoys the advantages of pipelines; its oil is of similar
quality as that of Iran. So Russia can easily cater for Iran’s European and Asian customers.
Figure 1 shows the top Russian oil importing countries of Asia and Europe.
25
Ibid. 26
Andrew E. Kramer, “An Iranian Oil Embargo and a Russian Oil Boom”, 16 February 2012, New York Times
News Service. 27
Ibid.
Figure 1: Direction of the Russian Crude Oil Export, Region & Major Countries, 2009.
Source: Energy Information Administration, USA.
Scenario II: Russo-Iranian Tango: Likely consequences:
(i) The Iranian threat to block the Strait of Hormuz, through which 17 per cent of the
global oil passes, has already shot up oil prices by $5–10. The repeated Israeli threat to
attack on the Iranian nuclear facilities has further kept the oil market volatile. In such
a volatile situation, a Russia-Iran alliance can do greater damage than the combined
OPEC and some non-OPEC countries’ clout can help stabilize the overheated market.
Given that the bulk of the spare capacity (80 per cent), which works as a cushion to oil
price spikes, lies with Kuwait, Saudi Arabia and the UAE, any disturbances in the
region will not only affect the regular production capabilities of these countries, but
take away their “emergency” oil-producing ability as well. Russia contributes 7 million
barrels of oil daily to the global market. Figure 2 shows the steady growth of the annual
Russian oil export, even exceeding Saudi Arabia in the last couple of years, while Iran
has maintained its status quo throughout the period.
Note: Net export reached at by substracting total oil production from total consumption. Figure 2. Net Oil Export by Four Major Oil Producing Countries, 1965-2010 (in million tonnes)
Source: BP, 2011.
20 In the medium to long term, it might be tough for the OPEC and some of the non-
OPEC countries to stabilize and save the world from another “oil shock”.28 Due to huge
investment requirements and long gestation period in petroleum industry, the
traditional suppliers won’t be able to increase output at short notice. The international
oil and gas market is already operating on a tight margin. Besides this, the
hydrocarbon industry already is facing the crunch of investment capital and investors
are not readily available to invest in insecure and new regions. According to World
Energy Outlook 2011, in order to meet the energy demand by 2035, the global energy
sector needs an investment capital of nearly $38 trillion; and out of total 51 per cent,
28
“Oil and Gasoline”, New York Times, 29 December 2011,
http://topics.nytimes.com/top/news/business/energy-environment/oil-petroleum-and-
gasoline/index.html?inline=nyt-classifier
approximately $19.5 trillion, is required for the oil and gas sectors alone29 (See Figure
3).
Figure 3. Projected Size of Investment Capital in Global Energy Industry, 2035 Source: WEO, 2011.
(ii) A Gas Caucus: The prospect of medium- to long-term alliance between Russia
and Iran, particularly in the gas market, poses a different outlook. With their
huge natural gas reserves (45 per cent), Russia and Iran together are in position
to form a gas caucus30 and potentially dictate the prices of gas in the
international gas market. Syria may also join the Gas Caucus as recently huge
“offshore deposits of oil and gas, within the territorial waters of Israel, Syria,
Lebanon and Cyprus” has been discovered.31 Figure 4 projects the potential of
gas production, both conventional and non-conventional, by ten major
countries and the possibility of the formation of Gas caucus by Russia, Iran,
Syria and also China. Russia, Iran and China (other than the US) are projected
to hold key positions in conventional gas markets.
29
International Energy Agency, World Energy Outlook, 2011.
http://www.iea.org/weo/Files/2011_EBC_Ministerial_Press.pdf 30
During his December 2007’s visit to the Gulf countries, mainly Qatar, the Russian President Vladimir Putin
indirectly purported the idea of forming a gas forum similar to the pattern of OPEC. See for detailed discussion:
Russia and Qatar, by Mart N. Katz, The Middle East Review of International Affairs, Vol 11(4), 2007
December. http://meria.idc.ac.il/journal/2007/issue4/jv11no4a1.asp. in fact, a forum known as Gas Exporting
Countries Forum (GECF) has already been established “with the objective to increase the level of coordination
and strengthen the collaboration among Member countries”. The forum has 10 member countries which deports
more than 70 percent of the global gas. Its first Meeting of Ministers held in Tehran, Islamic Republic of Iran,
on May 19-20, 2001For detailed discussion visit: http://www.gecf.org/aboutus/about-gecf. 31
Naqvi, Saeed (2012), Strom in the Arab Spring, ORF Discourse, Vol. 5, Issue 15, February, Observer
Research Foundation, New Delhi.
Figure 4. Projection of Top 10 Gas Producing Countries of the World, 2035 and Possibility of Gas Caucus Formation. Source: WEO, 2011.
20 Growing Gas Consumption
Reducing carbon footprint is increasingly getting configured in the world. The use of
gas is estimated to grow from the current 3.1 tcm in 2008 to 5.1 tcm in 2035 – an
increase of 62 per cent – the average rate of increase in gas demand being nearly 2 per
cent per year.32 Figure 5 shows the growing significance of natural gas in the global
energy basket. The quantum of the global gas consumption by 2035 is projected to
grow by 53 percent from the base level of 2010 i.e. from 2,600 mtoe (million tone oil
equivalent) to more than 4,000 mtoe. This axiomatically underscores the rising
influence of major gas producing countries in gas-powered world economy in the
coming decades.
32
WEO, 2011, IEA.
Gas Caucus (47% Global
Gas; 46.2TCM)
Figure 5: Prospective Use of Gas by 2035 Source: WEO, 2011.
(v): Oil Market Dynamics
In case both countries, Russia and Iran, decide to work jointly in the oil market, Saudi
Arabia and other big oil pumpers won’t be able to manage the oil market in the
medium to long term as well. Although the US and the Arab countries have shown
some degree of judgement that Libyan oil and stability in Iraq could relax the oil
market, it is equally true that peace and stability in Iraq is still a mirage. Although the
Iraqi oil minister has claimed that in the coming five to seven years Iraq would emerge
as the largest oil producer in the world, pumping around 12 to 13 mbd,33 the current
security situation in Iraq augurs ill for his optimism. Analysts have already pointed out
that Iraq’s ambitious plan, particularly in OPEC, would bring some disputes in quota
allocations. How Iraq will abide with the OPEC mandate is to be seen.
II: Chinese Chequers in Syria and Iran
Many have been surprised by the stand taken by China on Syria and Iran, particularly when its
larger interests are associated with the Arab League nations and the US-West. How can a
country, 80-85 per cent of whose GDP is dependent upon trade, afford to annoy its major
trading partners?
China’s Energy Enigma and West Asia’s Significance
33
Haifa Zaaiter (2012) Iraq Seeks to Boost Production, Challenge Saudi Arabia in Global Oil Markets, February
7, Al Monitor,. http://www.al-monitor.com/cms/contents/articles/business/2012/02/oil-reserves-of-iraq-enable-
it-t.html
Projected Use of
Gas
Since China became a net importer of petroleum products in 1993, and net oil importer in
1996, energy security has occupied centre-stage in China’s foreign policy. Since then, the
central theme of China’s diplomacy has been targeting the energy-rich regions across the
world in general and the energy-rich Gulf, Africa and Central Asia, in particular. By the end of
2010, China had only 2 billion tonnes of proven oil reserves, which is only 1.1 per cent of the
global reserve34, while its consumption is growing by leaps and bounds. Although China is a
significant oil producer with an output of 202 million tonnes in 2010, almost 4.06 mbd, the
quotient of its self-sufficiency has drastically declined, from 102 per cent in 1993 to 45 per cent
in 2010 and at the given reserves/production ratio its reserves are capable of meeting only ten
years’ requirements.35 In 2010, China imported almost 239 million tonnes oil, up from 2.92
million tonnes in 2003. This scissors-like gap between domestic supply and demand has forced
the Chinese government to abandon its traditional goal of energy self-sufficiency and look
abroad for energy resources.36 A forecast reveals that by 2030 domestic oil production will be
able to meet less than 20 per cent – 3 mbd of the total daily oil consumption of 14.5 mbd.37
No country which is dependent for the bulk of its oil and gas requirements from outside
sources can ignore West Asia in general and the Persian Gulf in particular. About 67 per cent
of the global oil and more than 45 per cent of the gas are deposited in West Asia38, while in the
Persian Gulf, around 2/3 of the proven oil reserves (674 billion barrels) and 35 percent gas
(1,923 Tcf). 39 As a result, China’s fast growing economy is increasingly tied to the Gulf
countries for its energy needs.40 According to Raja Almarzodi Albdami, director of the Saudi-
based Institute of Diplomatic Studies, “58 percent of China’s oil imports currently come from
the Middle East region, and by 2015 this share will increase to 70 percent”.41 Figure 6 shows
that over the period 2015–2030, China’s domestic ability to meet its oil requirements will
34
BP Annual report, 2011. 35
Ibid. 36
Downs, Erica Strecker, China’s Quest for Energy Security, Santa Monica, CA: RAND Corporation, 2000,
http://www.rand.org/pubs/monograph_reports/MR1244. 37
Ibid. 38
For a detailed discussion see Zakir Hussain (viewpoint, 17 February 2012), Iran Crisis and India’s foreign
Policy Predicament. http://www.icwa.in/pdfs/VBIndiaIran.pdf 39
Persian Gulf Oil and Gas Exports Fact Sheet: http://www.parstimes.com/library/persian_gulf_doe_2003.pdf 40
Afshin Molavi (2011) Parsing the Reality and Promise of Gulf-Asia Engagement, papaer presented at IISS
Geo-Economics and Strategy programme, London. 41
Economic Intelligence Unit (2011), GCC Trade and Investment Flows: The Emerging-market Surge, EIU
Limited.
significantly decline, while its consumption continues booming. By 2030, China will be
importing 79 percent of the total oil from outside sources it consumes.42
Figure 6. Current and Projected China’s Oil Production and Import, 2008–2030 (mbd) Source: Julie Jiang and Jonathan Sinton (2011) Overseas Investments by Chinese National Oil Companies: Assessing the drivers and impacts, International Energy Agency, Paris.
Figure 7 and Table 1 reveal China’s growing energy dependence on West Asia in general and the Gulf energy market in particular. 43
42
Julie Jiang and Jonathan Sinton (2011) Overseas Investments by Chinese National Oil Companies: Assessing
the drivers and impacts, International Energy Agency, Paris. 43
Other major countries through which China resources its oil needs (May 2010) are Angola ($22.7 billion),
Russia ($8.8 billion), Sudan ($6.5 billion), Kazakhstan ($5.5 billion) and Libya ($4.453 billion). Country-wise
we also notice that over the period China has shifted the focus of its oil import in the Gulf countries. In 1999,
Oman supplied 13.7 per cent of China’s crude imports, followed by Yemen (11.3 per cent), Iran (10.8 per cent),
and Saudi Arabia (6.8 per cent). However, after one decade the situation changed. In May 2010, Saudi Arabia
toped the position, supplying oil worth of $25.5 billion, followed by Iran ($12 billion), Oman ($9.07 billion),
Iraq ($6.26 billion) and Kuwait ($5.46 billion). We also notice that during this period China also targeted other
oil-rich countries in different parts of the world. Angola, Russia, Sudan, Kazakhstan and Libya were also
brought under the Chinese energy radar.
Domestic
Production
Net Import
Figure 7. China’s Growing Energy Dependence on West Asia.
Source: Rand, 2000.
Table 1: Share of Gulf Oil in China’s Oil Imports (million tonnes)
1994 1998 2002 2006 2010
China’s oil imports 12.3 27.3 69.4 145.2 294.4
Oil imports from the Gulf 4.9 16.7 35.4 69.3 118.0
Gulf oil as percentage of China’s total
40 61 51 45 40
Source: Yang Guang (2011) China’s Geo-Economic Engagement with the Gulf, IISS, London.
This to some extent explains the role that China is forced to play in Gulf politics. Peaceful or
even pro-China oil-producing countries would help China offset its ever-increasing oil
demand. Also, China is siding with the Iran-led group than the Saudi-led 22-nation Arab
League, because it offers possibility of unconditional access to the energy market as well as
opportunity to invest in energy sector of these countries.
It is obvious that major Arab Gulf monarchies, including Saudi Arabia, Qatar, etc., are US-
Western allies; their larger interests are associated with US-West, particularly in the wake of
the Arab Spring and regime changes across the crescent. This equation in the region has
possibly convinced Beijing not to depend entirely upon them for its strategic resource
(hydrocarbons), which is crucial to sustain as well as propel its growth and stability at home
and maintain economic supremacy abroad.
Besides this, there seem some geo-strategic reasons of Chinese support to Syria and Iran as
well:
“China has vested interests in a good relationship with Iran... [Its] priorities in Iran go beyond economic interests. Strong bilateral relations help to counter U.S. dominance in the Middle East and increase Beijing’s strategic leverage. China sees Iran’s influence in the Middle East and Central Asia as useful to advancing its political, economic and strategic agenda in that region”.44
China seems to hedge at least 10 to 20 per cent of its oil and gas by betting on Tehran. China is
also shrewd enough to squeeze Iran and sign long-term energy contracts at concessional rates,
particularly at this juncture.45 There are also possibilities that China might strike a deal to use
its currency, Rinminbi, to pay the oil bills and encourage counter non-oil trade with Tehran
similar on the pattern of Tehran and New Delhi signed the agreement.46
In the coming decades, Asia will be the largest energy market of the Gulf countries. The
energy requirements in both China and India are growing at a rate of 6 per cent per annum,
which is commensurate to their economic growth. On account of these realities, the major
Gulf countries are perhaps not in position to annoy Beijing. Rather we notice that despite
Chinese support to Syria and Iran, the energy interaction between Saudi Arabia and China has
increased. During the recent Chinese Premier, Wen Jiabao’s visit to Saudi Arabia, after a gap of
almost three decades, Saudi Aramco and Chinese Sinopec inked a joint venture, Yanbu
Aramco Sinopec Refining Co. Ltd (YASREF), to establish a $8.4 billion refinery at Yanbu, Saudi
Arabia. The YASREF will begin production in the second half of 2014, processing 400,000
barrels of heavy crude oil a day. At the occasion, the Saudi Aramco President and CEO Khalid
Al-Falih said, “This is the fourth joint venture between our two enterprises [Armco &
Sinopec]... YASREF takes its rightful place next to out two downstream companies in China’s
Fujian Province, and our in-Kingdom upstream joint venture, Sino-Saudi Gas Ltd.”47 He also
pointed out that Sinopec was Saudi Aramco’s largest crude oil customer. The YASREE will
create 1,200 direct s and over 5000 indirect job opportunities.48 Saudi Arabia has also invested
in Chinese refineries and petrochemical units.
44
The Iran Nuclear Issue: The View from Beijing, Asia Briefing N°100, Beijing/Brussels, International Crisis
Group, 17 February 2010.
http://www.crisisgroup.org/~/media/Files/Middle%20East%20North%20Africa/Iran%20Gulf/Iran/b100%20The
%20Iran%20Nuclear%20Issue%20The%20View%20from%20Beijing.pdf 45
Indira A.R. Lakshmanan and Gopal Ratnam, “China Gets Cheaper Iran Oil as U.S. Pays Tab for Hormuz
Patrols”, 13 January 2012, http://www.bloomberg.com/news/2012-01-12/china-gets-cheaper-iran-oil-as-u-s-
pays-tab-for-hormuz-patrols.html 46
Ibid.; See: Sujay Mehdudia, ‘Iran agrees to accept payment in rupee”, The Hindu, March 3, 2012. 47
Siraj Wahab , “Aramco, Sinopec sign SR32bn Yanbu refinery deal”, The Arab News, Jan 15, 2012.
http://arabnews.com/economy/article563458.ece 48
Siraj Wahab , “Aramco, Sinopec sign SR32bn Yanbu refinery deal”, The Arab News, Jan 15, 2012.
http://arabnews.com/economy/article563458.ece
Besides Russia, Iraqis are also determined to hone their oil production capabilities. In this
atmosphere, Saudi Arabia and OPEC will not be able to dictate the terms of the energy market
at least for a half to one decade. At the same time, the “golden gas” era will emerge in the
world market. Consequently, the Arab Gulf, spearheaded by the Saudi Arabia, possibly will not
be able to dictate the terms in the energy market in general and with China in particular.
China would possibly be able to secure 30 to 40 per cent of its energy needs by striking long-
term contracts with Iran, Syria and Iraq and possibly Russia. Table 2 shows the recent energy
agreements China signed with three countries, Iran, Iraq and Syria.
Table 2. China’s Recent Oil Agreements with Iran, Iraq, Syria
Country Date Company Project Detail Share(%) Deal Size ($ billion)
Syria May 2010 CNPC
Purchased 35% stake of Shell’s wholly owned subsidiary, Syria Petroleum Development BV. (SPD). SPD owns three production licences in Syria covering 40 oil fields with 23 kb/d output in 2009.
35%
Reported 1.2-1.5
Syria August 2009 Sinochem Purchased 100% Emerald for assets in Syria and Colombia
100%
0.878
Syria 2008 Sinopec Purchased 1005 of Tanganyika for assets in Syria.
100%
1.8
Country Date Company Project Detail Notes
Iraq May 2010 CNOOC
Partnered with Turkish Petroleum (TPAO), won a technical service contract to develop Missan Oilfields. CNOOC holds 63.75% and is operator. TPAO and Iraq Drilling Company hold 11.25% & 25 % respectively.
CNOOC and TPAO to increase the daily output to 450 kb/d over six years. CNOOC will earn USD 2.3/b on incremental oil output once daily output increases by 10% from current level.
Iraq December 2009
CNPC
Formed consortium with TOTAL & Petronas, won second-phase bidding. Will jointly develop Halfaya oil field for 20 years. (CNPC 37.5%, TOTAL 18.75%, Petronas 18.75%, Iraqi South Oil 25%)
Estimated reserve is 4.1 billion b/d. The consortium aims to increase production from 3.1 kb/d to 535 kb/d. Service fee is USD 1.4 per barrel after 70 kb/d.
Iraq Jun 2009 CNPC
20 year service contract to develop Rumaila oil field. (CNPC 37%, BP 38%, Iraqi South Oil 25%)
Service fee of USD 2 per incremental barrel above baseline production of 1.75 mb/d. Consortium to pay USD 500 million soft loan to Iraqi treasury & commit USD 300 million to develop field in the short term. Long-term investment could be up to
USD 20 billion for capital and operating expenses.
Iraq
Re-signed in Nov 2008 (originally signed in 1997)
CNPC
Exploration and development of Al- Ahdab oil field.
Plan is to produce 25 kb/d in 2011-2012, and to produce 110 kb/d for at least six years. CNPC will need to invest at least USD 1 billion for the exploration & development.
Country Date Company Project Detail Notes
Iran August 2009 CNPC
MOU for buyback contract to develop South Azadegan field. (CNPC 70%, Inpex 10%, NIOC 20%)
CNPC to invest USD 2.25 billion &Inpex USD 0.25 billion for first phase of development.
Iran Jun 2009 CNPC
Preliminary agreement to develop Phase 11 of South Pars field. CNPC 40%, NIOC 50%, Petronas 10%)
Partners aim to produce 1.765 bscf/d natural gas and other products. CNPC to invest USD 4.7 billion
Iran Jan 2009 CNPC
Buyback binding contract for exploration and Development of North Azadegan field for 25 years.
CNPC is expected to produce 75 kb/d in first phase and 150 kb/d in the second phase. It will invest USD 1.76 billion in the first phase and total investment increases to USD 3.5 to 4 billion in the second phase.
Iran 2008 CNPC
In Dec. 2007, Sinopec signed a USD 2 billion deal to develop the Yadavaran Field.
Under phase I, expected to produce 85 kb/d in four years, increasing by 100 kb/d in three years under phase II to reach 185 kb/d. Work started in Sep 2008.
Source: IEA, 2011.
Besides seeking market for oil in China by the Gulf countries, China also provides effective
market for their petrochemical products. McKinsey has projected that future trade in
petrochemical is shifting from West to the East and in East China with a billion population,
growing disposable income will one of the largest consuming nations in the east. The report
projected a growth of 119 per cent in net trade from Middle East to East Asia by 2010, with
China accounting for a major part of the increase. In addition to its huge population, China’s
chemical-intensive and export-driven industry is also driving demand for petrochemicals.49
49
McKinsey sees Middle East as global petrochemicals hub, cites shift in business from West to East, March
2005.http://www.ameinfo.com/56240.html
China also seeks to import energy-intensive goods like phosphate and aluminium, which the
GCC states can produce 30 percent50 more cheaply. The process of aluminium smelting, for
instance, requires large amounts of oil... Given the strong synergies to be gained by either side,
McKinsey predicts GCC oil exports to China will grow by an average of 3.7 per cent per annum
through 2030.51
China’s Economic Leverage: Trade & Finance Related Issues
China is well aware of its economic strengthen in the Gulf market. Although China’s trade and
commercial relations with the Gulf countries picked up after 1993, when China entered as a
net oil importer to the Gulf energy market, its size and volume has grown unparallel to any
other long term trading partners. Over a period of two decades, Chinese goods have carved a
solid niche in the GCC market, which China thinks will, more or less, continue in the coming
decades.
Since 2000, Chinese exports to the GCC have increased more than seven-fold, while trade
flows to the other way have increased five-fold...Total capital flows between the GCC and
China tallied around $32 billion in 2006.52 Between 2003 and 2005, bilateral trade between the
two countries registered a growth of 71 percent, from $16.9 billion to $33.8 billion. Again in
2007, it grew to $58 billion, with Chinese imports amounting to $30 billion and export to GCC
reaching $27.7 billion, which again grew to $70 billion in 2008.53 Looking at the growing
prospects of trade, commerce, and investment between the Gulf region and China, both sides
inaugurated the Federation of GCC Chambers of Commerce and Industry (FGCCC Chambers).
During his visit to three GCC countries, Saudi Arabia, Qatar and the UEA, the Chinese
Premier Wen Jibao expressed the hope to conclude the Free Trade Agreement between the
second largest energy consuming nation, China, and the GCC. The FTA will lower tariff
barriers and would stimulate more trade by opening the gateway to a wider range of goods
and services. This will also bolster GCC’s non-oil trade to China, particularly petrochemicals,
aluminium and other goods at competitive rates. The consulting group McKinsey predicts that
by 2020, total trade flows between China and the Middle East could climb to between $350
billion and $500 billion in real terms, which means at least a six-fold increase.54 China is
50
Jaap B. Kalkman, Laurent Nordin, and Ahmed YahiaMoving energy-intensive industries to the Gulf February
2007: https://www.mckinseyquarterly.com/Moving_energy-intensive_industries_to_the_Gulf_1921#Exhibit3 51
“China Gulf Economic Relations”, http://www.cfr.org/china/china-gulf-economic-relations/p16398 52
Lee Hudson Teslik (2008) China-Gulf Economic Relations, Council on Foreign Relations, June 4.
http://www.cfr.org/china/china-gulf-economic-relations/p16398 53
FGCC Chambers inaugurates agency in China, February 08 - 2009
http://www.ameinfo.com/184108.html 54
Mckensey Report
expected to be the GCC’s most important economic partner by 2020, according to a report by
the Economist Intelligence Unit (EIU).55
China also found the Gulf market as an attractive destination for its growing trade and
investment potentials. The current rise in oil prices has assigned massive oil wealth to these
Gulf investors and China is courting their investment. The chances of quid pro quo have
encouraged China to tag its energy with trade and investment policies in the Gulf. According
to the McKinsey report, in the five years to 2010, Asia is likely to require about $1 trillion of
foreign direct investment, and China alone will consume more than half of that total.56
This has convinced the Chinese authorities that the GCC countries, particularly the private
investors, will not be able to revisit their economic policies towards China. China with its deep
purse and suitable technology has also invested large amounts in GCC countries. The GCC
countries under their “Look East” policy have also found the Chinese market an attractive
destination for their investment.
China’s Asian Ordeal – Shifting Attention
Going by the current power dynamics in the Asia-Pacific region, China has declared its three
core interests to include Tibet, Taiwan and South China Sea. With regard to Tibet, new Prime
Minister in exile Dr Lobsang Sangay, a Harvard law scholar, has been appointed57, who may
provide an effective political leadership in the post-Dalai Lama period as the Dalai Lama
himself views Tibet movement as a political issue than a spiritual one. In Taiwan, the pro-
unification government has lost the election and Taiwan wants to maintain its independent
identity. In the South China Sea, China has suffered humiliation in the East Asia Summit
(EAS). There were also reports of China staking its claim in the disputed zone and not
adhering to the Declaration of the Code of Conduct in South China Sea.
Matters have been further complicated by the proactive policy announcements of the US in
the Pacific region that the current century will be the “Century of Pacific”. Further, the
announcement of establishing a base at Darwin under Anzus Treaty, deploying 2,500
mariners, has provided strength to the small countries of South East Asia, against a possible
threat from the rising power of China in the region. This might have definitely perturbed the
55
Andy Sambidge, 9 May 2011, “China set to be GCC's top trade partner in 2020”,
http://www.arabianbusiness.com/china-set-be-gcc-s-top-trade-partner-in-2020-398790.html 56
Barton Dominic, Kito de Boer, and Gregory P. William (2006), “The New Silk Road: Opportunities for Asia
and the Gulf”, Mckinsey on Economics: Commentary, McKensey Quarterly, July 2006. 57
Tibet's first prime minister: the challenges ahead, The
Telegraph:http://www.telegraph.co.uk/news/worldnews/asia/tibet/8688146/Tibets-first-prime-minister-the-
challenges-ahead.html
Chinese thinkers. According to the Zambells (2012), “China’s support for Iran serves as a check
against Washington in response to the U.S. military presence in East Asia and its constellation
of allies and partners surrounding Chinese territory.”58
On account of these developments in the Asia-Pacific region, China and Russia may have
forged some common cause to resist the US-West combined onslaught in the Persian Gulf and
set an example of resistance. It may be that the two countries have come closer for tactical
gains, although there may not be a long-term alliance, because they have their own policy
differences on a number of issues. China and Russia may also want the US and its allies to
bleed on the West Asian front: this will keep the US engaged there, stymieing its ability to
open the Pacific front against China. The two decades’ long US engagement in West Asian
imbroglio has enormously benefitted China. China has already acquired the synonyms of
economic superpower, with $1.15 trillion worth of US treasuries in its bag, while the US
economy has turned the largest indebted country in the world: its debt-GDP ratio stands at
100 per cent, i.e. $15 trillion, leading the US economy to fall into a “low growth trap”.59
Tibet: China’s Achilles’ Heel
Last but not the least reason for China’s adamant support to Syria and Iran seems to be “home
grown”. The growing demand for independence by the Tibetans and the disturbed region in
Xinjiang and Uighurs is gradually building pressure on the Chinese authorities. Tibet is
becoming the Achilles’ heel of the Chinese authorities. Can China afford a second Tiananmen
Square, is big question mark. The world situation has drastically changed since that massacre
of pro-democracy students. On account of the Arab Spring, the Tibetan monks have also
intensified their passive resistance and increasing number of cases of self-immolation by the
Tibetan monks is being noticed. This might also be one of the reasons for the stiff Chinese
stand in the Gulf region and support to Syria and Iran.
III: Sino- Russian Priorities and Prospects
The alliance between Russia and China in West Asia indicates some policy stand of theirs in
the region and beyond. After the end of the cold war, West Asia is the only place left in the
58
Chris Zambelis, “China’s Persian Gulf Diplomacy Reflects Delicate Balancing Act”, China Brief, Vol 12 (4)
February 21, 2012. The Jamestown Foundation:
http://www.jamestown.org/single/?no_cache=1&tx_ttnews%5Btt_news%5D=39029&tx_ttnews%5BbackPid%5
D=13&cHash=2a0d1f93a94480e3a687c82e8085bdf4 59
Low growth trap is a state, where the economy fails to grow because of high debt-GDP ratio, particularly
when its crosses 90% of the GDP. During a study, it was noted that in 1990s, the Japanese economy witnessed a
90 % debt-GDP ratio, hence, Japan witnessed
world where great-power rivalry is still active. However, after the end of Saddam Hussein and
the sweeping changes brought about by the Arab Spring, Russo-Chinese influence in the
Persian Gulf has started waning significantly.
The demand for regime change in Syria, agitation against the potential Iranian nuclear threat
and the bogey of “Shiite Spring” in the Gulf, has considerably altered the geo-politics of the
region. The delisting of Syria from Russia’s sphere of influence will not only take away Russia’s
strategic warm water foothold but also oust it completely from the region. If the opposition in
Syria achieves success, Russia’s disturbed areas like Chechnya-Ingushia and Dagestan may
come in for more serious attacks by the hardliners.
Although China has no such obvious high geo-strategic stakes in the region, some of its
“prime” national interests such as energy security, trade and investment opportunities are
important. In alliance with Iran, China likely wants to hedge its long-term energy supply from
Iraq as well. Association with Russia may also be helpful to China to nurture bonhomie on
Central Asian issues and bring both the countries to work, share and shape the “evolving”
future world order.
The Russia-China alliance in West Asia, although seems for the immediate reason of providing
“diplomatic cover” to the al-Asad regime in the UN, it is possible that their alliance is tactically
imbued with laying down the foundation of a future global order. They also want to make sure
that their presence in global affairs counts, so that they may not lose their allies forever.
The portents are that the game started in West Asia will endure in other parts of the world.
Russia and China are aware of that change is destined; however, they are trying to maintain
and secure their interest to such an extent that their own growth and stability may not be
jeopardized.
In a broader setting, the Syrian episode seemly purports an intended move of China and
Russia to set a foreign policy precedent to effectively hedge their national interests,
particularly in the regions harbouring their national interests and prevent the possibility of
insinuation of “localised” version of cold war in the 21st century. The likely areas of the
beginning of localised version of cold war seems to be the West Asia, the Pacific region and
next the African Continent. The present Syrian case looks nothing but a “preventive
diplomatic” actuation of the two powers against the US-West and its allies.
Whatever may be the outcome of this stalemate, but one thing is definite that the post- Basher
era may vandalise Syria to an extent that geo-strategically it might not be significant for it to
play any decisive or strategic role in the foreseeable future in the region. The dismemberment
of the country on ethnic and sectarian lines, similar to Iraq, may also not be ruled out. This
will, nonetheless, satisfy the major powers; however, the region will hardly be able to heel up
with its territorial scars.
About the author Dr. Zakir Hussain is Research Fellow at Indian Council of World Affairs, Sapru House, New Delhi, India. He has a vast experience on Gulf issues, including the political economy, geopolitics and geostrategic affairs of the region. This paper has been written nine months earlier. Due to some reason it could not be put on the web. Misnomer: Views expressed in this monograph are of the author, ICWA has nothing to do with the author personal opinion.