The Arabian Gulf has emerged as a theater of investment, international integration, and rivalry for global powers, especially after Chinese President Xi Jinping introduced China’s Belt and Road Initiative (BRI) in 2013, an expansive project designed to link China and Europe through the Middle East. The countries of the Gulf Cooperation Council (GCC) are some of the world’s most dependent on oil and natural gas revenue, and they are key partners in China’s BRI. Economic diversification has remained a priority for the GCC as the global economy shut down due to the COVID-19 pandemic. The sharp drop in oil prices has placed economic pressure on the Gulf, which ran budget deficits at an average of 9.2 percent in 2020 and an expected 5.7 percent in 2021. Bahrain and Oman are in the most precarious situation: Bahrain’s oil reserves are expected to run out in the next 10 years and Oman’s are expected to be depleted in the coming 15.
The Gulf sits at the crossroads of Eurasia and holds oil resources China desperately needs to sustain its growing energy demands. As such, this region has become a prime target of Chinese maritime investment and infrastructure development. By seeking to implement far-reaching infrastructure and economic connectivity, China is trying to exert influence over an area that remains of prime strategic importance to the United States. The March 27 announcement that China will invest a staggering $400 billion in Iran over the next 25 years will only make the competition over influence in the region more pronounced and worrisome for officials in Washington.
China’s Maritime Silk Road in the Gulf
China has increased its mediation efforts in Syria and Yemen, participated in the P5+1 Joint Comprehensive Plan of Action negotiations with Iran, and supplied arms to several Middle Eastern countries. Importantly, its approach of leveraging economic strength in the Gulf to influence diplomacy has done the most to put China directly in contention with the United States. The BRI’s infrastructure projects across Eurasia make it a central tenet of Chinese foreign policy. The Maritime Silk Road Initiative (MSRI), a component of the BRI that Beijing insists is motivated solely by economic concerns, is advancing China’s security objectives in opposition to those of the United States. Within the Middle East, China’s infrastructure projects in the Gulf are the greatest threat to US interests, particularly because China maintains that economic development is the Gulf’s sole path to regional stability. For that reason, it engages economically even with countries that rival each other but still hold a stake in regional developments. This economic engagement is caused by its reliance on the Middle East for over 40 percent of its total oil imports and its interest in keeping sea lanes open, including Bab al-Mandab and the Suez Canal.
The Maritime Silk Road Initiative (MSRI), a component of the BRI that Beijing insists is motivated solely by economic concerns, is advancing China’s security objectives in opposition to those of the United States.
China is developing two kinds of projects in the Gulf that support the region’s domestic development and increase regional connectivity. Between 2005 and 2020, Chinese investment in Gulf countries amounted to about $78 billion, mostly for infrastructure projects such as railways, refineries, and power plants. Maritime security is also a priority for China; it participates in maritime security missions to combat piracy in the Arabian Sea and the Gulf of Aden. China also had an agreement with Iran to conduct a joint naval drill with Russia in the Indian Ocean, meaning that China’s economic power and reach may soon become a concrete security threat to the United States.
Beijing has made port ownership and development a key tenet of the MSRI. Its port-industrial park complexes have incorporated infrastructure development into the national visions of Oman, Saudi Arabia, and the United Arab Emirates. All three countries have been frequent participants in the BRI by developing a port-industrial park complex chain that links markets across the Middle East. Chinese firms have also secured contracts for a port extension in Doha, Qatar, and for the expansion of China’s maritime foothold across the Gulf. The Gwadar Sea Port, in Pakistan and located along the shore of the Arabian Sea, is a maritime passageway vital for tankers carrying petroleum from the Arabian Peninsula to Asia. Over half of China’s 7.6 million barrels of imported crude oil per day come from the Gulf, but since Gwadar is not a sufficient way point for ships traveling to China from the Gulf, China’s long-term vision is to implement high-speed rail and road networks in Gwadar to transport the oil to Islamabad and from there to Beijing. These networks are designed to increase the efficiency of oil transport from ships arriving at the port.
China’s rise is being legitimized by economic agreements with Gulf countries, which have provided the means and the opportunity to incentivize these states to redirect their exports away from the United States’ East Asian allies and toward China exclusively. Over 80 percent of Chinese oil imports travel through the Indian Ocean and are susceptible to US interdiction, so to protect its interests, Beijing has leveraged BRI partnerships to secure long-term contracts for oil and natural gas through Chinese-GCC joint company ventures.
The Gulf States’ Ambitions
The GCC’s expansive strategic and commercial agendas make the coalition a prime partner for China’s infrastructure advancements. In particular, Saudi Arabia and the UAE see the MSRI as a mechanism for increasing their influence in East Asia. Other countries have run into problems with China’s initiatives and their impact on debt distress and weak workers’ rights protections, such as the case of Sri Lanka. In 2017, the Sri Lankan government was forced to hand its largest port and 15,000 acres of land over to China for 99 years to pay off its debt after renegotiating the timeline with unaffordable financing. The Chinese demanded equity in the Sri Lankan port rather than easing up the agreement’s terms, and Sri Lanka is now more in debt to China than ever before. Nevertheless, the Gulf countries remain open and willing partners to Chinese investment, partly because the Chinese state capitalism framework is well-suited to work with the GCC’s oligarchic state models and partly because GCC states have resources to pay for infrastructure development. Three of China’s five leading destinations of foreign direct investment are Saudi Arabia, the UAE, and Egypt.
The Gulf countries remain open and willing partners to Chinese investment, partly because the Chinese state capitalism framework is well-suited to work with the GCC’s oligarchic state models.
The GCC’s private sector relies on government-funded projects supported by oil and gas revenue. As such, GCC policy makers need to diversify the economy to avoid direct or indirect reliance on oil and gas. Sovereign wealth funds, limited government subsidies, and individual-level investment are ways the GCC plans to diversify, which involves moderating government spending, increasing the export of non-oil goods, and boosting foreign direct investment. Increased foreign direct investment provides an opportunity for China to become economically entangled in the region with mutually beneficial arrangements in infrastructure and shipping.
China is raising its power capabilities in the Gulf while the Gulf improves its development capabilities through the Industrial Park-Port Interconnection. With this approach, China and its Gulf partners adjust common goals and demands to serve as a baseline for economic cooperation. The initiative emphasizes collaboration to increase the Gulf states’ industrialization and economic diversity. Its first component is the integration of China’s four main industrial parks in Egypt, the UAE, Saudi Arabia, and Oman with the Port of Djibouti, Port Said in Egypt, Duqm Special Economic Zone Authority in Oman, and Khalifa Port in Abu Dhabi. The second component is to connect industry chains with oil, gas, and low-carbon energy. The enhancement of science and technology through this approach has allowed the Gulf to expand capabilities in space, satellites, financing, and mobile communications.
As China’s economic power and dependence on Middle East oil grows, its military will likely be used to protect vital interests. The Gulf countries, in seeking alternative security arrangements to those with the United States, are seemingly open to the prospect of a growing Chinese role in the region. Since they see opportunities for industrial development and economic advancement, they look to China as a source of political capital for economic diversification. The MSRI accounts for half of China’s global trade with Europe and the Gulf is well-positioned to benefit, since it has already become a crucial intersection for global trade and finance. With strong emphasis on mutual self-interest, a rising tide of China-GCC partnerships is on the horizon.
US strategy in the Arabian Gulf has been dictated by keeping oil freely flowing at reasonable prices since the 1950s. A series of negative developments compromised US standing in the region, however, as Syria has effectively been lost, Lebanon has deteriorated, Gulf Arab states experienced divisions, and the situation in Yemen has devolved into a humanitarian nightmare while, until recently, the US had supplied offensive and logistical support. At the same time, NATO halted operations against the so-called Islamic State and European states refrain from supporting US strikes against Iran. Due to these missteps and changing ambitions, China has new leverage. While it does not appear interested in Gulf political affairs, China’s footprint has increased as a leading trade partner and foreign investor.
While China does not appear interested in Gulf political affairs, China’s footprint has increased as a leading trade partner and foreign investor.
The United States seeks to maintain its regional hegemony to maintain stability and its interests and prevent hostile powers from establishing themselves in the region. As such, containing China’s economic expansion remains a US security objective. The US Central Command (CENTCOM) and military forces have worked with strategic partners in the Gulf to provide a limited degree of stability, but rising crises have shifted the role of US forces in an uncertain manner. But whatever these shifts are, security in the Gulf remains an economic priority for the United States and its many trading and strategic partners around the world.
Policy Recommendations for the Biden Administration
The Biden Administration has the opportunity to shift the Washington consensus on China and take a more targeted approach to meet the challenges of the evolving power dynamics in the Gulf. By increasing economic engagement and building structures in the Gulf, China is establishing itself as a competitor to American influence. China’s model of authoritarian capitalism interests many GCC monarchies because cooperating with China could serve as a mechanism to resist US pressure on human rights and democratization. At the core of the MSRI is a twofold set of objectives: economic benefits and a challenge to US dominance. As the United States retrenched under President Donald Trump, Gulf countries made increased efforts to become involved with Chinese businesses to diversify economically and politically.
The United States has primarily dealt with the Gulf on a “crisis by crisis basis” since the invasion of Iraq in 2003, meaning it is in the Biden Administration’s best interest to develop a more cohesive long-term strategy that can incorporate the economic relationships China is developing. Washington should continuously emphasize Beijing’s limitations as a security provider when managing relationships with Gulf states to demonstrate why the United States is a better partner in the long term. For example, after the United States expressed concern about the security consequences of an Israel-China technology cooperation, Israeli companies pulled back from agreements with Chinese corporations. China’s opportunistic policy framework and lack of emphasis on regional issues of security keep the door open for the United States to keep its role as regional hegemon.
By promoting the resolution of sectarian conflicts and reducing the pressure from destabilizing threats, the Biden Administration can foster stability in a period that has become increasingly contentious and defined by zero-sum victories.
By promoting the resolution of sectarian conflicts and reducing the pressure from destabilizing threats, the Biden Administration can foster stability in a period that has become increasingly contentious and defined by zero-sum victories. Instead, it could limit support to armed conflicts and back effective governance through the delivery of social services, thus helping to boost its allies in opposition to China and other hostile powers that are taking advantage of perceived power vacuums. In addition, the administration should capitalize on the many flaws of the MSRI while acknowledging China’s intention to become more economically and strategically invested in the region. Corruption and long-term questions of the project’s sustainability keep an opportunity open for the United States to advance its security and economic interests while containing China. Washington should seize this opportunity before it is too late.
Gabriella Haedelt is a Congressional Affairs and Social Media intern at Arab Center Washington DC.