Thursday, March 24, 2005

Lost amid the responses to President Bush’s 2005 State of the Union speech was that of China’s phlegmatic Foreign Ministry spokesman Kong Quan. Twice asked by a reporter whether China shared the president’s hope that democracy would take root in the Middle East, Mr. Kong artfully evaded the question, merely hinting that the issue was not on China’s agenda.

In fact, China’s agenda is so different that it threatens to seriously undermine American initiatives in the Middle East.

The United States and China have never seen eye-to-eye in the region, but the reasons for this have evolved over time. China’s diplomacy in the Middle East began in the 1950s as an ideological crusade in support of socialist Arab leaders such as Egypt’s Gamal Abdel Nasser, but by the 1970s its focus had shifted to weapon sales. By the 1990s, China was actively supplying ballistic missiles to Syria, missile technology to Libya, and sensitive missile and nuclear technology to Iran and Iraq.

In the new millennium, China’s Middle Eastern strategy has shifted again, from part-time arms salesman to outright energy diplomacy. Under China’s current Five-Year Plan, which publicly introduced the concept of energy security, China unveiled its “Twenty-first Century Oil Strategy” in February 2003. While this $100 billion program has a variety of domestic components, priority one is the securing of new energy sources abroad.

The urgency of this mission can hardly be overstated. Since 2000, China has accounted for nearly 40 percent of the growth in world oil demand and is now the world’s No. 2 oil importer. Experts predict the Chinese demand for crude will increase annually by 12 percent until 2020 and by 2025 China’s daily imports will exceed that of the entire continent of Europe. To avert this growing crisis, China is undertaking major efforts to expand its energy relationships in Central Asia, Latin America and Africa.

Yet here is where the conventional wisdom collides with the present reality. Many scholars have simply accepted that China wants to lessen its dependence on the volatile Middle East and the long, vulnerable supply lines through the Indonesian archipelago. All true. But what is actually happening right now is that China’s dependence on the Middle East is increasing, not just in absolute terms but as a percentage of its oil imports. Five of its top six oil suppliers (Saudi Arabia, Iran, Oman, Yemen, and Sudan) are located in the Middle East, a region that now provides more than 60 percent of China’s total crude imports. This figure may rise to 70 to 80 percent over the coming decade.

On first glance, this may seem surprising. How can China hope to compete in the crowded Middle East with other oil-hungry nations, particularly the United States?

The answer is that China plays by a different set of rules. As China’s support for the rogue regimes in Iran and Sudan has made clear, moral constraints and human-rights considerations are not pillars of Beijing’s foreign-policy calculus. While Tehran threatens to go nuclear and Khartoum continues its genocide in Darfur, Beijing has used its clout (and U.N. veto) to shield these regimes from international sanctions. In return, it receives entree into two important energy markets.

Furthermore, unlike private Western oil companies who are beholden to shareholders and profit margins, Chinese state-owned oil-traders have been given the mandate to secure long-term energy relationships by offering hugely discounted rates, production-sharing arrangements and technical know-how. The fact that China has overpaid for recent ventures in Oman, Sudan and elsewhere is telling. Rather than investing in money-makers, China is buying footholds throughout the Middle East.

These footholds are popping up everywhere. While China’s relations with Saudia Arabia and Iran have received the most press, its dealings in countries such as Oman and Sudan are even more extraordinary. In Sudan, China is the single largest shareholder of an oil company consortium that dominates Sudan’s oil industry and the chief investor in the country’s largest pipeline. In Oman, a phenomenal 85 percent of the country’s oil exports is currently earmarked for Beijing.

China is also ensconced elsewhere: In 2004, China inaugurated its first joint oil venture with Syria, made major inroads into Yemen, and expanded its presence in Egypt, Libya and Algeria. To safeguard these assets, China is constructing a massive harbor for oil tankers in Gwadar, Pakistan, at the tip of the Persian Gulf. This will allow it a permanent naval presence in the Arabian Sea.

From these developments, two observations can be made: First, China is now a major regional player — and one that clearly does not share the American vision of a free and democratic Middle East. Second, China’s Middle East agenda is quickly shaping up to be a direct challenge to that of the United States’. In addition to remaining a strategic competitor for resources, China’s leverage may become increasingly dependent on its ability to undercut U.S. initiatives.

If China has indeed adopted the role of spoiler, as its recent actions in Iran and Sudan seem to indicate, then Chinese intransigence — not Islamic extremism — may prove to be the X factor in the 21st century Middle East.

Barton W. Marcois, a principal at RJI Capital Corp., served as principal deputy assistant secretary of Energy under President Bush. Leland R. Miller, a China specialist, is a lawyer in New York.

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