China’s Gulf ties are a hedge against Iran - Monocolumn | Monocle


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17 January 2012

It’s not rare to see China in the Middle East – Chinese tourists, traders, and goods are everywhere. But for Premier Wen Jiabao to make a state visit takes a special occasion – in this case, a moment of Chinese insecurity, over oil.

This week Wen is touring Saudi Arabia, the UAE, and Qatar, to strengthen ties and secure the flow of crude – a hedge against the diplomatic showdown between the West and Iran. On Monday Iran threatened again to close the Strait of Hormuz, the way out of the Persian Gulf, and the most important oil-shipping lane in the world. The US military says Iran does have the capacity to shut it down – but if it did, the US Navy would immediately respond.

That means any move by Iran to make good on its threat would probably mean a military confrontation – potential chaos in the Persian Gulf.

That’s an especially big problem for the Chinese, with much of their oil imports coming from Persian Gulf states. Of that, the biggest source is Saudi Arabia, at one million barrels per day.

If China wants a steady flow of Arabian oil, what do Arabs want in return? A tougher stance on Iran. China is Iran’s biggest oil customer – taking in 22 per cent of the nation’s exports. Last week the US tried to pressure China to cut that down, but their efforts were rebuffed. Arab Gulf states have more leverage – they’ve already said they’d increase oil supplies to Asia to cover any shortfall, as they buy less from Iran.

But they may not have to ask that much. China can deliver a sharp pinch to Iran, even if it doesn’t cut off its imports of Iranian crude. Sanctions are shrinking Iran’s circle of clients. That’s making Iran increasingly desperate. It means China will remain the biggest, possibly the last Iranian oil client standing. They’re already using that leverage to squeeze Iran for deep discounts.

That hurts the regime’s cash flow. And that applies the pressure Gulf Arabs want to see, as this region, and the world, tries to stop a nuclear Iran.


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