Sanju Gupta
Recommendations for GCC Policymakers:
• Critical dependence of all growing economies on the energy resources of the GCC countries reiterates the importance of the region for global security. This situation co-exists with an unstable Iraq, Iran’s nuclear program, and the GCC’S own quest for security.
• The “Iraq” factor notwithstanding, there is rising need for cooperating with China in the “energy waterways”, given the backdrop of a skeptical US and an uncertain Iran.
• To broaden the spread of energy exports as an integral part of economic diversification it is imperative to have deeper engagements with China and other Asian powers.
Recommendations for Iraqi Policymakers:
• Acquire a shared commitment to developing Iraq’s oil industry in an efficient way that maximizes the benefits to the Iraqi people
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• Develop an investment regime which would remove legal and administrative obstacles, as well as uncertainties for foreign investment in the petroleum sector. A sound investment would include model agreements, and bidding and contracting procedures to ensure transparency.
• Be sensitive to the regional power dynamics and tread with caution on the path of building development pacts with external powers such as China.
Introduction
The post-Cold War era has seen the Arabian Gulf region in a state of ferment.
Many assertive political constituencies are demanding reform of the existing systems of governance. At another level, various countries which are dependent on the energy resources of this region are seeking to hedge the prospect of chronic instability by avoiding incremental change and instead by favoring participatory and responsible governance in almost all the states in the region. Some external powers which exercise influence in regional politics have striven to prevent the rise of any regional hegemon, which might become so powerful as to shift the balance to the disadvantage of their energy needs.
Given the dependence of their economies on energy supplies from the GCC states, the major western powers have watched developments in the region with concern. In fact, there have been various suggestions from the western world for sustained democratization and development partnerships initiatives. However, cookie-cutter solutions or one-size-fits-all models do not exist for the region, and if forcibly realized would only result in future “Iraqs.” Significantly, the critical dependence of all growing economies on the energy resources of the GCC countries underlines the importance of the region for global security. At the same time, with the regime instability in Iraq, Iran’s nuclear program, and the GCC’s quest for stability and security, especially regarding “energy,” developments in the region will continue to engage global attention. According to rough estimates, Gulf oil exports will more than double by 2020. As the bulk of these exports are transported from Gulf ports to their respective destinations in Asia and elsewhere through sea lanes of communications (SLOCs) of the Indian Ocean like the Strait of Hormuz, Malacca Straits and other waterways, the presence of a powerful navy is necessary for ensuring safe and uninterrupted flow of oil. The United States, which has a massive naval presence in the Indian Ocean, enjoys a strategic advantage over other great powers vis-à-vis the Gulf region.
The geostrategic and geo-economic importance of the Gulf region has been providing a greater security role for the US which has remained a significant factor in the overall polity, economy and security framework of the region. Many regional actors continue to favor a strong US military and diplomatic presence, and they have been unsuccessful in evolving common policies and perceptions. Though Iran is seen as a potential threat to the security of the region, the GCC countries lack a common approach toward Tehran. In recent years, in view of their economic and energy security necessities, the GCC countries have looked to forging close ties with Asia and especially the rising Asian powers. Within Asia, China’s relationship with the Gulf region has assumed dynamic proportions, chiefly due to its growing energy requirements to feed its driving economy. According to IEA estimates, by 2030 the Gulf will supply one in every three barrels of China’s consumption. While energy is the driving factor behind China’s growing attention to the Gulf region, the same can also be said for the GCC countries and Iraq and their increased focus on Asia and China in particular. China is seen by the Gulf States as a huge market for its oil exports.
Though Iraq is not yet on the edge of civil war, its stability and security now depends on the ability of its leaders to move towards some form of viable political unity and effective governance. Today it is clear to the GCC countries that their security, especially “energy security,” depends on a stable Iraq, and that Iraq’s stabilization cannot be achieved without strong and adequate international assistance. China has been emerging as a proactive partner in all these efforts.
Chinese state-owned oil companies are now aggressively bidding for contracts in Iraq, and there is a clear Chinese presence in regional commerce as well as in the energy sea lanes of the Indian Ocean.
In order to decrease misperception and avoid conflicts related to energy issues, China and the US have engaged in a number of dialogues. It is evident that China now shares a certain interest with the US to ensure an unhindered process of recovery in Iraq, so that the country starts its reconstruction smoothly. However, there are big differences between these extra regional powers as to the best approach to attain this objective. One such divergence relates to the “Iran” factor. Antagonisms between Iran and United States have meant that Beijing has been cautious about its relations with Tehran. While seeking oil and natural gas from Iran, the extent to which China can maneuver between the pro-American regime in Saudi Arabia and anti-American regime in Iran is a question that will test the pragmatism of its Gulf policy. It is also an issue which will have the attention of the GCC countries in their evolving relations with post-war Iraq.
This chapter examines China’s energy engagements with the GCC countries and Iraq against the backdrop of the Iran and US factors in the regional energy framework.