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 diplomatic2 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 whats 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 2

Saudi Arabia and Qatar lobby hard to arm the rebel groups to fight against the Basher regime. 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-inUNGA/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 Russias Return to Strategic Configuration in the Region After the fall of Saddam Hussein in Iraq, the current Syrian regime is the last standing Baathist-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. Syrias 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 fleets 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 8

Other countries where the former USSR maintained its presence in the region were Yemen. 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 Putins 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 Syrias 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-Asads 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 Russias 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-andsyria-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-despiteuproar/454617.html#ixzz1pMSOBn9l 14 Richard Galpin, Russian Arms Shipments Bolster Syrias 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-iranidUSTRE7BU0BF20111231

air defence complexes, three diesel submarines, and hundreds of tanks and armoured vehicles as well as various munitions.17 Inelasticity of Irans Nuclear Urge and Creation of Huge Enriched Fuel Market in West Asia Irans 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/usiranian-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 daymbd) 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 Presidents ratings go down. In Russia, its 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 Irans European and Asian customers. Figure 1 shows the top Russian oil importing countries of Asia and Europe.

25 26

Ibid. 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 $510. 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 nonOPEC 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 wont 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 http://topics.nytimes.com/top/news/business/energy-environment/oil-petroleum-andgasoline/index.html?inline=nyt-classifier

December

2011,

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 2007s 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.

Gas Caucus
(47% Global Gas; 46.2TCM)

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.

Projected Use of Gas

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 wont 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 Iraqs 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? Chinas Energy Enigma and West Asias 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-enableit-t.html

Since China became a net importer of petroleum products in 1993, and net oil importer in 1996, energy security has occupied centre-stage in Chinas foreign policy. Since then, the central theme of Chinas 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, Chinas fast growing economy is increasingly tied to the Gulf

countries for its energy needs.40 According to Raja Almarzodi Albdami, director of the Saudibased Institute of Diplomatic Studies, 58 percent of Chinas 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 20152030, Chinas domestic ability to meet its oil requirements will

34 35

BP Annual report, 2011. Ibid. 36 Downs, Erica Strecker, Chinas 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 Indias 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

Domestic Production

Net Import

Figure 6. Current and Projected Chinas Oil Production and Import, 20082030 (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 Chinas 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 Chinas 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.

Figure 7. Chinas Growing Energy Dependence on West Asia. Source: Rand, 2000. Table 1: Share of Gulf Oil in Chinas Oil Imports (million tonnes) Chinas oil imports Oil imports from the Gulf Gulf oil as percentage of Chinas total Source: Yang Guang (2011) Chinas 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 USWestern 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: 1994 12.3 4.9 40 1998 27.3 16.7 61 2002 69.4 35.4 51 2006 145.2 69.3 45 2010 294.4 118.0 40

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 Beijings strategic leverage. China sees Irans 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 Jiabaos 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 Chinas Fujian Province, and our in-Kingdom upstream joint venture, Sino-Saudi Gas Ltd.47 He also pointed out that Sinopec was Saudi Aramcos 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 N100, 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-spays-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 longterm 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. Chinas Recent Oil Agreements with Iran, Iraq, Syria Country Date Company Project Detail Purchased 35% stake of Shells 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. Purchased 100% Emerald for assets in Syria and Colombia Purchased 1005 of Tanganyika for assets in Syria. Project Detail 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. 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%) 20 year service contract to develop Rumaila oil field. (CNPC 37%, BP 38%, Iraqi South Oil 25%) Share(%) Deal Size ($ billion)

Syria

May 2010

CNPC

35%

Reported 1.21.5

Syria Syria Country

August 2009 2008 Date

Sinochem Sinopec Company

100% 100% Notes

0.878 1.8

Iraq

May 2010

CNOOC

Iraq

December 2009

CNPC

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. 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. 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

Iraq

Jun 2009

CNPC

USD 20 billion for capital and operating expenses.

Iraq

Re-signed in Nov 2008 (originally signed in 1997) Date August 2009

CNPC

Exploration and development of Plan is to produce 25 kb/d in Al- Ahdab oil field. 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. Project Detail MOU for buyback contract to develop South Azadegan field. (CNPC 70%, Inpex 10%, NIOC 20%) Preliminary agreement to develop Phase 11 of South Pars field. CNPC 40%, NIOC 50%, Petronas 10%) Buyback binding contract for exploration and Development of North Azadegan field for 25 years. Notes CNPC to invest USD 2.25 billion &Inpex USD 0.25 billion for first phase of development. Partners aim to produce 1.765 bscf/d natural gas and other products. CNPC to invest USD 4.7 billion 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. 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.

Country Iran

Company CNPC

Iran

Jun 2009

CNPC

Iran

Jan 2009

CNPC

Iran

2008

CNPC

In Dec. 2007, Sinopec signed a USD 2 billion deal to develop the Yadavaran Field.

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, Chinas 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 Chinas Economic Leverage: Trade & Finance Related Issues China is well aware of its economic strengthen in the Gulf market. Although Chinas 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 GCCs 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 GCCs 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. Chinas 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 prounification 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-thechallenges-ahead.html

Chinese thinkers. According to the Zambells (2012), Chinas 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: Chinas Achilles Heel Last but not the least reason for Chinas 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, Chinas 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 Russias sphere of influence will not only take away Russias strategic warm water foothold but also oust it completely from the region. If the opposition in Syria achieves success, Russias 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.