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GCC-China Crude Ties: Xi Jinping’s Not-So-Secret Weapon to Assert Influence

Image via Seeking Alpha

Even strength must bow to wisdom.

There is a mist of wisdom in the foreign affairs of the People’s Republic of China. Instead of hasty military interventions, the nation plays the long game to bolster its hegemonic status. That is evident in the Gulf, where Beijing uses petroleum to assert its influence. No arsenal necessary. Yet whilst China employs an economic, non-interventionist approach to enhance its geopolitical foothold in the region, tens of thousands of US troops are stationed between Egypt and Afghanistan. 

Not only does China’s nonmilitary presence in the Gulf threaten American alliances in the region, but it also imperils the status of the US dollar as the dominant currency of world trade. That puts the United States at risk of losing both its friends and its money. You hear that, Washington?

That was a rhetorical question. In the shadow of the Saudi Arabian and Iranian peace agreement brokered by China in March, the United States is closely watching as Beijing evolves into a trading colossus in the Middle East. Indeed, White House National Security Council spokesperson John Kirby affirmed that the Biden administration continues to observe China “as [it tries] to gain influence and footholds [in the Gulf] in their own selfish interests.” China’s strides in the Gulf have left Americans anxious for the future of Washington’s 70-year alliance with the Gulf Cooperation Council (GCC)—a regional, intergovernmental union composed of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. This alliance is the result of “decades of security cooperation and strong business ties dominated by US interests in Saudi oil.” 

As further evidence of that cooperation, consider that Saudi Arabia is the largest exporter of oil to the United States of all the Organization of Petroleum Exporting Countries (OPEC). Likewise, approximately 9 percent of US crude oil imports were from nations in the Persian Gulf in 2021. Clearly, the Gulf is a region of extreme economic interest to the United States. So, the Iran-Saudi peace agreement mediated by China has left Americans uneasy. Frankly, that concern is completely warranted. 

Although the deal is a restoration of diplomatic relations between rivals Saudi Arabia and Iran, it is evident in Kirby’s words that this agreement also significantly illustrates China’s clout in the Middle East. Beijing has petroleum to thank for that.

Increased energy demand in China has catalyzed trade with the GCC. Between 2006 and 2022, China witnessed a 550 percent increase in the size of its economy.. Resultantly, there was an unparalleled increase in the nation’s energy demand, precipitating its crude oil imports to grow from 145 million tons in 2006 to 508 million in 2022. In recent years, this has led China to import more oil from the GCC. Gulf countries have embraced their augmented exports to China, especially as crude oil exports to the United States have shrunk due to lower demand. Indeed, the GCC exported 210 million tons of crude oil to China in 2022—two times the amount in 2014. .

In particular, Saudi Arabia provides more oil to China than any other country in the region. In many respects, this is due to the unprecedented cooperation between the Kingdom’s national oil companySaudi Aramcoand Chinese state-owned energy companies. For example, Saudi Aramco announced a business deal this year “with two Chinese companies to construct a new three hundred thousand barrels per day (bpd) refinery and petrochemical complex in Northeast China.” This close-knit relationship resulted in 88 million Saudi tons of crude oil being exported to Beijing in 2022.

Saudi Arabia’s status as the largest exporter to China is also owed to major infrastructure projects undertaken by both countries. In 2016, Chinese President Xi Jinping and Saudi Crown Prince and Prime Minister Mohammed bin Salman Al Saud celebrated the construction of a $10 billion oil refinery in the Saudi port city of Yanbu, which is located on the strategic Silk Road that connects China to the Arabian Peninsula. Evidently, the Sino-Saudi partnership demonstrates the rich, strengthening crude oil ties between the Gulf and the People’s Republic of China.

Furthermore, it is critical to consider Beijing’s relations with Oman. Unsurprisingly, “nations  with weak financial and legal institutions… often find themselves in the unenviable situation of being forced to accept Chinese investment on egregious terms after failing to attract sufficient commercial interest or foreign aid.” This is the case in Oman, which is in dire need of money—of which China has plenty. Evidence of this is the 90 percent of Omani crude oil exports that China, alone, imports. Exports to China “accounted for nearly 8 percent of Saudi Arabia’s GDP in 2022, while nearly a third of Oman’s Gross Domestic Product (GDP) is directly tied to exports to China.” By fueling the Saudi and Omani economies, China has enabled itself to adopt an assertive role in the Middle East. It is now hungry to cement its geopolitical foothold.

President Xi recently affirmed that China would continue to purchase oil from the Gulf but with a slight caveat: It will do so in Chinese yuan instead of the US dollar. This effort, dubbed “petroyuan,” would diminish the importance of the US dollar, knocking it down from its status as the “undisputed currency of world trade.” In the words of Federal Reserve Chair Jerome Powell, “The dollar could share the limelight with the yuan in the medium to long term.” This process of de-dollarization reduces American global hegemony: If it is no longer the sole issuer of the most-used currency in the world, the United States will be unable to control the international economy like it once did 

In the end, Xi’s currency demand to the GCC demonstrates the significance of petroleum in amplifying economic ties and enriching political power. Not only has the natural resource yielded a mighty geopolitical alliance between China and the Gulf, but it also has the capacity to catalyze a novel world order by introducing a new dominant currency. There are already initial signs of this. Foreign exchange reserves of the International Monetary Fund (IMF) member states decreased from 72 percent in 2000 to 59 percent in 2021. In other words, IMF nations are buying less in the US dollar, and thus have less to exchange. Evidently, China’s not-so-secret ploy to assert influence in the Middle East stretches beyond oil fields.

Even strength must bow to wisdom. This phrase embodies the foreign affairs of the People’s Republic of China. The nation is wise before it is strong. It does not stress martial intervention because it knows that it has more to lose than to achieve in bombing Yemen to secure Saudi oil. Instead, China’s arsenal is oil—the country calmly supplants the hegemony of the United States through its petroyuan efforts. That is what is fascinating about Chinese foreign policy in the Gulf. Oil deal by oil deal, Beijing inches closer to hegemonic power.