The Chinese New Year – the Year of the Snake – began auspiciously for the People’s Republic this week with China eclipsing the US as the world’s biggest trading nation. Its combined imports and exports reached $3.87 trillion in 2012, edging past the US’s $3.82 trillion in goods.
The American economy remains twice the size of that of China, but as the latter hurtles toward parity, its thirst for energy knows no limits. While the US is still by far the world’s largest consumer and net importer of energy, China is catching up fast. At the same time, developments in the international energy market, in particular new technologies and the discovery of huge shale oil and gas reserves in the US, mean that the America is moving toward energy independence, while China is becoming ever more dependent on Middle East oil. Within the next 20 years its consumption of Middle East oil is expected to dwarf that of the US.That shift from West to East, say analysts, creates a common interest between the world’s only superpower and the world’s emerging superpower for regional stability.
Shraga Biran, a Tel Aviv-based lawyer and entrepreneur with diverse energy interests, who heads the The Institute for Structural Reforms, a think tank that promotes structural and political reforms based on technological advances or economic, social changes, argues that the shifting map of the global energy market creates historic strategic opportunities..
“The US is becoming energy independent, fulfilling its dream for energy security, while China has taken the place of the US in being dependent on Middle East oil, importing over 60% of its consumption from the region,” says Biran.
“Moreover, the two superpowers are coordinating and cooperating in the exploitation of new oil production technologies supplied by the American giants that have been the supply forefront of oil to the US in the past and today to China. The fate and the solution of the problems in the Middle East will be from now on dependent on the renewed interest of the US in the Middle East and its new partner in the energy game – China.”
Biran sees this as no less than a “historical political revolution” taking place in the Middle East. “It is,” he says, “creating an opportunity that must not be missed, an opportunity for peace in the region thanks to an alignment of interests that did not exist in the past between the two powers, the US and China, representing the West and the rising East.”
That alignment of interests, says Biran, derives inter alia from an interdependence between the two powers based on the one hand on the US’s military dominance in the region and protection of maritime routes vital for the transport of oil and on the other the fact that China is not only the US’s second largest trading partner, but also holds more than $1.2 trillion in US debt.
“If we had been talking a couple of years ago no one would have believed it was possible,” says Biran. “The shift of the Middle East and North Africa’s oil exports from west to east occurred, in contrast to common wisdom, in a peaceful manner. Several years ago, the natural instinctive tendency of the US would have been to block the Chinese access to energy resources in Central Asia, Africa and the Middle East. Recently, there are signs that Washington has learned the lesson of the late ’30s. The US has an interest in the continuation of China’s economic growth which benefits the global and US economy alike. Both the US and China recognize the global economic interdependence and the significance of coordinated policy between them in securing energy resources.”
So how can Israel leverage the geo-political changes envisioned by Biran? “Until the new oil and gas revolution,” he says, “the developed economies’ dependence on the Middle East and North Africa’s energy was absolute. This fact enabled their direct extortion by fundamentalist states or indirect extortion by fundamentalist factors which put pressure on their states in order to create dependence. This era is ending. As a result, the fundamentalist powers are decreasing dramatically.”
He also predicts that changes in the international energy market will end OPEC’s monopoly on setting the price of oil.
"OPEC is about to collapse, and they know it. All the political power of the Arab world accumulated since 1973 is about to explode. This is a change in the global rules of the game that goes far beyond the borders of the Middle East. This process creates opportunities for a new energy world and sophisticated gas market with competition between the new oil and the old oil, between the new gas and the old gas. The new rules of the game will be set by the coordination of the economic interests of the US and China, and Israel should start getting ready for that.”
On the economic front, he says, both Israel and the Palestinians stand to reap enormous benefit from these geopolitical transformations as geographically they are situated at the potential center of a main oil and gas transport route connecting east to west.
Biran points to Israel’s strategic position between the Mediterranean and the Red Sea and the possibilities to hook up with oil pipelines that could transport, for example, oil from Chinese-owned fields in Central Asia via Ceyhan in Turkey on to tankers and then via the Ashkelon-Eilat pipeline to the Red Sea as an alternative to the Suez Canal and back on tankers to China. The old Iraq-Haifa pipeline built by the British could also fit into that picture, he explains, while the Chinese have also built a pipeline from Saudi Arabia’s Gulf coastline to Yanbu on its Red Sea coastline, where it could go via Eilat in the reverse direction to the Mediterranean.
While some would describe this as a pipe dream given current circumstances in the Middle East, Biran says: “China wields enormous power that can bring about changes to pull off projects that today may seem imaginary. Cooperation between the two superpowers in the Middle East may resemble the way economic interdependence developed in the “Marshall Plan” in Europe after the Second World War between the enemy states. The way I see it, strategic cooperation begins as they did in Europe [after the war] with logistical partnerships such as water, transportation, basic logistical needs.”
China, notes Biran, has already became more strategically involved in the Middle East and North Africa.
After the 2006 Second Lebanon War it sent a contingent of engineers and medical staff to the the UN Interim Force in Lebanon (UNIFIL) and recently it promoted its own plan to try and end the crisis in Syria. Meanwhile, bilateral trade between China and the Middle East has skyrocketed from 2000 to 2008.
Chinese exports to the Middle East have increased more than seven times while imports have grown five times. The McKinsey consulting group estimates that by 2020 total trade flows between China and the Middle East will reach $350 billion to $500b.
“China has to play a bigger role in shaping the political realities and landscape in the Middle East and in other places,” concurs Prof. Junhua Zhang, a political scientist from Shanghai Jiao Tong University who was recently in Israel as a visiting professor at the Hebrew University. “China’s policy in the Middle East has been very vague, but this should stop. Vague language will not help stability in the Middle East and China needs stability in the Middle East because oil provision is important for China and because the Middle East could also be a good market for China.”
Zhang explains that China’s foreign policy is in a state of transition as it emerges as a great power and that its energy needs and the necessity for it to expand its capital and markets in order to ensure the high growth rates crucial for the ruling Communist Party’s survival will leave the country’s leadership with no choice but to drop its low-profile approach in favor of a more proactive policy.
When can we expect to see China becoming more involved in the Middle East? That, says Zhang depends on domestic politics.
“Only when the new leadership feels that its status is stable will it allow itself to adopt a higher-profile foreign policy,” he says.
China, in order to be able to pay more attention to other regions, Zhang adds, also needs stability in its own backyard on issues like its dispute with Japan over the East China Sea islands known known as the Senkaku in Japan and Diaoyu in China, which are potentially rich in oil and gas, and in the South China Sea, where it has maritime disputes with several countries, and of course the question of reunification with Taiwan.
“My guess is that this will definitely happen in the next three or four years, because for the leadership it is also a process of becoming familiar with the issues, and I think you cannot change your perceptions very soon.
I think that the need for capital expansion and the need for oil provision will lead China to become more involved in the Middle East.”
Zhang argues that when it comes to promoting arrangements between Israel and the Palestinians, the Chinese focus on the economy – and the fact that it is in good standing with all the parties – could perhaps succeed where Western emphasis on political solutions has failed. He suggests that the Special Economic Zone model China has employed successfully domestically to promote job creation and growth could help generate stability in the Middle East.
“The miracle of economic success in China lies exactly in its focus on economic issues,” he says. “So why can’t China try to apply this model or policy to other regions? Of course, it’s a bit different here, but this could be another approach to Israel-Palestine. If you look at the unemployment rate in Gaza, it’s around 40 percent and in the West Bank around 23 percent. So I think if China could help Palestine as, say, a kind of job creator that would also help Israel and that in the long run could help the peace process.”
But while Zhang sees China as eventually playing a role in the Middle East, including perhaps in the Israeli-Palestinian conflict, he doesn’t see it getting too deeply involved at present. What Zhang does see happening more immediately, though, is coordination between China and the US on Middle East policy.
“The US is now less dependent on the Middle East while China’s need are becoming more important so it needs stability,” he says. “For a long time China has taken a free ride in the sense that the US has a military presence and has kept the region stable, but the US can be expected to reduce its presence. That is not good for China, and China will have to do something.”
WHILE THERE appears to be a consensus that China’s rapidly growing energy needs mean it will need to nurture a stable environment and adopt a more proactive foreign policy in the region, not everyone shares Biran’s far reaching vision of a Pax Sinica.
“Surging Chinese demand for energy resources over the next several decades will make their more prominent role in the Middle East inevitable. China is now second only to the United States in consumption and importation of oil, a trend that will only continue as the Chinese continue to urbanize their population and bring millions more cars on line. No country can afford to remain uninterested in a region that it will be so dependent upon,” says Bradley Bosserman, a foreign policy analyst and director of the Middle East program at the NDN New Policy Institute, a center-left Washington think tank.
Bosserman, however, cautions that there has been consistent divergence between the US and China on regional issues, from Iran to Syria and elsewhere. “While a peaceful and agreed-upon settlement to the Israeli-Palestinian dispute would contribute to regional stability, China has never shown much interest in investing diplomatic energy... in other parts of the world where it had economic interests.”
He points to the potential lessons to be learned from China’s engagement in Africa, and warns that while the optimists may believe that China’s growing energy interdependence with the Middle East will lead to Beijing becoming more interested in productive diplomatic engagement, its record in Africa gives “little indication that it will pursue that path.”
“For the past half-century,” says Bosserman, “China’s policy of non-interference has provided capital and investment to corrupt governments who have been more than happy to avoid the complicated work of economic and political reform that is often demanded by the United States and Europe. Throughout Africa, China has consistently valued preferential trading terms, lopsided leasing deals, and short-term profits over the kinds of lasting investments in good governance, political reconciliation, and poverty alleviation that lay the groundwork for real stability. It seems more likely that it is that model that they will try to export to the Middle East rather than some other idealized version.”
Yitzhak Shichor, a professor of political science at the Hebrew University of Jerusalem, who specializes in China’s Middle East policy and international energy relations, agrees that the powers have a mutual interest in stability and cooperation in the region. “They have to regulate or strangulate,” he says. “The great powers will have to divide their different spheres of influence, especially energy, otherwise there will be confrontation.
Shichor sees China’s current objectives in the Middle East as “being friends with everybody, maintaining stability in the region, providing for the free flow of oil and of Chinese exports, and to avoid as far as possible regional conflicts and confrontations.” But he too is skeptical about the chances of China being able to bring about a Middle East peace deal even if it were willing to involve itself.
“If there is going to be a change in the international energy markets and the US is no longer going to be dependent on Saudi oil while China becomes even more dependent on Saudi oil, then theoretically there could be some kind of common understanding between China and the US that stability in the Middle East is very important and there might be some kind of [joint] effort to settle the Israeli-Palestinian conflict, but I’m a little skeptical about that. I don’t see this change, and I don’t see the relationship of oil and the Arab-Israeli conflict, there are so many other deep roots to the conflict. I don’t think this is going to make a real change.”
In the face of that skepticism, Biran is undeterred: “Common interests can create miracles. Today, what I am saying may sound utopian or an unrealistic dream. But it can come true if this new agenda is placed in the political arena.”
A self-made man with a history of pulling off the impossible, and the author of a book on “How to change the world one idea at a time” he concludes, “I can testify that opportunities appear and disappear in a very short time.”