Leaders of the Gulf states received Chinese leader Xi Jinping with all honours when he visited Saudi Arabia to attend the first China-Arab States Summit and a summit with the Gulf Cooperation Council (GCC) monarchies in December 2022. The summits should put to rest the once ubiquitous argument that China-Gulf relations are exclusively about economic cooperation. In fact, while economic ties are important, these relations are grounded in compatible visions of a multipolar Middle East, which should inform European governments’ approach to their own relations with the Gulf monarchies.
As the Russian invasion of Ukraine accelerated the United States’ retrenchment from the Middle East and North Africa, Gulf monarchies became increasingly fixated on diversifying their partnerships, especially towards Asia and, specifically, China. China is already a significant economic partner to the Gulf: in 2020, it replaced the European Union as the Gulf monarchies’ largest trading partner, with bilateral trade valued at $161.4 billion, and has invested close to $25 billion into the monarchies over the past 17 years.
Saudi Arabia, the United Arab Emirates (UAE), and Oman have all signed strategic partnership agreements with Beijing. China has invested in the ports and free trade zones of Jebel Ali (UAE) and Duqm (Oman), and acquired, via Cosco Shipping Ports, a 20 per cent stake in Saudi Arabia’s Red Sea Gateway Terminal – the largest terminal at the Jeddah Islamic Port, which is the largest port in the country. Despite a general substantial slow-down of funds through China’s Belt and Road Initiative (BRI) after the covid-19 pandemic, Beijing has made good on many of its BRI pledges to Saudi Arabia. Last year, while countries like Egypt saw investments fall to zero, Saudi Arabia was the single largest recipient of funds branded as BRI, receiving around $5.5 billion.
But Beijing also has a strong appeal to the Gulf with its much-flaunted vision of the Arabian Peninsula as a region of crucial long-term geostrategic relevance for global connectivity and of the monarchies – especially Saudi Arabia – as the leaders of and door-openers to the wider Arab and Islamic world. China has ostensibly positioned itself as an equal to the Gulf monarchies, all the while maintaining that Washington’s posture towards the region is characterised by instrumentalism and arrogance. On a rhetorical level at least, China and the Gulf monarchies share a vision of a multipolar world order, in which preserving and expanding globalisation and connectivity are priorities. Although Beijing increasingly uses economic coercion to manage tensions with third countries such as the US that, unlike the Gulf monarchies, are clearly aligned against it, China claims to be an advocate of multilateralism and an opponent of the so-called cold war mentality.
This appeals to the Gulf monarchies, which are particularly concerned that the West may impose sanctions on China – as it did on Russia – because of the growing tensions in the Taiwan Strait. Given their economic relations with China, such a scenario would deal a severe blow to the monarchies’ economies.
These concerns pushed Riyadh and Beijing to discuss trading energy in currencies other than the US dollar back in December, with Saudi Arabia now also considering issuing more non-dollar bonds. Saudi Arabia may also de-peg its currency from the US dollar and anchor it to a basket of currencies, which would allow it to actively challenge US trade or financial measures without imposing dire costs on its own finances. The UAE and China have also begun pilot projects to settle energy trade directly in digital currencies.
These projects should be understood as an attempt to shield China-Gulf relations from potential economic coercion, especially in strategic domains such as energy. Indeed, China-GCC energy ties border on mutual dependency. Since 2019, China has been the main buyer of Saudi crude oil, as Riyadh sends on average over one quarter of its oil to China. Conversely, Saudi Arabia is the most important energy supplier for China, covering approximately one fifth of Chinese demands. Oman, Kuwait, and the UAE are all among the top ten Chinese energy suppliers. China is also among the key customers for Qatar’s gas, and in November 2022, Qatar Energy signed a 27-year deal to supply China’s oil and gas company Sinopec with 4 million tonnes of liquefied natural gas (LNG) – the longest-term LNG agreement to date. But deals with China are so financially attractive that the Gulf monarchies are only partially looking at the related vulnerabilities. For example, Beijing has been buying more and more Russian and Iranian oil and gas below market price. In 2022, Russian crude oil exports to China grew by 8 per cent on a year-on-year basis, approaching Saudi volumes. Should the talks for a nuclear deal with Iran collapse, as they seem likely to, China can be expected to capitalise on under-priced Iranian oil, reducing its demand for oil from the GCC.
Given their broader cooperation, it may be surprising that Xi’s trip to Saudi Arabia failed to accomplish the priority on his agenda: signing a China-GCC free trade agreement, which has been under negotiation since 2004. In fact, GCC leaders have shown some reluctance to trust Beijing, wary of past experiences, including predatory clauses on the repayment of Chinese investments in Oman, or Beijing’s tendency to take its companies and employees to work on projects instead of creating jobs locally. But despite GCC monarchies’ Western partners – first and foremost the US – amplifying these warnings, with the US working through diplomatic channels to highlight China’s untrustworthiness, GCC capitals showed a brazen willingness to cross US red lines in getting Chinese digital infrastructure, dismissing American concerns that these could become a back-door into Western defence systems. Huawei has become the leading player for 5G network development in the Gulf, overtaking its European competitor Nokia-Ericsson. And last year the UAE even walked away from a prized deal to acquire US-made F-35 fighter jets when Washington pressed Abu Dhabi to reverse its cooperation with Huawei.
The evolution of China-Gulf relations, and the outcome of the summits, shows the importance of multipolarity for the Gulf monarchies, who confidently reject the expectation to pick sides. It is clear that half-hearted, half-backed ultimatums from the US are unlikely to push the monarchies to reverse course on China. European governments should realise that in order to compete with China’s influence in the Gulf, they should focus on their own added value and reinforce their strengths – both as an economic and security partner – vis-à-vis the weaknesses of China’s offers. Fighting multipolarity in the Gulf is a waste of energy, and European capitals should instead embrace it. In addition to working more cohesively among themselves, they could reach out to other emerging actors in the region, such as India or Japan, to explore the potential for minilateral projects that can offer concrete alternatives to China while advancing specific shared interests.
The European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of their individual authors.