Xi Asserts China's Middle East Role as Iran Sanctions Lifted

(Bloomberg) -- President Xi Jinping will wade into the feud between Iran and Saudi Arabia on Tuesday with a Middle East tour that shows a new willingness by China to flex its diplomatic clout in one of the world’s most volatile regions.

Xi’s five-day swing through Riyadh, Cairo and Tehran represents the president’s first foray into the Middle East since taking power three years ago and marks 60 years of relations between Beijing and the Arab League. He’s also seeking to protect Chinese influence that accumulated in Iran during the country’s long isolation, with Xi becoming the first major world leader to visit since the U.S. and European Union lifted sanctions Saturday and cleared the way for its reemergence in the global economy.

The trip may show China playing a more hands-on peacemaking role as the Syrian conflict exports violence around the world, regional powers quarrel along sectarian lines and U.S. influence wanes. China doesn’t want more strife between Saudi Arabia -- its largest source of foreign oil -- and Iran, a potential strategic ally sitting at the crossroads of Xi’s Silk Road plan to build railways, pipelines and other infrastructure from Asia to Europe. He’ll be the first top Chinese leader to visit Iran since 2002.

“China has found itself increasingly enmeshed in the region’s conflicts and diplomatic disputes,” said Michael Singh, managing director at the Washington Institute for Near East Policy and a former regional adviser to the National Security Council. “Iran represents a strategic opportunity for China. As Beijing seeks to project power globally to secure its interests, Iran will be its most important partner in the Middle East."

Oil Suppliers

Chinese business interests in the region have been expanding for decades and the country is the top trading partner with all three nations on Xi’s tour. Saudi Arabia supplied China with 16 percent of its imported oil in 2014, according to the U.S. Energy Information Administration. More than 160 Chinese companies are operating in the country, the official Xinhua News Agency reported.

In Iran, Chinese interests prospered while sanctions over the country’s nuclear program blocked U.S. and European competitors from the market. China buys 40 percent of Iran’s oil exports and has become the country’s top source of capital and technology. Almost 100 Chinese companies have a presence there. With the sanctions lifted, China is counting on initiatives like the $40 billion Silk Road fund to counter an influx of competition. 

“China will face rivals in a market that heretofore was under sanctions and uncontested,” said Ali Vaez, an Istanbul- based senior Iran analyst with the International Crisis Group. "The timing of Xi’s visit in the wake of lifting the sanctions seems designed to ensure that China’s predominant position in the Iranian market is preserved."

Learning Process

In November, China Railway Corp., the national train operator, floated a proposal for a 3,200-kilometer (2,000 mile) high-spreed train to Tehran from China’s western region of Xinjiang. State-owned Chinese banks such as the Industrial & Commercial Bank of China Ltd. and the Bank of China Ltd. will be among the biggest beneficiaries as the removal of sanctions opens infrastructure financing, according to Bloomberg Intelligence. Closer ties with Iran also offer a chance to reduce China’s dependence on Saudi oil.

The Middle East trip is the latest illustration of Xi’s desire to build geopolitical influence commensurate with China’s status as the world’s second-largest economy. In the Middle East, Xi’s challenge is to promote stability and expand business ties without being dragged into the same bloody quagmires as the U.S.

“This leadership is taking a much more proactive approach, since maintaining stability in the Middle East is crucial for China and any major regional conflict will negatively impact China’s energy security,” said Li Guofu, who overseas Middle Eastern affairs at the government-run China Institute of International Studies. “China is still rather green in mediating Arab affairs, and the learning process can be slow and painful."

Historical Baggage

Concern over stability in the region prompted China to help broker the Iranian nuclear deal in July. China also supported a Security Council resolution condemning the Islamic State in November, after the group launched attacks in Paris and Beirut and announced the execution of a Chinese national. The government in Beijing is particularly concerned that Islamic extremism could spawn more unrest in Xinjiang, which is home to more than 10 million Uighur Muslims.

The Chinese hope their lack of "historical baggage" helps them mediate in the region, Li said. In the run up to Xi’s trip, Communist Party leaders have dispatched envoys to Egypt, Iran and Saudi Arabia. They’ve hosted both the Syrian Foreign Minister Walid al-Muallem and the country’s opposition leaders in Beijing. Last week, the government issued its first Arab policy paper, in which it vowed to deepen ties between the two sides.

Peacemaker Image

One question is how long China can maintain neutrality in the Middle East as its own growing economic and military clout puts it into increased strategic competition with the U.S. elsewhere in the world. 

That rivalry favors closer ties with Iran -- Washington’s long-time antagonist in the region -- than Saudi Arabia, said Timothy Heath, a senior international defense analyst with the RAND Corporation. Besides oil, Tehran offers a potential partner in Xi’s effort to challenge the Western-dominated international order.

“China may quietly lean towards Iran,” Heath said. "Publicly, however, China can be expected to present an even- handed approach to bolster its image as a peacemaker."

--With assistance from Nafeesa Syeed.

To contact the reporter on this story: Ting Shi in Hong Kong at tshi31@bloomberg.net. To contact the editors responsible for this story: Andrew Davis at abdavis@bloomberg.net Brendan Scott