Belt & Road initiative: The Middle East’s growing role?

Dr. Naser al-Tamimi
Dr. Naser al-Tamimi
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Since Chinese President Xi Jinping launched the Belt & Road initiative (BRI) in 2013, the MENA region has been expected to play a crucial role in facilitating this ambitious project. In this context, ties between China and the MENA region are projected to grow steadily and diversify over the coming decade as the forces for further engagement still very strong.

One of the driving factors of BRI is to secure access for China to energy resources that power its economy. Today, MENA countries supply China with one in every two barrels of Beijing's total crude imports. Over the last decade (2006 - 2016), China's oil imports from MENA region have jumped significantly from around 1.4 million barrel per day (mb/d) in 2006 to over 3.8 mb/d, which was more than 50 percent of China's total oil imports by the end of 2016. Tellingly, of China's top ten oil suppliers, five were from MENA region, Saudi Arabia, Iraq, Oman, Iran and Kuwait respectively.

Saudi Arabia has been China's largest source of oil imports since 2002 (except for 2016) and accounted for nearly 14 percent of China's total crude oil imports in the first quarter of 2017. Whilst Qatar supplied China with almost 1.82 million-ton (23.4 percent) of its total liquefied natural gas (LNG) imports, becoming Beijing's 2nd largest supplier behind Australia.

China's spectacular economic development in last three decades has been accompanied by a sharp increase in oil demand. China's share in global oil consumption rose from less than 4 per cent in 1993 (since the country became an oil importer) to about 12.3 percent by the end-2016. In the process, MENA region became the center of gravity of Chinese energy activities, largely as a result of their severe crude oil reserves, production and export capacity, but also because of their markets and economic opportunities. As a result, the two-way trade between MENA and China has increased over the last decade (2006-2014) almost 3-fold from $116 billion (bn) in 2006 to over $334 bn (55 percent with GCC countries) in 2014.

Yet, China-MENA relations have been mainly restricted to energy exports (oil, petroleum products and petrochemical), Chinese manufacturing goods and limited cross-investments. Certainly, the decline in global energy prices has hit the trade between MENA region and China very hard. The volume between the two sides dropped significantly to $231.2 bn in 2016, a decline of nearly 13 per cent from the previous year, and almost 30 percent since 2014, when the oil prices started to decline.

Relations between China and MENA region are expected to grow steadily and diversify over the coming years as a result of two important factors.

Dr. Naser al-Tamimi

Nevertheless, relations between China and MENA region are expected to grow steadily and diversify over the coming years as a result of two important factors. First, there is strong political will on both sides to improve their relations at all levels. Secondly, in the next two decades China’s energy imports are projected to rise significantly and in return this could increase MENA region exports, particularly oil, liquefied natural gas (LNG) and other energy products.

Oil silk road

Since China became a net oil importer its oil consumption rose dramatically to nearly quadruple in only twenty years, increasing from 2.9 mb/d in 1993 to 11.9 mb/d in 2016 and could jump ( to over 14.8 mb/d by 2030, almost 22.6 percent. Thus, oil imports have also rapidly increased, rising from zero in 1993 to more than 64 per cent of China's total oil supply or around 7.6 mb/d in 2016, according to Chinese official data.

The supplies from MENA countries exceeded in 2016 more than a half the Chinese crude oil imports or 3.8 million barrel per day mb/d (over 2.3 mb/d from GCC countries) out of 7.6 mb/d making the region critical to the Chinese economy. As for future, the International Energy Agency (IEA) expects China's crude oil imports to rise by about 1.8 mb/d by 2022. In the long term, BP's latest forecast (Energy Outlook 2035) predicts that global liquids demand (oil, biofuels, and other liquid fuels) could increase by 15 mb/d to reach 110 mb/d by 2035, with China is projected to account for half of that growth.

Meanwhile, China's oil-import dependence will rise from 64 per cent in 2016 to 79 per cent in 2035 - higher than the United States at its peak in 2005. With China expected to remain the primary importer of MENA oil for the foreseeable future, both sides will have strong incentives to deepen their political and economic relations.

Infrastructures opportunities

Aside from energy, the increasing participation by Chinese contractors in MENA region (including Turkey, Iran and Israel) is already becoming more evident. According to the "China Global Investment Tracker", which measures China's investments and contracts worldwide, the Chinese have scattered $177.5 bn into MENA region (nearly the third of it or 57.2 invested in GCC countries) of which nearly 80 per cent went to three sectors including energy sector ($71.4 bn), transport ($42.4 bn) and real estate ($26.7 bn). The rest was invested in other sectors such as agriculture, metals, transport and chemicals between 2005 and January 2017.

However, to put these figures in perspective, China's investment in MENA region represents almost 12 percent of China's total investment in the world or $1485.9 bn to put the region in 3rd place after Asia and Europe, yet remain a significant share. BMI Research's "Key Projects Database" also shows that out of 413 projects identified to date (March 2017) as sponsored by China and in alignment with Belt & Road Initiative (BRI) goals, 50 projects (12 percent) were in MENA region.

Importantly, Beijing is expanding presence in MENA region and giving more importance of securing maritime lanes for its trade. In this context, the Chinese companies are stepping up their presence in the MENA region by acquiring, building, modernizing, expanding and operating ports and terminals in Dubai, Saudi Arabia, Egypt, Algeria, Turkey and Israel and Djibouti. Looking forward, BMI Research noted in a recent report that "Chinese companies will be drawn to MENA for two primary reasons. On the one hand, the region will continue to be home to a wealth of such diverse, high value project opportunities; On the other, MENA features prominently in China's Belt and Road initiative".

Against this backdrop, there are also several factors that may adversely affect the development of relations between China and MEANA region including; China's economic slow-down, terrorism, and political stability in several MENA countries.

Dr. Naser AL-Tamimi is an independent UK-based Middle East researcher, political analyst, and commentator with particular research interests in energy politics and Gulf-Asia relations. AL-Tamimi is the author of the book, (China-Saudi Arabia Relations, 1990-2012: Marriage of Convenience or Strategic Alliance? Routledge, 2014). He has also carried out extensive research on various aspects of Middle East-China/Asia relations, Saudi Arabia in particular. AL-Tamimi has worked for numerous Arab media and academic institutions, in the United Kingdom and a number of Arab countries and has written several articles, papers, and chapters in English and Arabic, (available at: ) on the most pertinent political and economic issues affecting the Middle East. The writer can be reached at: Twitter: @nasertamimi or @chinaarabnews and email: [email protected]

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