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Emergent opportunity

Outbreak of tensions between Iran and the US in the Middle East creates an opportunity for China to step in as a dominant regional power

Emergent opportunity

While the growing tensions between Iran and the United States are of deep concern to Asia-Pacific economies that look to the Gulf for energy supplies, China is keenly eyeing potential strategic gains from the current crisis. There are diplomatic opportunities on the cards for Beijing. When thousands of protesters demand an overhaul of Iraq's political system and raise slogans against foreign interference in Iraq, China is waiting patiently in order to expand its economic and diplomatic interests.

Though for China and other major Asia-Pacific economies, the implications of US-Iran tension are profoundly worrisome as they depend on the Gulf for more than half of their oil and more than a quarter of their liquefied natural gas supplies but China is composed as it has the guts to exploit the scenario for its benediction. After Iranian exports were hit by unilateral US sanctions last year, China turned to Iraq to fill the gap. But with Iraq being turned into a proxy battlefield by the US and Iran this time, any further escalation could cut off oil supplies through the Shatt al-Arab, the narrow waterway squeezed between the borders of Iran and Kuwait.

Political analysts focused on the region say the impact of an Iraqi shutdown would be mitigated by the existing global oil-supply glut. That means that if US forces based in the Gulf's Arab countries become involved, all oil export terminals in the region would become vulnerable to Iranian retaliation. The tension between the US and Iran might seem a little relaxed as of now but there is no denying of the fact that Iran will not keep quiet for a long time.

Immediately after the body of Quds Force commander Qassem Soleimani was laid to rest, Iran stepped up its confrontation with the United States by launching 22 ballistic missiles at two military bases used by American troops in Iraq. Iranian foreign affairs minister Javad Sharif described the response to the US assassination of Tehran's top general as a "proportionate measures in self-defence" and denied any further escalation. US President Donald Trump also seemed satisfied to let matters rest there because no US personnel were killed or injured in the Iranian missile attack. Trump said, "All is well" but knowing him, it is so for the time being.

The war between the US and Iran has been in the making for a long time. There were clear signals of walking towards a war-like situation when drones attacked two Saudi Aramco oil refineries in September, knocking out half of Saudi Arabia's export capacity for weeks. The attack was claimed by Yemen's Houthi rebels, who are funded and armed by the late Soleimani's Quds Force. However, a US investigation found that the drones had attacked from the north, the opposite direction to far-off Yemen, suggesting the airstrikes had been launched either from Iran or by its allied militias in Iraq. Before that, in May, four tankers moored at the UAE port of Fujairah, in the Gulf of Oman, were damaged by limpet mines. US made an intensive confidential investigation of this incident. The UAE reported at that time in the United Nations that the attack was the handiwork of an unnamed 'state actor', hinting at the involvement of Iran and the Quds Force.

Soleimani's Quds Force works under the overall guidance of the powerful Islamic Revolutionary Guard Corps (IRGC), which is a sort of parent organisation. Those who know about the internal preparedness of IRGC claim that the "next wave of Iranian strikes will be completely sweeping and much more effective". According to these sources, IRGC has identified Haifa in Israel and Dubai in the UAE as next on its target list. Supreme Leader of Iran, Ali Khamenei is waiting for President Hassan Rouhani to salvage the situation diplomatically, else he will signal the IRGC to go ahead with its plans. In Tehran's convoluted power structure, the IRGC acts as the cutting edge of the all-powerful ayatollahs and is not answerable to the elected government. Soleimani was especially close to Khamenei and clearly outranked Rouhani and his elected predecessors in the pecking order.

As the fallout of the present crisis will impact China predominantly, Beijing is attentively active behind the curtain. China's economic interests in the Gulf far exceeds its dependency on energy imports. Between 2000 and 2017, its trade with the six-member Gulf Cooperation Council (GCC) ballooned from US$10 billion a year to US$150 billion. Parallel to that, Chinese foreign direct investment in the GCC—which comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE—came to nearly US$90 billion between 2005 and 2017. Today, the size is much bigger. Likewise, China's bilateral trade with Iran surged from about US$2 billion in 2000 to some US$27 billion in 2017, while Chinese investments in the Islamic republic exceeded US$27 billion between 2005 and 2018.

Dubai, the Gulf's commercial capital, has become 'Hong Kong of the west. It is now home to more than 3,000 Chinese firms, compared with just 18 in 2005 and 300,000 Chinese nationals. China even enjoys a trade surplus with the UAE.

These firms from China have been positioned to exploit Dubai's standing as the region's aviation and maritime hub. Chinese nationals based there occupy an estimated 30 per cent of all Africa-bound flights operated by Emirates and other airlines, with Dubai seen as a base for Chinese firms to pursue their extensive economic interests in Africa.

The IRGC's identification of Dubai and Haifa as targets highlights China's growing exposure to the Middle East conflicts. Analysts say the brewing situation in the Gulf, along with Trump's vow to pull US forces out of the region, will force China to take a more prominent role. Uncertainty about the US' role in the region makes it natural that China will start to take more responsibility for securing its interests in the Middle East. Under Chinese President Xi Jinping, Beijing has established strong relationships on both sides of the Persian Gulf. China's role as a trusted second-tier actor in the region was instrumental in persuading Iran to agree to the 2015 nuclear deal.

The situation in the region remains highly volatile and subject to the whims of Trump and Iran's ayatollahs. Iran has not yet fully figured out how to respond to Soleimani's death. But it was under pressure to do something quickly and so is engaged in a very cautious symbolic move. Actual retaliatory attacks via proxies are still to come. Equally, the behaviour of the current US administration has severely hampered opportunities for diplomacy to function.

China will have little choice but to deploy additional naval assets in the western Indian Ocean if diplomacy fails. The additional ships would use China's military base in the tiny Red Sea state of Djibouti, which also hosts American, French, Italian and Japanese naval facilities. From there, the PLA Navy could provide escorts to Chinese-owned tankers and container ships passing through the region's two strategic chokepoints: the Strait of Hormuz at the mouth of the Persian Gulf and Bab el-Mandeb, the entrance to the Red Sea. China will continue to play both sides of the Persian Gulf divide, reaping long-term, strategic gains from America's misadventures in the Middle East.

Pankaj Sharma is Editor & CEO of News Views India and a national office bearer of the Congress party. Views expressed are strictly personal

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