Middle East: A New Order?

China's massive investments in international businesses and infrastructure initiatives seem to be paying off politically and economically.

Having been one of the few countries to recognize Taiwan as a state, Honduras cut diplomatic ties with the island on Sunday (Mar 26). In addition to a coup for China, which considers Taiwan part of its jurisdiction, the change in allegiance would signal a decline in American power in Latin America, since Taiwan has long been supported by the United States.

Days before Xi Jinping flew into Moscow to discuss the Ukraine war with Russian President Vladimir Putin, China brokered a deal between Iran and Saudi Arabia.

It was aimed at de-escalating tensions and bringing more stability to the Middle East by re-establishing diplomatic, trade, and security relations between Iran and Saudi Arabia.

Through this agreement, China's involvement in the region moves away from purely commercial interests to security-related cooperation that can protect its growing assets and expatriate population.

A RISING INFLUENCE OVER THE MIDDLE EAST

The agreement is seen as a positive step, but analysts wonder if Iran and Saudi Arabia can lessen the internal conflicts in several nearby countries, particularly in Lebanon, Syria, and Yemen.

China's rising influence and the United States' waning influence over the Middle East regional order are highlighted by the deal.

Political instability in neighboring countries negatively impacts a nation's economic performance by disrupting trade flows and increasing defense expenditures, while reducing education investment, for example.

Peacefully resolving conflicts benefits countries not directly involved in the conflict under such circumstances.

In the Arab region as a whole, China has gradually grown to be the largest trading partner and Saudi Arabia's top partner since the 1990s. In 1995, China exported US$905 million to Saudi Arabia, whereas by 2020, it will export US$31.8 billion.

As a result, China's imports from Saudi Arabia increased from US$393 million to US$33.4 billion, an increase of 19.4 percent on average. China and Saudi Arabia signed 35 trade and investment agreements in 2019.

TRADE RELATIONS STRENGTHENED

Between 1995 (US$197 million) and 2020 (US$5.85 billion), China's exports to Iran have increased by an average 14.7% annual rate. Its imports from Iran have also increased by 14.5% annually.

Russia recently surpassed China as Iran's largest foreign investor, but China remains its largest oil customer. Exports totaled US$9.44 billion by 2022.

The main exports of China to Saudi Arabia and Iran are broadcasting equipment, motor vehicles, and air pumps, while its main imports are crude petroleum, ethylene polymers, and acrylic alcohol.

Trade with China is likely to continue to increase as the Saudi-Arabian and Iranian reconciliation continue. As regional stability increases, China could also benefit economically from economic relations with other countries in the region if the agreement spreads to other countries.

Several positive spillovers have already occurred since the deal with the Saudis. Iran is ready to expand cooperation, hopes to rapprochement with Bahrain, and is willing to improve relations with Jordan.

While some commentators point out that previous efforts at reconciliation between Iran and Saudi Arabia have failed, others question whether they will adhere to the terms.

BELT AND ROAD BOOSTING

As well as investing in commercial and transport infrastructure to make trade easier, China's Belt and Road Initiative aims to strengthen its economic leadership and develop free trade blocks among countries along the investment route.

Boosting the dividends of the initiative will be another benefit of the Iran-Saudi Arabia agreement for China. In addition to providing China with a reliable alternative route to energy supplies, Saudi Arabia's strategic location borders eight countries, making it a vital partner for infrastructure investment that deepens China's Middle East presence.

In addition to its strategic position, Iran has the potential to develop an air transportation hub. China has already invested in a 3,200-kilometer railway connecting the capital of Xinjiang with Tehran.

With Russia at war, China needs to ensure the continuity of its energy supply to boost economic performance and maintain societal stability.

Iran and Saudi Arabia provide China with a solid foundation for diversifying its energy sources and also preventing the United States from restricting its access to the Gulf.

It has the fourth largest oil reserves and the second largest gas reserves in the world, and Saudi Arabia has the second largest oil reserves, accounting for 16.2 percent of the world's total. In the context of a more stable region, China will be able to receive more energy supplies in the future.

China could become a global maritime power and a global monetary power through the Iran-Saudi initiative, which would address its energy security issues. China's economic growth will be sustained and its status as a superpower will be enhanced by all of these factors.