by Vali Nasr
Iran, as the Chinese are keenly aware, is also rich in oil and gas. It holds 10.3 percent of the world’s proven oil reserves and 15.8 percent of its gas reserves (second in size only to Russia’s). In 2010, China was Iran’s largest energy customer (accounting for 16.2 percent of Iran’s energy exports), and Iran was China’s largest energy supplier (accounting for 17.4 percent of China’s energy imports). These numbers have grown since sanctions have cut Iranian energy exports to Europe and the rest of Asia. The Chinese too cut some of their formal oil imports from Iran, but that drop is more than made up for by off-the-books exports of Iranian oil to China via Iraq and some of it through Dubai.
More important, Iran has the only major oil and gas reserves in the region that are outside Western multinational control. It presents Chinese state-controlled oil companies with a unique opportunity to build “upstream” capabilities. China has signed on to develop the North Azadegan oil field and to explore for natural gas offshore in the North Pars field under the Persian Gulf.
Then there are the deepening economic ties that have unfolded apace with tightening Western sanctions. As Western businesses left, Iran turned to China to fill the void. Chinese goods flowed into Iran to replace European, Japanese, and Korean imports. Chinese oil conglomerates stepped in to take over energy and infrastructure contracts abandoned by French and Japanese companies. Iranians did not like the China option, but they had no other recourse. Iran’s bureaucrats doubt that Chinese companies can get the job done—the North Azadegan field is five years behind production schedule, and China’s record exploring oil and gas in the South China Sea has not inspired confidence either. Many Iranians, moreover, find the Chinese hard to work with—the cultural gap is wider than the one that separates Persians from Europeans. Despite their legendary toughness and wiliness as negotiators, Iranian businessmen find that their Chinese partners give less and squeeze more and drive exceptionally hard bargains. But China is willing to do business with Iran when no one else will, and the Iranians have nowhere else to turn.
Since 2009, China has emerged as Iran’s largest trading partner. Bilateral trade between the two countries is estimated at $40 billion in 2012, and a good portion of China’s surging trade with the UAE actually consists of goods that are promptly reexported to Iran—worth an estimated $7 billion this year alone. China pays Iran in yuan for its oil, depositing the money in Chinese banks. Iran’s Central Bank keeps those yuans in China and sells them to Iranian businessmen, who then convert their Chinese currency into dollars and euros in order to do business in the international market.
Many Iranian manufacturers have now shifted all their production to China. A maker of kitchen utensils for the Iranian home market explained to me that he had had to shutter his factory in Iran because he could not obtain letters of credit in Western currencies and could not afford the high cost of energy and imports. He moved his production to China. He now ships his Chinese-made products back to Iran through Dubai and as a “Chinese” manufacturer is able to sell to a far broader market in the Middle East and Africa. He himself is prospering, but the Iranians who used to work for him back home are jobless. The sanctions have not stopped the nuclear program, but they have made Iran economically dependent on China. Could strategic dependence follow?
Washington sees its Iran policy as something separate from the pressure applied to Pakistan, but the fact is that U.S. policy is pushing the two isolated countries closer to each other just as it is confirming Chinese domination over their economies. Iran and Pakistan are to China’s Asia strategy what Vietnam and India are to America’s. The two countries, both with significant influence in Afghanistan and Central Asia, could serve as pillars of China’s “Silk Road strategy.” By establishing control over post-American Afghanistan, they could help see to it that Central Asian riches could get to Persian Gulf and Arabian Sea ports or go through overland pipelines into China. Add Turkey to the Iran-Pakistan duo, and China will have secured economic hegemony over a vast region that stretches from the northwest borders of India to the southeast corner of Europe.
We view Iran and Pakistan today antagonistically. Through the narrow lens of our current regional priorities they look menacing, and so we have isolated Iran and alienated Pakistan—and still failed to change them. But our priority will soon be China, and that means it will not be in our interest to leave these countries out in the cold to serve as pillars of China’s power play in the Middle East. Addressing China’s challenge requires us to build bridges, not push away Iran and Pakistan.
The region will not be better off under China’s thumb. Indeed, it is not as a favor to our regional allies that we should keep our presence there. It is because by staying there in a meaningful way (not just with jet fighters and aircraft carriers but through economic and civilian engagement) we would be denying China dominance. We would also be sitting in a chokehold position next to China’s energy lifeline—something that the Chinese have been trying to avoid. Chinese leaders may believe in their country’s peaceful rise and discount the conflict-rousing implications of their mercantilism, but they also believe that America’s intentions are not peaceful. That could mean military confrontation down the road, and short of that, it could mean serious friction with implications for both the American and Chinese economies—a new kind of cold war.
In the short run, China is content with the U.S. security dividend. American military power, diplomacy, and development aid keep the Persian Gulf and the broader Middle East in some semblance of order. To keep Washington happy—and dissuade America from creating instability—Beijing is willing to provide the United States with measured support on Iran and Pakistan. Beijing would not like to see Iranian obduracy or Pakistani adventurism invite greater American military involvement in the region. Resistance to America on the part of Saddam Hussein’s Iraq and Taliban-run Afghanistan led not to less but to more American presence in the region. The fruit of an American war with Iran or Pakistan would be regional instability and (eventually) governments in Tehran and Islamabad that would be closer to Washington than Beijing (Maliki and Karzai’s governments in Iraq and Afghanistan are undeniable evidence here). That would not serve Chinese interests. It is better for Beijing if for now Iran and Pakistan give in far enough to international pressure to keep America at bay.
Stability in the Middle East is good for China because it should help hold down the price of oil. America was once a source of that stability, but its policies, and more so its talk of a desire to unburden itself of the Middle East, are now fueling jitteriness in oil markets. For Beijing, U.S. policy represents a potential source of what economists call “externalities.” In other words, if the United States shifts its policy toward confrontation and away from stability in the Persian Gulf region, China will have to pay the resulting higher-risk premium on oil. This will erase some of China’s comparative trade advantage. Beijing does not want to see this happen. In the short run, therefore, it advises Iran and Pakistan to keep things cool and avoid raising tensions with America. In the longer run, it may mean that China would welcome a smaller U.S. role in the region.
China’s tactical support of U.S. aims sometimes looks to Washington like a convergence of interests. For example, concerned with possible American military strikes against Iran’s nuclear program, China signed on to UN sanctions and leaned on Tehran to take its talks with the P5+1 seriously. Similarly, as U.S. relations with Pakistan frayed in 2011 and 2012, putting Pakistan’s stability at risk and raising serious prospects of a clash between Washington and Islamabad, China turned away Pakistani requests for aid, lobbied Islamabad to make up with Washington, and dropped its usual cagey stance in order to agree to informal talks with America on Pakistan.
America looks to China for help in managing Iran and Pakistan, whereas China sees Iran and Pakistan as part of its policy of managing America. If America were not in the Middle East, China would not feel the compulsion to placate Washington; it would more brazenly protect its narrow economic interes
ts—and the costs to America (and its allies) could really add up.
China could start by cutting India’s access to energy and markets in Central Asia and the Middle East, doing to India what China fears America could do to it. Japan and South Korea could suffer too. All the talk these days in American foreign policy circles is about how to leverage U.S. relations with Japan and South Korea to pressure China. But those two Asian countries depend on the same Middle Eastern energy sources as China, and the more China’s influence grows in the Middle East the more they will have to fall in line with China to protect their energy supply. If America wants Japan and South Korea to stay independent of China and be able to stand up to Beijing, then it must protect Tokyo and Seoul’s position in the Middle East—not from the Arab suppliers, but from China.
Over time, a region dominated by China will begin to look like China. Its push into the broader Middle East in search of energy and markets will shape that region in China’s image: illiberal and mercantilist. For its part, America has laid its chips on the Gulf’s Arab monarchies (no liberal bastions themselves). China looks to them, too, to sell it oil and gas, but the pillars of China’s Middle Eastern strategy are Turkey, Iran, and Pakistan—the Northern Tier countries that America befriended during the Cold War. In those years, Washington took up London’s old position in what Rudyard Kipling famously called “the great game,” which was to keep Moscow away from the warm waters of the Mediterranean Sea and the Indian Ocean, and don’t let the Russian bear get his paws on the oil fields of the Middle East. Now China is rebuilding old Northern Tier multilateral organizations for its own strategic ends.
The SCO seeks to achieve this end. Both Iran and Pakistan belong to the SCO. The organization’s June 2012 meeting was dedicated to discussing regional security in the Afghanistan-Pakistan corridor and to expanding Chinese-Russian cooperation on economic issues in Central Asia in anticipation of the U.S. withdrawal from Afghanistan.
In one way after another, America is pushing the Middle East further into China’s bosom. More broadly, it seems, America has done all the fighting while China has done all the business. For more than a decade now, America has poured blood and treasure into Afghanistan to defeat the Taliban and pacify the country. But once mineral riches were discovered in an Afghanistan now made safer for geological exploration by U.S. and NATO involvement, who got the first mining contract? China, which also promised to build highway and rail routes for shipping copper ore—to China. It is the same story in Iran and Pakistan. America wrestles with thorny security problems, while the Chinese ink deals.
What would be the upshot if America remained fully engaged in the Middle East? What would that mean for China’s role in the region, and for our relations with China? We could protect the region from China’s heavy hand and from illiberal institutions that it would promote and support. We could ensure our Asian allies’ access to steady energy supplies, and in the process limit China’s ability to realize its broader strategic interests in Asia and globally.
American presence in the Middle East at a time when China too is expanding there would force China to abide by international rules and institutions of the kind they have had to submit to in the Asia-Pacific. That would enforce America’s larger goal of persuading the rising giant to live within the bounds of a rules-based system—the one based on Western liberal values and reflecting the fundamental tenets of the international system. To that end we should be building multilateral institutions in the Middle East of the kind we have built and supported in Asia, such as ASEAN, Asia-Pacific Economic Cooperation, and the East Asia Summit—which China is doing in the form of SCO—rather than leave the region to its own fate. Those institutions would promote stability and also entrench rules and norms necessary to the orderly conduct of regional politics. Once we have built those institutions we should encourage China to join and to participate in regional security, diplomatic and economic discussions, and collective management. Just as China links what is happening in the South China Sea to developments in Pakistan or Iran, we should link Chinese actions in the Middle East to American relations in Asia and vice versa.
James Fallows writes of China’s rise, “Either the growing power of the Chinese economy will change the rest of the international system, effectively making it more Chinese, or the growing prosperity of the Chinese people will change their own country’s system, making it more international.”73 That is how our deeper engagement in the Middle East can have an impact: encouraging China to become international rather than allowing the Middle East to become Chinese.
We have the requisite military muscle and economic and political influence today to see to the orderly expansion of China’s role in the region; we should put this capability to good use.
America does not need to pivot to Asia geographically; it needs to do so conceptually. That means it must recognize the Middle East as an integral part of Asia. In 2010, Hillary Clinton took the bold step of challenging China’s claim to the South China Sea. In a speech at the ASEAN meeting in Vietnam, she defended all nations’ right of access to that body of water. She added that it was a right that America was prepared to defend and finished by saying that all disputes should be settled through multilateral talks. That doughty stance on behalf of the liberal world order—“freedom of the seas” is among the great principles of classical liberalism—caused several nations in the region to take heart, show greater independence vis-à-vis China, and move closer to America.74 The same bold thinking that governs America’s China policy in East Asia should govern its approach to West Asia. China, more than counterterrorism and nuclear fear, should be the bedrock of America’s Middle East strategy in the twenty-first century.
CONCLUSION: AMERICA, THE PIVOTAL NATION
There is a great debate these days about whether America is declining.1 Those who warn that our best days are behind us blame this reversal of fortune—the loss of our superpower status, economic dominance, and unrivaled leadership in the world—on economic troubles at home,2 imperial overreach abroad, or simply the fact that we are no longer alone in the pole position—there is China and its fellow BRIC (Brazil-Russia-India-China, a popular shorthand for rapidly growing economies) pack aspirants to great power nibbling at our heels.3
We have economic problems at home, to be sure, but we are still the world’s largest economy and have the strongest military, and the idea of emerging markets supplanting America on the world scene is for now more fantasy than reality. We still have all the ingredients for global leadership,4 and we certainly talk of how much our place in the world matters to us. The problem is that none of that is reflected in how we do business.
I don’t believe America is declining. Far from it. Rather than why we are declining, the question everyone should be asking is why, despite our overwhelming power and potential, our influence is diminishing.5 The answer lies in how we exercise our power and how we see our role in the world.
If we see global leadership slipping from our grasp, it is not because our economy was in recession for much of the past four years but because we have been uncertain about our role in the world. Over the past decade, first our exclusively military approach to foreign policy making did great damage to our reputation, and now the inconsistency evident in how we pursue our interests has cast doubt on our leadership. Our aim for the past four years has been to engage less, do less, and have a smaller footprint. But then we should be prepared to also matter less and influence less—to become irrelevant to outcomes, be they large or small. It has been a losing proposition for us, and that should matter to us. So it is that in the past decade we have gone from leading everywhere to leading nowhere. That is the surprising epilogue to our decade-long foray into the Middle East.
America should not settle for this result. American leadership is still critical to the stability of the world order and the health of the global economy—to expansion of trade and the continued development and prosperity of nations. There is no other power today that could play
America’s role on the world stage or is willing to step into America’s shoes. Nor would the world be better off were that to happen, or even if any and all of the rising BRIC nations and those following in their footsteps tried their hands at it. The world America has built still needs America to lead it. America remains the world’s pivotal nation.
But the world has changed and is changing still, and so should American leadership. The frustration Americans feel when they tally the cost of their foreign adventures only to see them fail is understandable. Too often in the recent past we have led with our military. That has been costly and fruitless. In the Middle East, in particular, where American leadership was put to the test in the past decade, that approach has been disastrous.
Rather than shun leadership in the world, it is time to think differently of how we approach influencing its affairs. It is time we returned diplomacy and economic engagement to their rightful place. Those facets of American power were central to its leadership in the past—defining both our vision and audacity—and they should be so again in the future.
Our world has been shaped by bold acts of American statesmanship. Harry Truman won the future for the free world with a massive commitment of American power and resources to build a transatlantic alliance that successfully contained and defeated the Soviet Union. George H. W. Bush similarly pushed hard for German unification, a risky proposition that at first even Germans were wary of. Successfully contending with the challenges that the greater Middle East poses to American security demands similar bold American leadership, the willingness to embrace a clear strategy and commit the full measure of American power to realizing it.
