The International Relations and Security Network - 19 March 2014
By
Ted C. Liu
for FRIDE
Public Domain Public Domain How will traditional oil producers in the greater Middle East offset the rise of shale oil and other unconventional sources of energy? Look no further than the world’s emerging powers, argues Ted Liu. However, China’s investments in the region will definitely alter its balance of power.
Although Iran’s economic relationship with China has been
historically based on the oil and gas trade, international sanctions and
China’s increased economic significance have altered these countries’
trade relations. While often inferior in quality, cheaper Chinese goods
are now more accessible to Iranian consumers than the country’s
traditional reliance on European products. Previously, Germany, Italy
and Greece were Iran’s top trading partners. Presently, China is the top
destination for Iranian exports while Chinese imports in Iran are
second only to those from the United Arab Emirates (UAE). According to a
Massachusetts Institute of Technology (MIT) index, oil makes up most of
Iranian exports to China while Iran imports mostly automobiles,
industrial equipment and consumer goods from China. Increasingly,
Chinese firms are winning contracts for key infrastructure projects,
such as Tehran’s metro system and the Sadr expressway expansion project.
Yet even as trade expands between the two countries, both face
challenges: Beijing must carefully navigate international sanctions on
Iran even as it uses Chinese goods to barter for Iranian oil, while
Iran’s dependence on trade with China leaves the Iranian economy highly
undiversified and threatens its nonoil sectors.
Egypt’s large population provides a consumer market for inexpensive
Chinese products and the country’s strategic assets can also further
China’s interests in the region. As Chinese exports to Egypt surpassed
those from the United States in 2011, Egypt in return can offer China
economic and geopolitical influence in Africa and the Middle East. As a
traditionally influential player in the Arab world, a closer
relationship with Egypt could buy China political goodwill in the
region, but may also facilitate practical benefits such as expedited
access to the Suez Canal for Chinese commercial vessels and warships. By
developing a working partnership with the Morsi government, Chinese
efforts initially produced increased bilateral trade with Egypt.
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