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China’s Iran-Saudi agreement will have major implications for Australia

Dror Doron
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Published: 21 March 2023

Last updated: 5 March 2024

The surprise diplomatic announcement will have global implications, including for the world's largest liquid natural gas exporter — Australia.

The international community was caught off-guard when Iran and Saudi Arabia announced the renewal of diplomatic ties after seven years of high tensions between the two countries.

Even more surprising was the fact that the agreement was brokered by China, a relatively new player in the complex world of Middle East politics.

Interesting as it is from a global point of view, Australian readers might find the news of limited relevance.

However, that is far from being the case.

Three facts suggest that the agreement should be followed with close interest in Australia.

First, Australia is the world’s largest exporter of liquid natural gas (LNG).

Second, China is the world's largest importer of LNG, and around 40% of Australian LNG is exported to China, which makes it the largest consumer of Australian LNG.

Third, Iran holds the second largest natural gas reserve in the world and has a long-standing aspiration to become the major LNG exporter.

This information requires a deeper examination of the interests, motivations and implications of the Iran-Saudi deal.

Around 40% of Australian LNG is exported to China, which makes it the largest consumer of Australian LNG. Iran holds the second largest natural gas reserve in the world and wants to become the major LNG exporter.

China has a critical need to secure an undisturbed flow of energy to feed its internal market of growing energy demands. This has been its main motivation to enhance its involvement in the energy-rich Middle East. China probably wants to diverse its energy sources, thus minimising its dependence on suppliers aligned with the US, such as Australia.

Therefore, China’s intervention in the Middle East is based on interacting with all energy producers, putting aside their regional rivalries.

The Iranian-Saudi agreement is an unprecedented Chinese attempt to influence the region’s geo-strategic balance in favour of Beijing's interests. China’s stated foreign policy of not interfering in the internal domestic arenas of its counterparts (Iran and Saudi) is also helping Beijing create new spheres of influence.

As they promote regional stability and gain points on the international stage, while at the same time challenging American dominance in the Middle East, China’s leaders are simultaneously earning a benefit on two levels.

From the Iranian perspective, the agreement helps Teheran gain regional and international legitimacy, as well as helping to enhance its relationship with China, which is a potential huge market for Iranian energy.

The declaration of the agreement was announced almost a year after China signed a $US400 billion investment deal that would boost the Iranian economy for the next 25 years; and just a few weeks after the Iranian president’s first visit to China in 20 years.

These developments are critical for Tehran, which is under great economic pressure from sanctions imposed by the US administration. It may even be ready to reduce its military actions against Saudi interests, in an effort to acknowledge China’s expectations of regional stability.

The Saudi motivation in proceeding with the agreement is perhaps the most complex to understand.

Why would Saudi Arabia approach Tehran at a time when Iran is being blamed by the West for supplying weapons to Russia, and continues to supply the Houthi rebels in Yemen with weapons used to target Saudi soil? 

Why is a long-standing American partner allowing China a diplomatic achievement in the region?

The answer might be explained in terms of Saudi disillusionment. For years Riyadh has counted upon American protection from Iran’s regional expansion and the military threat it possesses.

With US foreign policy aimed at scaling down its direct involvement in the Middle East and refocus its attention on the Asian-Pacific, Washington was not able to prevent Tehran's growing influence in Syria, Lebanon, Iraq and Yemen in recent years.

With no political will to engage in another armed conflict in the Middle East - especially after the negative outcomes of the Afghan and Iraqi wars - the US now has limited tools to shape the future of the region in a way that will serve Saudi interests.

Of more importance, from the Saudi viewpoint, is the fact that the US cannot protect the kingdom from the direct military threat imposed by Iran.

In September 2019, Tehran carried out an unprecedented attack on Saudi oil infrastructures. Using cruise-missiles and UAVs (unmanned aerial vehicle), Iran’s pinpoint attack caused a 5% drop in global oil production and triggered a 20% surge in oil prices in the global markets.

The event caught the Saudis by surprise and exposed their oil industry’s vulnerability to Iran. The fact that US forces in the region were not able to prevent the attack and that Washington chose not to confront Iran over it, would have gone down badly in Riyadh.

In addition to the above, Iran's advances in its nuclear project have clearly demonstrated another aspect of Washington’s limitations in securing its goals.

In 2019, Tehran carried out an unprecedented attack on Saudi oil infrastructures. It triggered a 20% surge in oil prices in the global markets. The event caught the Saudis by surprise and exposed their oil industry’s vulnerability to Iran.

Current diplomatic and economic pressure doesn’t seem to be enough to stop Tehran’s continuous efforts to cement itself as a threshold nuclear state. Achieving this position will allow it even more freedom to carry out its long-standing goal of “exporting” the Shia Islamic revolution throughout the rest of the region.

From the Saudi point of view, the emergence of China as a new global force into the region poses an opportunity to recalculate its foreign policy stance.

The Chinese do not present themselves at the negotiation table brandishing values and moral-based conditions such as liberal and democratic reforms. While the US is reluctant to sell the Saudis ballistic missiles and civilian nuclear technologies, the Chinese are willing to do so, giving them potential influence over Iran in a way that the US lacks.

Thus, it appears a new regional architecture might be created in the Middle East. A diminished American involvement alongside a rising Chinese interest in the region has set the ground for a different set of calculations among its local actors.

Contrary to the American approach, its greater “realpolitik” and a hard-nosed economic interest-based policy might achieve a more pragmatic behaviour and promote regional stability, at least in the short term.

The Chinese do not present themselves at the negotiation table brandishing values and moral-based conditions such as liberal and democratic reforms.

However, it should not be expected to permanently resolve the traditional enmities between Iran and Saudi Arabia, which are rooted from a deep religious and cultural background differences, going back hundreds of years.

It is yet to be proven whether the new Chinese involvement in the Middle East will achieve its goals and meet Iranian-Saudi expectations. Nevertheless, the implications of these new policies will certainly reach beyond the borders of the Middle East.

It has the potential to reshape global energy markets, affect international nuclear non-proliferation regimes and add new complexities to the major power struggle between the US, its allies and China.

Photo: Saudi Arabia's Minister of State, Musaad bin Mohammed Al Aiban, left, Chinese diplomat Wang Yi, and Ali Shamkhani, secretary of Iran's Supreme National Security Council in Beijing on March 10 (China Daily/Reuters)

About the author

Dror Doron

Dror Doron is a senior political analyst specialising in the Middle East, who has worked for the last 17 years for the Israeli government as a research and analysis expert.

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