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

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.

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.