Some Thoughts on the Current Situation in Middle East

Hua Liming Former Chinese Ambassador to Iran, U and Holand, and Former Permanent Representative of China to the Organization for the Prohibition of Chemical Weapons(OPCW)
Historic changes have taken place in the Middle East since the Arab Spring in 2011: the rise of Islamic extremism represented by ISIS, de facto disintegration of Iraq and Syria, Saudi Arabia and Turkey replacing Egypt as leaders of the Arab world, the Palestine-Israel conflict put on the back burner and the rapid rise of Iran. While the US seems caught in a dilemma, Russia is returning to this region with great vehemence. The Middle East is as unsettling as ever, but the dynamics have shifted profoundly.
I. Putting the Shifts in Perspective
1. The US is pivoting towards the East. In the post-War era, the US invested more strategic resources in the Middle East than in any other region in the world. It is with intense, large-scale input over half a century that the US maintained its dominance in the region. Since the turn of the century, as the world political and economic gravity shifts towards the Asia-Pacific, coupled with the wars in Afghanistan and Iraq and the financial crisis, the US began to rebalance its global strategy: pivot to the Asia-Pacific; limit and roll back input in the Middle East. Since the very beginning of the Obama administration in early 2009, the centerpiece of the White House policy on the Middle East has been withdrawal from Iraq and Afghanistan, easing the tension between Palestine and Israel and focusing more on Iran. The rationale is to replace a policy with high input, high risks and high return with one that features “smart diplomacy” and strategic “outsourcing”. Nonetheless, in a region fraught with complexities and uncertainties, the US is now facing a real dilemma: on the one hand, it is trying to shun massive input; on the other hand, it is also reluctant to give away its dominance in the region. As a result of diminishing intervention from the outside, regional powers such as Israel, Iran, Saudi Arabia and Turkey will be caught in even more intense wrangle, adding more uncertainties and destabilizing factors to the region.
2. The world energy landscape is also evolving. The shale gas revolution has increasingly made the US a major energy producer in the world. America’s energy independence is adding a twist to oil trade in the Middle East. The majority of oil and gas from the Middle East go to East Asia, which is at the same time exporting more goods to the Middle East. The US, on the other hand, seems less capable and committed in providing military and security safeguards to this region. Given that most oil is traded in dollars, there is asymmetry between America's rights and obligations, which is sure to challenge the dominance of the dollar. As the most important energy producer in the world, the Middle East is bound to bear the brunt of upheavals in the world energy landscape.
Exploiting the US troops' withdrawal from Iraq and the Syrian war, ISIS has grown by leaps and bounds. America’s compromise on the nuclear agreement with Iran, disgruntling Israel and Saudi Arabia while improving ties with Iran, has impaired the US relations with Israel and Saudi Arabia. In Syria, the US is fighting Bashar al-Assad and ISIS at the same time, and progress seems elusive on both fronts. As Russia began air strikes in Syria, another round of US-Russia tussle is starting in addition to what happened in Ukraine.
The current US wrangle with Russia in the Middle East is different from that with the Soviet Union during the Cold War when both powers were at their prime time. Today, America’s dominance in global affairs, especially in the Middle East, is diminishing. Russia’s involvement in Syria seems more like a desperate struggle out of domestic and external difficulties. So the mostly likely outcome of this wrangle is another round of compromise in the Middle East.
II. Turf War among Regional Powers
Throughout its history, the Middle East has never been short of major powers. Iran, Saudi Arabia and Turkey see themselves as heirs of the Persian Empire, the Arab Empire and the Ottoman Empire respectively. Israel, on its part, is the standard bearer of Zionism. The contention for dominance in the region never stops.
The extremely complex ethnic, religious and geopolitical conflicts in the Middle East mean that balance of power in this region will always be dynamic and fluid.
1. Split between the Sunnis and Shiites is in essence adversary between the US and Iran. Saudi Arabia and Iran are bulwarks of Sunnis and Shiites respectively. In the 34 years after World War II, the two countries, both being US allies, were largely at peace. But after the Revolution in 1979, Iran turned against the US and a reshuffling of Middle Eastern states ensued. Israel, Saudi Arabia and Egypt, once Iran’s allies under US patronage, have been at loggerheads with this country ever since. The Iran-Iraq War in the 1980s marked a turning point in the reshuffling of Middle Eastern countries. With strong US support and under the Sunni rally, the majority of Arab countries sided with Iraq against the "Shiite evil" of Iran. The rivalry between the Sunni and Shiite sects, which has lasted 36 years till this day, is actually a result of US-Iran animosity. The revolutionary government in Iran attempted to, on its own, challenge the US dominance and drive it out of the region. The US, on its part, cannot live with the Islamic regime in Iran. That bad blood has implicated other countries in the region as well. The 9/11 attacks and the two wars waged by the US henceforth offered a window of strategic opportunity for Iran, during which it not only grew its nuclear capabilities but also carefully built a Shiite coterie with Iraq, Syria and Hezbollah in Lebanon and extended its sphere of influence to the heartland of the Arab world. When the Arab spring spread to Syria in 2011, the US, together with Saudi Arabia, Turkey and Qatar, attempted to leverage the movement to overthrow Bashar al-Assad. Should that happen, the Shiite coterie would have been disrupted, making Iran the next target. That explains Iran’s staunch support for Bashar al-Assad.
2. ISIS’ Islamic fundamentalism stems from Wahabism and Salafism. As the wars in Afghanistan and Iraq come to an end, the US wants to deter Iran’s rise, but what worries it more is the exponential growth of Sunni extremist forces and threats. This nightmare became a reality nonetheless with the rapid surge of ISIS in 2014. The US has been hesitant about military operations in Syria because it doesn’t want such efforts to be exploited by the Sunni extremist forces. The US would rather see the various sects in Syria fight among themselves in a war of attrition than having any sect take power. Saudi Arabia is a major country in the Middle East, with intricate identities: it is the cradle of Islam as well as the birthplace of Islamic fund amentalism, the ballast of petrodollar and an ally of the US. After 9/11, its interests and hence position on counter terrorism are increasingly divergent from that of America’s. The Saudis’ grievances and vigilance are also aggravated as a result of US-Iran rapprochement. Consequently, ruptures begin to appear in the foundation of US-Saudi Arabia alliance which has lasted for seven decades. The US finds it difficult to tolerate a Saudi Arabia that is suppressing Al-Qaeda domestically and at the same time supporting Wahabi extremists in Syria and Iraq, hence the disagreements. As the US reliance on Saudi oil declines due to its increasing energy self-sufficiency, Saudi Arabia’s self-conflicting policy in the Middle East no longer serves American interests. In this regard, the US has some common ground with Iran, especially on combating ISIS.
3. The Muslim Brotherhood will continue to have influence. There seems to be no end to the row between secularism and theocracy. The Muslim Brotherhood is a 80-year old party with branches in practically all Middle Eastern countries. It is a progressive yet not extreme party that advocates theocracy and opposes secularism. The Arab Spring of 2011 created some breathing space for the Muslim Brotherhood, which was once in power in Egypt but was later overthrown. Turkey and Qatar are the staunchest supporters of the Muslim Brotherhood. In the Arab Spring, a number of “military dictators” were overthrown successively, but the “liberal, secular government” as hoped by the US didn’t ensue. The square movement in Egypt ended with a military coup; Syria was plunged into civil war; street protests in Bahrain were suppressed by Saudi Arabia; and Libya was also plagued by civil war. After ferocious street movements and civil wars, the Arab people have yet to figure out “where to go” and “which path to take”. War is still raging in Syria, Yemen and Libya. America’s full withdrawal of troops from Afghanistan has been put off more than once. Even in Tunisia and Egypt, where stability is restored at least temporarily, a development path and model that is suited to their national conditions is yet to be found. It is safe to say that countries in the region will continue their painstaking exploration in the foreseeable future, with blood shedding along the way.
4. Iran’s rise in the post-JCPOA era will shake the Middle Eastern geopolitical structure. President Obama’s “double promises” to Iran in his 2013 speech at the UN General Assembly helped Iran to emerge from blockade and isolation that had lasted for 36 years. The current government in Iran is recognized by the US, and the international community also acknowledges its rights to peaceful use of nuclear power, which is deemed as symbolizing Iran’s sovereign rights. The Iranian Foreign Minister was at the same table with the P5+1 Foreign Ministers and had altogether dozens of hours of face-to-face talks with the US Secretary of State. The talks themselves not only enable Iran to discard its image as a “pariah in the international community”, but has also significantly raised Iran’s international stature. The UN Security Council has adopted resolutions dismantling sanctions on Iran. Once the US Congress ratifies the JCPOA, Iran will not only acquire over US$100 billion and resume normal oil export, it will also soon become a hotbed for international investment. With its unique strategic position, its gloablly third-ranking oil supply and abundant human resources, Iran will soon see its economy take off once it is integrated in the international community.
The détente of US-Iran relations as well as the signing of the nuclear agreement has a defining and historical significance in the Middle East. In the post-JCPOA era, the US will maintain its dominance in the region with minimum cost. It will be constrained less by Israel and Saudi Arabia, and push Iran to the frontline of fighting ISIS. Undoubtedly, Iran is on an upward trajectory while Israel and Saudi Arabia the opposite.
III. Gulf Cooperation Council (GCC) and Iran in the Context of Plunging Oil Prices
Saudi Arabia is having a hard time. The International Monetary Fund (IMF) warns that with the plunging of oil prices, Saudi Arabia may run out of financial assets in five years' time if current fiscal policies are maintained. The IMF predicted in a report released on 21 October that Saudi Arabia's budget deficit would balloon past 21% of its GDP. The deficit rate for 2016 will be at 19.4%. Riyadh has set out plans to cut back spending in order to prop up government finance. Its net foreign asset declined for seven months straight to US$654.5 billion by the end of August, a record low in two years. The reasons include:
1. Slowdown of the world economy in the post-crisis era. As the global economy recovers from the last crisis, the moderation in global growth will persist for quite a long time. Gone are the days when international oil prices are propped up by economic boom. The slowdown of the Chinese economy in particular has a cooling effect on the expectations of crude oil demand growth.
2. Plummeting commodity prices compounded by a strong dollar. These two phenomena are likely to persist for a long time to come, so are Saudi Arabia’s difficult days.
3. Excessive spending. Saudi Arabia runs a huge fiscal expenditure. Its military expenditure alone takes up over 10% of its GDP, reaching US$80.8 billion in 2014 and surpassing that of Russia's as the third highest in the world. At a time of sluggish world economy and plunging oil prices, such gigantic expenditure is simply unsustainable.
Despite such generous expenses, the Saudi military is not making much headway in the battlefield. But given the deteriorating security conditions in the region as well as in its own country, cutting back sharply its military budget doesn't seem a viable option for Riyadh either. Such a dilemma will only get worse.
Similar tough days are awaiting other GCC states too. According to the IMF’s latest report, under current policies, some oil producing countries in the Middle East would run out of buffers in five years or even less, including OPEC members such as Saudi Arabia, Oman and Bahrain.
Lower oil prices will reduce the region’s external surplus by US$360 billion in 2015 alone, according to IMF estimates. As oil prices dropped from over US$100 a barrel in 2014 to around US$45, some oil producing Middle Eastern countries would have to use contingency reserves in their coffer.
According to the IMF, the fiscal breakeven oil price for Saudi Arabia, the world’s largest oil producing country, is US$106 per barrel, and it does not have enough fiscal buffers for a scenario in which oil prices hover around US$ 50 for five consecutive years. Iraq has practically no fiscal buffer and is still entangled in the war with ISIS. According to the IMF, Bahrain, which has been running fiscal deficits for several years, also has considerable pressure and may lose all options within five years. Countries such as Kuwait, Qatar and UAE are more prepared for bad times because the huge oil revenue they stashed during the good days would be enough to cope with lower oil prices for decades to come. Now it is imperative for GCC countries to curtail their spending, bloated social benefits as well as military expenditure. But cutting back social benefits is tantamount to political suicide for Gulf countries.
For the US, sustained slump in oil prices also have serious consequences. Saudi Arabia has US$700 billion of foreign exchange reserve. If such staggering amount of dollar is used up someday, that would be an omen for the petrodollar. Saudi Arabia would no longer be the “ballast” of petrodollar, which poses a direct threat to the dollar’s dominance.
For Iran, however, things have finally turned around. As a result of the nuclear agreement, Iran’s economy began to rebound with steadily increasing investment from the West. The World Bank estimates that Iran’s GDP is expected to grow by 5.1% in 2016. According to the IMF estimates, the fiscal breakeven oil price for Iran is US$72 per barrel, and it can cope with lower oil prices for up to ten years. This prospect seems better than that of its neighbors, but it is also contingent on the dismantling of sanctions and the implementation of the JCPOA.
Iran also stands in stark contrast with Saudi Arabia in terms of fiscal expenditure. Iran’s military budget grew by 32.5% in 2015, but only to US$10 billion. And its military is as capable as that of Saudi Arabia, if not more. More importantly, Iran can manufacture a large portion of the armaments on its own.
Iran is particular active in the latter half of 2015, partly because of an easing political and economic environment and partly due to the rise in its military expenditure. It is now trying to build in effect an “Arc of Shiites” in the Middle East with Russia, Iraq and Syria. Its economy and influence are both expanding. Its oil export will also go up as a result of sanctions removal, partly offsetting the impact of the economic crisis. In a word, Iran’s rise is unstoppable.
IV. US-Russia Tussle in the Middle East
Russia’s retreat in the Middle East after the end of the Cold War ushered in a golden decade for US dominance in the region. But after 9/11 and the wars in Afghanistan and Iraq, the US has lost some lustre. President Obama had planned to “withdraw” from the Middle East when he took office in 2009, but such efforts have been dragged by the rise of Iran, the Syrian war, the rapid expansion of ISIS and the Afghan Taliban. Now just when the US finds itself in a dilemma in the Middle East, Russia began air strikes in Syria, marking its comeback in the Middle East. Behind the air strikes are Russia’s sophisticated calculations to eliminate threats, secure strategic positions, counterbalance its rivals and break away from its economic difficulties. By doing so, Russia is not helping Bashar al-Assad to regain his lost land, nor to clear away ISIS, still less to fight the US and NATO till the end of the day or even engage them in a third world war. Rather, it is a combination of a host of strategies and tactics with careful calculations that aim to maximize its interests.
Given Russia’s wobbling stature however, the momentum would seem to be rather short-lived. In terms of national strength, there is no comparison between Russia today and the Soviet Union in the Cold War era. Militarily, the US-Russia strategic equilibrium no longer exists. Economically, apart from some arms trade, Russia’s trade, investment and financial ties with Middle Eastern states are rather limited. The US, on the other hand, is in a position to exert much broader and lasting influence on these countries with its strategic position in world energy, finance and trade. In addition, the impact of two Chechen wars is still lingering, and domestic ethnic and religious factors will put considerable constraints on the Russian operations in the Middle East.
Guided by his doctrine of “don’t do stupid stuff”, Obama is shunning direct conflict with Russia in this region.
With a myriad of factors at play, major power relations in the Middle East with the Syrian issue being a focal point might take the following courses:
First, Russian forces will help the Syrian government forces recover some lost territories but not Syria in its entirety. The Bashar al-Assad government won’t be overthrown overnight. Controlling some part of Syria, it may participate in a political settlement process as an important, unneglectable party.
Second, Russia and the US may resume or set up engagement and dialogue mechanisms between their militaries on a crisis-management basis, but that does not mean a systematic “restart” of Russia-US relations. In America’s view, Russia’s “uncertain” foreign policy and “unprofessional” military operations are causing unpredictable risks for regional and international security. As a result, the US will only do more to keep Russia down, not less. On the issue of Ukraine, the US will likely adopt a “wait and see” approach vis-à-vis Russia. It would not easily buy Russia’s “cooperative” gesture in eastern Ukraine, nor will it lift the sanctions on a whim.
Third, European countries and the US will have increasingly different policies towards Russia. When sanctions on Russia expire next year, the EU is expected to be more flexible.
Fourth, despite the temporary spike in oil prices due to geopolitical tensions, the margin is only moderate because supply exceeds demand in the international oil market. The implementation of the JCPOA will only add to oil supply. Although some of the shale gas facilities in the US were halted recently, production will resume once oil prices go beyond US$ 60-70 per barrel.
Fifth, Russia won’t regain its major power status overnight simply because of its operations in Syria. Gone are the days when powers settle conflict of interests and redefine international order through wars. Major power game today is based on comprehensive national strength. The dynamics among major powers today are decided not merely by a country’s military strength, but more importantly, by its scientific and technological innovation, its cultural appeal and institutional resilience and vitality. In recent years, Russia focused primarily on the geopolitical and military fields in its competition with other countries. Short links in other fields such as imbalances in the economic structure, low financial autonomy and overdependence on international oil prices have all held back its strategic influence in the world. It is impossible for such “chronic diseases” formed over the years to be cured with the “potent potion” of air strikes in Syria.
Russia’s air strikes brought it closer to the US and Europe in a united front against ISIS. ISIS, on the other hand, went beyond Syria and Iraq and began to launch terrorist attacks on a Russia airliner and Paris. In response, the US, Russia and European countries are fighting ISIS on multiple fronts. The “Black Friday” in Paris has incentivized the US, Russia and European countries to shelve differences on the Syrian issue for a compromise as soon as possible. For the moment, Russia stands to benefit the most.
V. China’s Strategy in the Middle East
The Middle East’s strategic significance for China lies not only in energy. It also means massive potential investment in Middle Eastern countries’ industrialization, controlling and ensuring the safety of key energy shipping routes (the Suez Canal, Gulf of Aden, the Persian Gulf and the Indian Ocean) as well as stability in China’s western border areas.
Therefore, China must define its strategic interests and goals in the Middle East, namely, increasing its influence and say in the region and becoming a truly responsible stakeholder in Middle Eastern peace and stability so as to ensure China’s energy security, peace and tranquility along its western borders and assuaging strategic pressure in the East and South China Seas. To that end, China needs to reposition the Middle East on its diplomatic agenda and invest more diplomatic resources in the region to make a difference.
In discussing China’s strategy in the Middle East, one issue cannot be circumvented, that is, how does China balance “keeping a low profile” with “being a responsible major country”? The latter would require speaking up when needed, which is somewhat contradictory to the former. At any rate, continued nonchalance in the Middle East would not serve China any good.
1. China will be more vocal and invest more on issues in the Middle East. Among major countries in the world, China is a latecomer, a passive participant and sometimes even an outsider in the Middle East. But as China’s national strength rises and its interactions with other major countries deepens, China’s decision makers will pay more attention to the value and importance of the Middle East, a region that has more geostrategic and natural resources than any other regions in the world.
First, the Middle East is home to a plethora of hotspot issues for which the diplomat struggle is most intense. As such, it is also where China can reaffirm its basic diplomatic principles, varnish its international image of respecting sovereignty, opposing interference, maintaining peace and upholding justice and elevate its soft power.
Second, the Middle East is crucial to China’s energy security and presents enormous opportunities for its economic development.
Third, as China gains in national strength and major country rivalry exacerbates, China can and must invest more in the Middle East. The US dilemma in the region will also constrain and delay its rebalance to the Asia-Pacific.
Fourth, the Middle Eastern states will count more on China. In the next decade, the gravity of world power will shift towards the East with stronger momentum. The Middle Eastern countries in general value China’s growth potential and regard China as an important bolster in expanding their international reaches, balancing the influence of existing powers and promoting economic development. As the balance of power crumbles in the Middle East, countries in the region would take concrete actions to turn to the East.
2. There will be a learning curve as China increases its input in the Middle East.
First, such a process depends on the constant improvement of China’s self-positioning, capabilities and means. China should ditch its traditional “nonchalance” in the Middle East or the mindset of simply being an onlooker. If China is to be a major power, then the Middle East cannot be circumvented and must be dealt with carefully. In terms of capabilities, China is still on an upward trajectory with its interests sometimes going beyond its capabilities. It’s unrealistic for China to have a big say on Middle Eastern affairs overnight. It takes time. In terms of means, China needs to have security safeguards, financial arrangements and pivotal countries for its diplomacy in the Middle East.
Second, such a process also needs to be catalyzed by external factors. For instance, China’s unequivocal position on the Syrian issue (three vetoes) has much to do with what happened in Libya previously and the US strategic rebalance to the East.
3. China will not fill the void in the Middle East left by America’s retreat, but should fully leverage its position as the largest buyer of Middle Eastern oil and its largest trading partner to increase its say there and synergize the Belt and Road Initiative with regional countries. First, China will both cooperate and compete with the US in the Middle East but should avoid direct confrontation. China is not the Soviet Union during the Cold War, and the interaction between China and the US, not least in the Middle East, is not a zero-sum game. As the US gets overstretched, its influence in the region will naturally decline, but China should also tread carefully in the Middle East and not set its goal as squeezing America’s traditional influence. Second, disagreements between China and the US on a number of issues in the region arise more from diplomatic thinking than from actual conflict of interests. China is still a newcomer in the Middle East, and there is huge space before it can even touch upon America’s dominance there. Third, there is room for compromise between China and the US in the Middle East.
In the next decade, there will continue to be turmoil and strategic tussle in the Middle East. China should and can make a difference there.
Hua Liming is Former Chinese Ambassador to Iran, U and Holand, and Former Permanent Representative of China to the Organization for the Prohibition of Chemical Weapons(OPCW).