It's not going to do prices any good.
DC beltway logic is pretty disconnected from the productive part of America, yet Washington and the voters have been united on one thing for 15 years or so: Getting the hell out of the Middle East. President Bush thought he’d have his little jolly wrapped up in his first term, just like dear ole dad; Obama tried to tie things up and wound up siding with the bad guys somehow; Trump ordered troops out of Syria and was ignored. Biden did the same in Afghanistan and wasn’t. And just look what happened.
Oil though, makes the world go round, so there is only so much ignoring of the Middle East a modern global economy can do. The locals have been happy(ish) to see the US go, but there is a price to the disengagement… namely the disengagement. In short, a nation can’t retreat from the world and be its colossus at the same time.
It’s not for a lack of trying, though. Not wanting to head back anytime soon, Washington encouraged Saudi Arabia to reach out to Iran to reestablish diplomatic ties severed in 2016 (after a worked-up mob in Tehran torched the Saudi embassy) in order to reduce regional tensions. The discussions were going well enough until July of 2022 when, on a visit to Riyadh, President Biden overegged the diplomatic pudding by suggesting that the countries of the Gulf Cooperation Council – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE join with Israel to contain an errant Iran. Exactly how the Biden administration missed that suggesting the very Muslim Arabs join in with very Jewish Israel for pile-on against also very Muslim (if an off-brand in Sunni eyes) Iran fairly boggles the mind, but there we are.
Understand that the Arabs and the Persians are not bosom buddies. And Saudi Arabia and Iran hate each other the way only the two biggest fish in small pond can – but they are part of the umma, or community, even if they can’t decide which kind. Religion aside, Riyadh and Tehran don’t want a war, they just want to fuss about one. And Saudi Arabia wanted Iran to stop lobbing what are turning out to be curiously accurate missiles at their oil processing facilities.
As mediators, the US had too much bad blood with Iran to be effective. Washington’s relationship with Riyadh isn’t much better: It isn’t clear that the US plans to step in to defend it, which has been the cornerstone of Saudi defense policy since World War II. Nor did candidate Biden’s 2018 vow to treat Saudi Arabia as a pariah state over the murder of Journalist Jamal Khashoggi help much either.
So it was that Saudi Crown Prince Mohammed bin Salman turned to Beijing to step in and mediate a reproachment. Bin Salman’s thinking wasn’t bad: China has considerable investment in both countries. It is also one of the few powers that will give a pariah state like Iran the time of day, and buy its sanctioned oil. Tehran won’t break any agreement for fear of Chinese wrath. Although, for a pair of Muslim theocracies, they are pretty mellow about the genocide of Muslim Uyghurs Beijing is carrying on out in the countryside.
If the deal sorted out last month in Beijing is implemented, Tehran and Riyadh will be closely aligned once more, reopening respective embassies, promising to cut it out with all that fomenting of internal dissent both sides claim they aren’t doing, and upholding the April 2022 cease-fire in Yemen. Saudi Arabia has even hinted that it will, if all goes well, will invest in Iran’s crippled economy. It will likely stabilize the region and all will be sweetness and light.
And why, you well may ask, do we care how stability is brought about or who facilitates it? As far as stability goes, we shouldn’t. It’s our commodity portfolios we should be worried about. Putting it a way that the average American banker can relate to, China is making a hell of name for itself by snapping up influence options on failing and distressed states with solid commodities portfolios.
The United States has been the largest oil producer in in the world since at least 2021, producing some 16.6mm barrels p/d – almost 20% of the global output. The next two largest producers are Saudi Arabia and Russia, with 11mm and 10.9mm p/d respectively, or 21.9mm p/d combined. The other seven producers in the top 10 don’t match this combined. The trick is getting the stuff out of the ground: The largest oil company in the world is Saudi Aramco, while China produces a scant 4mm b/d on average, the next two largest oil companies are Chinese; Sinopec and PetroChina. If a regionally stable Middle East drifts into Chinese orbit, and are forced to pick sides, this could be a problem: Those OPEC + nations account for some 40% of the global oil output, and about 60% of what is traded internationally.
It isn’t that China controls most of the world’s oil – but that Beijing has over-weening influence on many countries that do. Neither Russia nor OPEC is afraid of the “Oil Weapon” when they get half a mind.
The Chinse aren’t master negotiators, but they are cracking opportunists. They also have a distinct advantage in the new Great Game – they have an actual strategy and the United States doesn’t: We are hiding mutually exclusive aims behind high-flown rhetoric and the notion that any earthling who doesn’t want to be an American teenager in clearly insane. That’s probably not a safe assumption.
Mind, Chinese strategy isn’t a far-reaching as it appears, but it is more practical that the weirdo populism and activist that we deal with these days.