Beijing Joins Iran to Exploit Middle East Oil Routes

By Jennifer Bateman
Jennifer Bateman
Jennifer Bateman
Jennifer Bateman is a news writer focused on China.
June 3, 2022 Updated: June 3, 2022

The Chinese Communist Party (CCP) is using Iran to tighten its grip on the Middle East’s major oil routes. The objective is to seize a dominant position during the energy crisis triggered by the Russia-Ukraine war. Oman, at the gateway to the Hormuz Strait, has become a target for Iran to expand its influence in the Middle East. Oman is also a key sea and land logistics intersection in the CCP’s Belt and Road Initiative (BRI) and an important part of its energy strategy in the region.

The Persian Gulf and its outlet, the Strait of Hormuz, is the route for at least one-third of the world’s oil shipments. Iran’s coastline dominates the northern shore of the Persian Gulf and the Strait of Hormuz, while the southern shore of the Strait is dominated by Oman and the United Arab Emirates. Part of Oman lies at the apex of this narrow and winding choke point—where all ships must slow down to traverse.

According to Iranian media, Iranian President Ebrahim Raisi made an official visit to Oman on May 23. This was after a 50-member Iranian delegation visited Oman one week earlier to pave the way for the expansion of trade relations between the two countries.

On May 21, UK-based Amwaj.media noted that Raisi’s visit follows Iran’s expanded contacts with Qatar, Saudi Arabia, and the United Arab Emirates (UAE) across the Persian Gulf. Previously, the heads of Saudi Arabia and the UAE refused to take calls from President Joe Biden who was hoping to convince them to increase oil production and drive down soaring oil prices.

During his visit to Oman, Raisi planned to sign a number of cooperation agreements with Oman, including the finalization of a gas pipeline link to Iran, which will enable Iran to significantly increase its gas exports to Oman. Although this project began in 2013, it has not moved forward in earnest.

Author and financial journalist Simon Watkins, suggests the gas pipeline project will enable Iran to increase its influence over Oman and the neighboring countries of Pakistan and Afghanistan. It will link these countries to regional power grids Iran controls through gas export deals, backed by the Chinese Communist Party (CCP) and Russia.

Watkins believes an agreement the CCP reached with Iran in 2019 helped to strengthen its control over the Strait of Hormuz. The $400 billion deal allows the CCP to trade for Iranian oil supplies while simultaneously weakening U.S. efforts against the country.

This agreement also allows the CCP’s investment to be used to develop Iran’s oil, gas, and petrochemical industries. Meantime, it provides financial support to terminals in the ports of Chabahar and Jask, which enables Iran to export its energy without going through the Strait of Hormuz. It also helps Iran establish a nationwide network of thousands of surveillance cameras to consolidate its power.

Since President Trump scrapped the nuclear deal with Iran and reimposed sanctions in 2018, the CCP has not stopped importing crude oil from Iran. According to a report released in April by Vortexa Analytics, tanker tracking specialists, Iran exported more than 300 kbd (thousand barrels per day) of crude/condensate directly to China during the sanctions period. About 200 kbd of that volume came from Malaysia, Oman, or Iraq.

China is the largest buyer of Iranian crude oil, importing a total of 440 kbd from Iran since June 2015. Thirty percent of the volume was received when Iran was under U.S. sanctions.

On May 18 Reuters issued a report citing Vortexa Analytics data indicating that China received nearly 2 million barrels of Iranian oil that week, with similar magnitude imports received earlier in December and January.

On April 23, Chinese Defense Minister Wei Fenghe visited five “friendly countries” in South, Central Asia, and the Middle East, including Iran and Oman. He emphasized the importance of these two Arab countries to the CCP’s global strategy.

CCP Takes Advantage of Oman’s Fiscal Downturn

The CCP hasn’t limited its search for opportunities to just Iran in the Middle East. In 2018, when the Omani government’s finances had been weak for several years, the CCP initiated a partnership with the country and signed The Belt and Road Initiative Memorandum of Understanding (p38) (pdf). In June 2020, Moody’s further downgraded Oman’s sovereign credit rating to Ba3 in speculative grading.

Roughly 82.3 percent of China’s imports from Oman are mainly crude oil (p46). Chinese businesses mainly invest in Oman’s oil and gas sector, energy and electricity, infrastructure, and information and communications, similar to their investments in Iran. Among the businesses investing in Oman are the telecom giant Huawei and oil companies including PetroChina International Co., China National Grid, and China National Petroleum Company.

The largest Chinese project in Oman is the Port of Duqm Special Economic Zone industrial park. It began in May 2016 with a total investment of $10.6 billion. The funds were used for crude oil smelting, producing natural gas chemicals, and for solar photovoltaic projects and logistics (p50).

Oman’s Duqm is a major port of call for container ships, general cargo ships, and bulk carriers. It is also an important crossroad for Middle Eastern oil to enter Europe via the Red Sea and the Suez Canal.

South of the Arabian Peninsula is the “world’s main sea route” which extends from the Gulf of Aden to the Red Sea and then to Europe via the Suez Canal. At the entrance of the peninsula, next to the Bab al-Mandab strait, is Djibouti, where the CCP used its BRI to establish a military base in July 2017. The United States, France, Italy, and Japan also have military bases in Oman.

Yemen, on the opposite side of the Bab al-Mandab strait, has become a battleground for geopolitical wrangling. The Iranian-backed Houthis are still trying to confront Arab powers such as Saudi Arabia and the UAE to seize control of Yemen’s southernmost portion of the strait.

Jennifer Bateman is a news writer focused on China.