Commentators in the West discuss the current crisis in the Gulf region as if we still live in the 1980s. Following the drone attack on Saudi Arabian oil facilities that disrupted a staggering six percent of the world’s daily oil supply, they focus on either Pompeo’s finger pointing at Iran or on Tehran’s firm denial of complicity. This paints the picture of a conflict with two main parties: Iran and the United States. The broader geopolitical dimension of the conflict remains ignored: competition between rising power China and ruling power America. Beijing intends to build up Iran as a corner stone of its new world order. Washington won’t stand for it.

With the bombardment of Saudi Arabia’s oil facilities and Iran’s capture of the Stena Impero, a British flagged oil tanker, in July, the Gulf region seems to have jumped 35 years back in time. Iran’s tanker war with Iraq in the 1980s also threatened global oil trade. Back then the United States depended heavily on oil imports from the Middle East transported through the Gulf and Strait of Hormuz. Under the Obama administration, due to the shale gas revolution,the United States has become virtually energy independent. China on the other hand was still a net exporter of oil products in the 1980s. In 1993 came the turning point: China needed oil from outside its borders. After three decades of steep economic growth it became the world’s second largest oil importer in 2003 and the largest in 2017. Roughly one third is supplied by Iraq, Iran, Saudi Arabia and the other Gulf states via the Gulf and the Strait of Hormuz. Intensifying turmoil between Iran and the United States plus its allies therefore directly threatens an important lifeline of the Chinese economy. Already facing slowing growth, a trade war with the United States, popular uprising in Hong Kong and international attention for human rights violations in Xinjiang, China hardly needs another crisis.

Escalation

Chairman Xi’s woes will become even greater if the United States chooses retaliation and escalation – or even regime change in Tehran. In addition to oil and gas interests, Iran is of enormous commercial importance to China. The Islamic Republic of Iran, characterized by a fiery anti-Americanism ever since its founding in 1979, has served China well. It is a colossal safe haven for Chinese investments in the Middle East, a place otherwise dominated by American allies or states heavily dependent on the United States. Unlike in Iraq, Saudi Arabia and the other Gulf states, China does not have to fear that its trade and cooperation with Iran are frustrated by American political pressure. After all, the United States have not had diplomatic relations with Iran since 1980. As a result, commerce flourished: the Tehran metro network was built by China, shelves in Iranian supermarkets are overflowing with Chinese products, and every time the United States impose biting sanctions on Iran, Chinese state-owned companies have a de factomonopoly on the development of Iran’s immense oil and gas fields. It is not surprising that China has been Iran’s largest trading this past decade.

Maintaining Iran’s leadership is in addition to profitable also of vital strategic importance. Since 2013, Chairman Xi has been trying to move the center of gravity of the world economy eastwards with his Belt and Road Initiative. The land route of this mega infrastructure investment project has to link Europe – via the Middle East and Central Asia – to China through rail, road and power plant. Xi promised to invest hundreds of billions of dollars. Iran, bordering the Caspian Sea in the north and the Gulf in the south, is theessential connection between east and west. Maintaining Iran’s domestic stability is therefore a necessary condition to realize Xi’s highest geopolitical ambitions.

Will the confrontation escalate?

But will the Iranian-American confrontation escalate and rock Iran’s leadership? Trump is hard to predict. Trump’s tweet that the United States is ‘locked and loaded’ hinted at retaliation. So did Mike Pompeo’s comments, as he immediately accused Iran instead of the Iranian-backed Houthis in Yemen of ‘an unprecedented attack on the world’s energy supply.’

Yet, Trump has consistently been wary of military engagements overseas. Already during the Republican primaries for the 2016 presidential election, he called the Iraq War (2003) a “big-fat-mistake“, an (almost) unique position among Republican candidates. He also canceled a retaliatory airstrike on Iran for the downing of an American drone in June. Just this week, he announced the withdrawal of American troops from Northern Syria allowing Turkish forces to evict the Kurdish-led Syrian Democratic Forces, Trump’s allies and the de factoAmerican boots on the ground in its war against ISIS. He appears to be more isolationist than interventionist. After all, he fired John Bolton, his hawkish National Security Advisor, last month.

Iran’s attitude, however, is less ambiguous: its hardening. Supreme Leader Ali Khamenei and the leadership of its Revolutionary Guard, Iran’s elite forces, have always been skeptical about concluding a nuclear deal with the United States. Certainly now that European firms have forfeited their trade with Iran because of new American sanctions, Hassan Rouhani, Iran’s “moderate” president who staked his career on signing the agreement, has been left humiliated. 

The IMF projects the Iranian economy will contract by six percent in 2019. Iran’s newly emboldened hardliners will not sit idly by whilst the United States continues its maximum pressure campaign until – and perhaps even after – the 2020 U.S. Presidential Election.

Besides, Trump’s actions in North-Korea may have inadvertently reinvigorated Tehran’s desire to restart its nuclear program. Tehran’s leaders will have seen Trump’s photo ops with dictator Kim Jong-Un this summer. They know: if you get hold of a nuclear weapon, the American president adopts a humbler attitude. He even flies over for a surprise visit at your doorstep.

Xi’s options

Chairman Xi has one unambiguous interest: de-escalation. Can China calm down the increasingly hostile parties?  President Trump aims to force the Iranian regime’s capitulation (or complete replacement) through isolation. In particular China’s thumbscrews are tightened over this. In May the waiver on American sanctions for companies that import oil from Iran expired. Mike Pompeo, the US Secretary of State, in July banned Zhuhai Zhenrong, a Chinese state-supported company that continued oil imports, from doing business in the United States.

What can Xi do? Forfeiting entirely its already decreased trade with Iran does not seem like an option. Due to American sanctions, no other country dares to deal substantively with Iran. Will Iran’s leadership survive without income? At the same time, increasing trade with Iran in order to strengthen Tehran involves risks. Iran is immensely important to China, but Sino-US trade is more than fifteen times larger than Sino-Iranian trade. The trade war with the United States is damaging the Chinese economy and Trump in September postponed the imposition of additional tariffs as a good will gestureto China. Besides China, heavily reliant on oil from the Persian Gulf, opposes escalation. The attack on Saudi Arabia’s oil production, whether executed by the Iranian-backed Houthis or Iran, is hardly a sign of restrained that the Chinese want to reward.

A coalition of convenience with the Europeans is Xi’s only real option. They too favour de-escalation as they have no appetite to become involved in an American-Iranian military confrontation and are similarly dependent on oil from the Persian Gulf. Together, China and Europe can attempt to financially seduce Iran to refrain from carrying out further provocations in the Persian Gulf and to prevent the restart of its nuclear program. It is difficult for Trump to punish both China and Europe for this at the same time. But does Europe – facing Trump’s threat of imposing tariffs on a broad range of EU products ranging from Spanish olive oil to French wine and cheese – want to distance itself further from the already fragile relationship with the US? 

One thing is clear: understanding the geopolitical dimension of conflicts in the Middle East by merely focusing on the West’s involvement no longer suffices.

Joris Teer is a geopolitical strategist and studied China’s foreign policy at Peking University and the international relations of the Middle East at the London School of Economics. 

Alex Krijger is a geopolitical analyst and founder and owner of government relations agency Krijger & Partners – based in The Hague.