Russia, China tussle reflects struggle for influence in the region

The trend of greater Chinese economic presence across the Middle East is there for all to see.
Sunday 04/11/2018
A ship carrying Chinese military personnel departs a port in Zhanjiang as it prepares to sail to Djibouti. (Xinhua)
Wide-ranging expansion. A ship carrying Chinese military personnel departs a port in Zhanjiang as it prepares to sail to Djibouti. (Xinhua)

More than in any other country, regional and global powers are establishing military bases in Djibouti.

The tussle offers a microcosm of a much larger struggle for influence on the Red Sea and the Gulf of Aden, which stretches across the Middle East to Kurdistan, Egypt and Algeria.

Russia’s state-owned oil company Rosneft has emerged as Iraqi Kurdistan’s single biggest financier. Ignoring fears of conflict with the government in Bagdad and criticism from Western powers, Igor Sechin, Rosneft CEO and close confidant of Russian President Vladimir Putin, has gained a major foothold in Erbil.

The project to pump 10,000 barrels of crude oil per day by the end of the year, which is only 0.2% of the project’s daily production, to Ceyhan on Turkey’s Mediterranean coast looks symbolic but it offers Russia an important lever in relations between Erbil and Bagdad.

Since the spring of 2017, Rosneft has paid an estimated $3.5 billion to the Kurdistan administration: $400 million to develop five exploration blocks, $1.8 billion for control of the region’s export pipeline and a $1.2 billion loan in prepayment for oil produced by companies other than Rosneft. This financial lifeline for the region’s government has infuriated Bagdad but protests by the Iraqi government to Russia have been met with blank stares.

If Rosneft goes ahead with the gas cooperation agreement Sechin signed with the Kurdistan Regional Government in May, that would offer ample opportunities for Russia in the region, putting it at the centre of talks between Erbil and Bagdad.

Russia’s leveraging of energy as a commercial means to achieve its geopolitical priorities is Moscow’s response to the United States’ diminishing influence in the region. Kurdistan has been a close ally of the United States but it is worth remembering that when Kurdistan had an independence referendum in September 2017, Bagdad sent troops to seize control of the major Kurdish oil fields, disrupting the region’s critical oil production and exports.

The United States, the European Union and Turkey criticised the referendum but not so Russia.

Were Rosneft to go ahead with a pipeline that could carry billions of cubic metres of gas to Turkey and Europe, Russia would control the region’s energy exports. Because Rosneft has a 30% stake in the large offshore Egyptian gas Zohr field, that would also allow the company to compete in the European market with its domestic rival Gazprom Net.

US strategy is left in shreds, so is the European Union’s as Russia builds ties with a broad range of mutually incompatible countries, including Saudi Arabia, Iran, Turkey and Qatar.

Italy’s influence in eastern Libya and important weapons ties with Algeria are turning it into an indispensable partner. The West seems to have lost any sense of the strategic game it played so ruthlessly in the region for two centuries.

China, meanwhile, is steadily reinforcing its economic relations with Egypt. Chinese companies have made a cumulative investment in Egypt of $24.3 billion, fDi Intelligence reports. That figure that should include a $20 billion investment in the planned administrative capital in the desert east of Cairo. Chinese companies are to build a rail link to the capital and are expanding the industrial zone near the Red Sea port of Ain Sokhna.

Whatever the doubts expressed by observers about the viability of projects linked with China’s very ambitious Belt and Road Initiative and the resultant increase in debts to Beijing by recipient countries, Chinese ambitions are huge.

In Egypt, they are matched by the number of Chinese visitors to the country, which more than doubled to 300,000 last year. As Western tourists recover their appetite for Luxor and Aswan, Chinese visitors are more than welcome. Chinese companies have long been active in Algeria. The trend of greater Chinese economic presence across the Middle East is there for all to see.

In July, Djibouti started the first phase of a $3.5 billion free trade zone in which China Merchants Group and Dalian Port Authority have a stake, which DP World said violates its 30-year exclusive contract. Earlier this year, Djibouti took control of the Red Sea container port of Doraleh from the Dubai-based ports operator.

Also in the Horn of Africa, it is worth noting that the decision of Africa’s youngest leader, 42-year-old Ethiopian Prime Minister Abiy Ahmed, to turn his country upside down, release political prisoners, privatise many state companies and conclude peace with Eritrea, ending a 20-year war, has given this thriving economy access to Eritrean ports.

Saudi Arabia and the United Arab Emirates are vying for influence in Ethiopia, which has taken a 19% stake in the Somali port of Berbera and is planning to take stakes in Port Sudan and Djibouti. China last year completed a $4 billion railway that links Addis Ababa to the port of Djibouti. It handles 90% of Ethiopia’s trade.

American influence is fading away here as new actors emerge, not least Russia and, even more important, China.