Recent landmark deals by China and the U.S. reaffirm that the United Arab Emirates (U.A.E.) remains vital to the Middle East strategies of the two global superpowers - and for much the same reasons. The first deal was the signing on 25 July of a strategic alliance agreement between the China National Offshore Oil Company (CNOOC) and the Abu Dhabi National Oil Company (ADNOC) to deepen cooperation. The second deal was the signing of a strategic partnership between the U.S.’s ExxonMobil and ADNOC to establish the world’s largest low-carbon hydrogen facility.
However, for both China and the U.S., the U.A.E. has an importance way beyond that intimated in these deals. To begin with, its geographical position makes it an ideal energy hub between the East and West, further supported by its plethora of ports and storage facilities spread across the seven constituent emirates of Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah, and Umm Al Quwain. Fujairah is especially seen as having an extremely strategically advantageous position to deal with any potential oil supply disruptions that might come from Iran and its regional proxies, especially the Houthis. This is due to its location both outside the Persian Gulf and a healthy 160 kilometres from the politically ultra-sensitive Strait of Hormuz, through which around 30 percent of the world’s oil has historically transited.
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Additionally, the U.A.E. is one of the world’s key oil pricing hubs, as it is home to the Dubai benchmark. This has also enabled the rapid expansion of energy trade flows coming out of the Dubai Multi-Commodities Centre, with more storage capacity from Fujairah also allowing traders greater flexibility in their deals, and a very supportive financial infrastructure created by its authorities. This has been further enhanced by the quick development of the Abu Dhabi-based ICE Futures Abu Dhabi (IFAD), with its focus on the trading of futures contracts for the light, sweet Murban crude oil that constituted around half of the UAE’s total near-4 million barrels per day (bpd) crude oil production before the outbreak of Covid in 2020. The growth in its trading capabilities has run alongside the development of the U.A.E.’s plans to expand its already sizeable oil output - around 4 million bpd in recent years – to 5 million bpd.
China made the U.A.E. a key focus of the Middle Eastern section of its multi-generational power-grab project, the ‘Belt and Road Initiative’ (BRI), back when it was launched in 2013 by President Xi Jinping. Through its ‘Iran-China 25-Year Comprehensive Cooperation Agreement’, first revealed anywhere in the world in my 3 September 2019 article on the subject and as analysed in full in my latest book on the new global oil market order, Beijing exercises enormous influence over what happens in the Persian Gulf and Strait of Hormuz. Through other similar deals in the region, China also has a hold over the Bab al-Mandab Strait, through which crude oil is shipped upwards through the Red Sea towards the Suez Canal before moving into the Mediterranean and then westwards.
The new agreement between the CNOOC and ADNOC will see greater cooperation in oil, gas exploration and production, oilfield services and the trading of crude oil and liquefied natural gas (LNG). CNOOC stated recently that it is ramping up such cooperation with countries participating in its BRI programme, having first entered the U.A.E.’s upstream business in 2019. Last year, the U.A.E. celebrated the 10th anniversary of the launch of the BRI, and official data shows that around 90 percent of the U.A.E.’s non-oil trade in that year came from countries participating in the BRI. In terms of China specifically, it remained the U.A.E.’s top non-oil trade partner in 2023, accounting for 12 percent of its total trade. Extending its influence in the U.A.E. perfectly augments Beijing’s strategy to exercise increasing control over these key energy transport routes.
Perhaps even more importantly for China, any gains in the U.A.E. further thwart the U.S.’s long-running attempts to gradually position the Emirates more firmly in its sphere of influence. Back in 2020, the U.A.E. was seen by Washington as vital to its plans for the Middle East following its unilateral withdrawal from the Joint Comprehensive Plan of Action (JCPOA, or ‘nuclear deal’) with Iran in 2018. Its importance grew as the notions of withdrawing from Afghanistan and Iraq increased. Not only was the U.A.E. a significant oil producer located in a perfect location in the region, but it also appeared ideally placed to the U.S. to play a key role in Washington’s plans to position India as an increasing rival to China in the Asia-Pacific region.
At that time, a military clash between India and China had occurred in the disputed territory of the Galwan Valley in the Himalayas, as also analysed in my latest book. Washington thought this might mark a new ‘push back’ strategy from India against China’s policy of seeking to increase its economic and military alliances through the BRI. The U.S. believed that this military push back might also be echoed in India’s economic desire to finally make substantive progress on its ‘Neighbourhood First’ policy as an alternative to the BRI programme. Additionally propitious for Washington in this regard was that India’s rapid economic development was expected to drive a huge expansion in its demand for oil and gas. Indeed, at the time, the International Energy Agency predicted that India would make up the biggest share of energy demand growth at 25 percent over the next two decades.
Peculiarly to many perhaps, the U.A.E. had a uniquely close relationship with India in the field of energy, as also detailed in my latest book. ADNOC was at that point the only overseas company allowed to hold and store India’s vitally-important Strategic Petroleum Reserves (SPR). India’s government then approved a proposal that would allow ADNOC to export oil from the SPR if there was no domestic demand for it. In the first instance, this would be done from the Mangalore strategic storage facility, with the other major SPR pool being at Padur. This decision marked a major shift in the policy of India in the handling of these vital energy reserves, with the country having previously banned all oil exports from the SPR storage facilities.
Consequently, Washington thought that a virtuous circle of diplomatic, economic, and geopolitical power could be constructed, with the U.A.E. holding an increasingly vital position in India’s burgeoning oil and gas needs, which would in turn drive its economic and political threat to China as the dominant player in Asia-Pacific. This would then boost the U.A.E.’s finances (that were still struggling to recover from the 2014-2016 Oil Price War) through increased energy sales, which would place the Emirates even more firmly in the U.S.’s Middle East sphere of influence. As a result of these multiple factors, the U.A.E. signed the 13 August 2020 U.S.-brokered relationship normalisation deal with Israel.
This, though, did not stop China from continuing the development of its own relationship with the U.A.E., which negatively culminated for the U.S. in the revelation over the Christmas period of 2021 that U.S. intelligence sources had identified that China had been building a secret military facility in and around the big U.A.E. port of Khalifa. Based on classified satellite imagery and human intelligence data, U.S. officials stated that China had been working for several months “to establish a military foothold in the U.A.E.” Early February this year also saw the U.A.E. inform the U.S. that it would no longer allow its warplanes and drones based at the Al Dhafra air base to carry out strikes in Yemen and Iraq without notifying Emirati officials ahead of time. This prompted Washington to move its key fighting air assets to nearby Qatar, which is now the U.S.’s major non-NATO ally in the Middle East, according to President Joe Biden, as also detailed in full in my new book.
That said, the latest ExxonMobil deal with ADNOC may signal a new attempt at a gradual broader based rapprochement by Washington with the U.A.E. According to senior Washington-based energy security sources spoken to by OilPrice.com, the U.S. believes that its efforts of effect a lasting agreement to end the ongoing Israel-Hamas War might also allow for the beginning of a broader rapprochement with the Emirates. “The U.A.E. is embarking on a big investment programme in its gas operations [US$13 billion on the next five years], so we might be able to do something there,” said one of the U.S. sources recently. “This is linked to a big push to boost its LNG [liquefied natural gas] capacity, and they’ve asked India to invest in a big new plant [in Ruwais] connected to this, so we might be able to work something there as well,” he concluded.
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By Simon Watkins for Oilprice.com
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