Will China be really a winner?

Gloria Center (http://www.gloria-center.org)(Fall 2014)

TEN YEARS LATER: WHO WON THE IRAQ WAR, THE US OR CHINA?, 28 September 2014
by Mordechai Chaziza
Many news sources have announced that the answer to the question of who won the Iraq war is simple: the People’s Republic of China. Was China the real winner? If so, in what ways? This study analyzes the question of who won the Iraq War in broader terms, both in retrospect and looking forward. It separates myth from reality and takes a long, hard look at the war’s impact, both short- and long-term, on the economic and strategic interests of China and the U.S.
INTRODUCTION
Ten years after the U.S invasion and occupation of Iraq ended, more and more journalists, academics, and policy makers contend that Washington liberated the Iraqi people at heavy human and economic cost to itself, while China ended up the biggest economic beneficiary: Chinese energy firms will become the main customer for Iraqi oil in the foreseeable future. This complaint reflects the evolution of the new current situation in Iraq, where the Chinese presence has been increasing steadily, while U.S. companies have withdrawn from doing business with the country. As Michael Makovsky, a former Defense Department official in the Bush administration, said “We lost out. The Chinese had nothing to do with the war, but from an economic standpoint, they are benefiting from it.”[1]
The U.S. invasion of Iraq and its aftermath have arguably been the most pivotal events in the Middle East region since the end of the Cold War.[2] The Iraq War had an appreciable impact on Iraq’s relationships with both the U.S. and China. Both countries have rapidly expanded bilateral trade with Iraq, with an emphasis on energy deals. Yet, the war has made it more difficult and risky for Chinese and U.S. companies to conduct investment and business activities in Iraq. Therefore, we must review both winners and losers as well as the consequences of the war for the short and long term.
The first section of this study will analyze the economic benefits and strategic advantages and challenges and losses to China resulting from the Iraq War in the short and long term. The second section will analyze the economic benefits, strategic advantages, and challenges and losses to the U.S. from the Iraq War in the short and long term. The third section will discuss the findings and conclusions.
CHINA AND THE IRAQ WAR
Economic benefits and strategic advantages
China’s Middle East foreign policy in the Post-Cold War Period reflected an intensification of Beijing’s drive for economic modernization. China focused almost exclusively on pursuing its own economic interests, primarily driven by the search for energy security and the desire to increase its overseas markets and investment opportunities. Since that period, Beijing has worked to maintain stability in the Middle East for the purpose of securing its energy and economic interests there. This policy, however, is at least partially constrained by China’s need to consider U.S. interests. Beijing must find a way to balance its foreign policy and economic interests with U.S. policy and interests in the region.[3]
There are a number of ways to evaluate the benefits and advantages of the Iraq War on Chinese strategic and economic interests in the Middle East. The Iraq War had an appreciable impact on Beijing’s strategic interests in the region, but more importantly, on economic interests and energy security.
Strategically, the Iraq War gave Beijing diplomatic “breathing room” to expand its sphere of influence in East Asia and the Middle East. The Iraq War had major effects on the China’s strategic perspective and was a positive development for its rising power status.[4] First, the U.S. occupation of Iraq diverted U.S. power, attention, and resources which otherwise would have been used to contain the rise of China by creating strategic regional alliances against it, establishing military bases in the region, and generally increasing its presence in Asia. Second, the cost of the war drove the U.S. into further financial distress, especially relative to China. Third, the war created tension between Washington and its traditional diplomatic and security alliances around the world.[5] Moreover, the war damaged the U.S.’s image and reputation in the region and prevented it from implementing other policies. For example, Saudi Arabia was disappointed by the U.S. failure to take action against the Assad regime.[6] Finally, the war stretched the U.S. military’s resources very thin and prevented further troop deployments in the region and elsewhere in the world, particularly in regions where such deployment might have encroached on China’s sphere of influence and security.[7]
The Iraq War also offered China strategic benefits, albeit less tangible, at the expense of the U.S. Global criticism of the U.S. occupation seemingly confirmed the prudence of China’s non-interference doctrine. For China, the U.S. failure in Iraq sent a warning signal to its political leadership against becoming involved in the internal politics of other countries.[8] Instead, China offered the new Iraqi administration an attractive alternative to U.S. occupation, namely, economic engagement and non-involvement in their internal politics. As a result, Beijing quickly rehabilitated its political relationship with the new government and was able to expand its “soft power” at Washington’s expense.
The impact and benefits of the Iraq War on the Chinese economy have shifted significantly over time. Although in the beginning it brought significant economic losses to Chinese companies and their investments, post-Saddam Iraq is one of the few countries in the world that can be relied on to maintain its economic growth. Thus, U.S. withdrawal from the country has provided enormous business opportunities for Chinese companies to expand their investments. Chinese firms have been investing in Iraq in construction, government services, and even tourism.[9]
In February 2010, China cancelled 80 percent of Iraq’s $8.5 billion debt, a move intended to further Chinese business interests in the country. This waiver followed a two-year period (2009-2010) during which China and Iraq signed trade deals worth approximately $3.8 billion.[10] In 2012, the trade volume between China and Iraq soared nearly 34-fold to $17.5 billion.[11] Therefore, while a stable Iraq is good news for the country and the region, above all, it is good for China’s economic modernization. Additionally, since China is seeking to expand its defense industry, it is reasonable to assume that at some point Iraq will turn to it for military hardware, which would in turn create incentives for greater economic cooperation between the countries and further entrench China’s presence in Iraq.[12]
China has emerged as one of the biggest energy beneficiaries of the Iraq War, snagging lucrative deals.[13] Western energy firms eventually lost interest in Iraq, as demonstrated in Iraq’s 2012 oil auctions, in which China snapped up three contracts, shrugging off the security risks and Iraq’s political instability for the promise of oil. Iraq has become an obvious source for China’s quest for future energy security. While Chinese oil dealings and investments with countries in the broader Middle East, like Iran and Sudan, receive global attention, its budding relationship with Iraq may turn out to be the most important in the region.[14]
According to the International Energy Agency (IEA), Iraq has the potential to exceed 6.1 mb/d (million barrels per day) by 2020 and is expected to increase to more than 8.3 mb/d by 2035 and become the key supplier to fast-growing Asian markets including China. Iraq possesses the world’s second-largest proven oil reserves, currently estimated at 112.5 billion barrels, about 11 percent of the world total, and its gas fields are immense as well.[15] Additionally, Iraqi oil is of high quality and very inexpensive to produce, making it one of the world’s most profitable oil sources. Therefore, Chinese oil companies hope to gain production rights over these rich fields of Iraqi oil, worth hundreds of billions of dollars. According to IEA, China is poised to become the main customer for Iraqi oil by the 2030s, and half of Iraqi oil production will go to China by that time.[16]
Beijing already buys nearly half of all Iraqi oil produced, close to 1.5 mb/d and is angling for an even bigger share, bidding for a stake now owned by Exxon Mobil in one of Iraq’s largest oil fields.[17] The volume of Iraqi oil imported by China is already close to its former import levels from Iran, and this is likely to rise to as much as 2 mb/d by 2020 if Iraqi production keeps increasing,[18] although still less than the potential predicted for Iraqi oil output.
Same experts have said that Chinese oil dealings and investments with Iraq’s oil industry has created a new “Silk Road” of the global oil trade between Baghdad and Beijing (B&B). This B&B oil link would not only be the key to Chinese energy security but could also force Beijing’s greater political and military involvement within Iraq and the broader Middle East.[19] Additionally, Iraqi oil reserves now appear to be the only large-scale source of Chinese energy security outside of North America. As an oil consumer with stagnant domestic production and rising import needs, China considers Iraq extremely important for its energy security and economic growth.[20]
Relations between Iraq and China will likely continue to intensify in the near future. The Iraq War had an appreciable impact on China’s strategic interests, mainly in terms of economic interests and energy security. If the U.S. goal in the Iraq War was to take control of the vast oil reserves of Iraq, as many critics have asserted, then China seems as though it has come away with the lion’s share of that oil and has thus emerged as the big winner in the war. Yet Chinese strategic achievements in the region are mainly short-term. As the next section will show, the Iraq War also held many losses and complex challenges for Chinese objectives and interests in the Middle East.
CHALLENGES AND LOSSES FOR CHINA
The Iraq War has been a mixed blessing for China’s rising power and sphere of influence in the world. On the one hand, it gave Beijing short-term economic and strategic achievements. On the other hand, it had devastating strategic and economic consequences in the long term, raising the question of whether China truly is truly the greatest beneficiary of the Iraq War.
Strategically, the occupation of Iraq presented an opportunity for China to avoid open confrontation with the U.S. while consolidating its national power and economic development. Especially after the September 11th terrorist attacks, U.S. strategic focus shifted away from China to the war on terrorism, leaving China unconcerned about any major potential confrontations with Washington.[21]
However, the U.S. withdrawal from Iraq led to a strategic conceptual change. Washington planned to draw back its troops from Afghanistan and refocus on Asia, anticipating an era of renewed tension with China. The Obama administration pivoted towards Asia and planned to establish a permanent military presence in Australia, in part to counterbalance growing Chinese power.[22] As President Obama said, “We are here to stay. This is a region of huge strategic importance to us.”[23]
The focus on China instead of Iraq as a strategic threat and the new U.S. strategy of containment in Asia would have many partners in the region. Evidence of this can be seen in Washington’s regional initiatives: among other actions, the U.S. strengthened its security ties with Asian allies such as Japan, the Philippines, and South Korea, extended diplomatic relations with developing powers such as Vietnam and Indonesia, and increased its involvement with ASEAN institutions. Since 2011, China has found itself far more isolated regionally than it ever had been. As a result, Chinese leaders are feeling isolated, criticized, encircled, and increasingly like a target of U.S. maneuvers.[24] All these factors influence the way Chinese strategists think about their country’s security and relations with Washington and U.S. allies in the region, like Japan, South Korea, and the Philippines. For instance, in 2010, U.S. Secretary of State Hillary Clinton declared that freedom of navigation in the South China Sea was a U.S. “national interest.” China viewed it as an outrageous provocation.[25]
Many Chinese analysts believe that U.S. predominance and military power after the Iraq War has gone into an inexorable decline. Nevertheless, Washington will remain the world’s most fearsome military power for a very long time. If Beijing behaves as though the U.S. is weak and seeks to push back against its displays of power in Asia, the relationship between the nations could slide into competition and confrontation and bring about a Cold War style or rivalry for influence in the region. Already, China’s tough new attitude in Southeast Asia is having an effect.[26] The Obama administration’s maneuverings there, aimed at displacing China and being a counterweight to its growing influence, serve neither China’s interests and nor those of its neighboring countries.[27]
Much attention has been focused lately on the rapid expansion of bilateral trade between Beijing and Baghdad, driven by lucrative oil contracts. China has powerful incentives to seek steady long-term supplies of Iraqi oil as part of its energy security. According the BP Statistical Review of World Energy 2013, Iraq is the world’s third-largest oil exporter and has the resources and plans to rapidly increase its oil and natural gas production.[28]
For China, however, the rapid expansion of imports of Iraqi crude oil carries risks and security problems. Deteriorating security, sectarian tensions, endemic corruption, and lack of infrastructure could hurt Iraq’s stability, which is necessary for increasing its oil production. These issues also have the potential to threaten its imports and damage profits to Iraqi oil companies. Any one of these factors may force Beijing to look for alternative suppliers for its energy security. The Economist Intelligence Unit (EIU) expects the political situation in Iraq to remain unstable. Political divisions within the country, combined with a weak national government and high unemployment, make Iraq one of the most unstable countries in the Middle East. The country remains deeply scarred by the brutal civil war (2006-08) that has poisoned relations between Iraq’s religious communities for generations to come.[29]
Furthermore, the Global Risk Insight (GRI) report in 2013 argued that while the economic indicators surrounding Iraq’s oil growth seem quite promising, Iraq’s progress towards becoming an economic power in the region is hindered by its polarizing politics which are dependent on vestigial policies.[30] Iraq cannot grow economically if it remains politically unstable. The lack of political consensus within Iraq is intertwined with sectarian, ethnic, and even tribal tensions, impacting the economy severely.[31] Moreover, the Syrian conflict has increased the danger of a sectarian war in Iraq and an unstable political environment.[32] Thus, the new unstable political and security situation in Iraq following the U.S. withdrawal does not necessarily contribute to long-term Chinese economic interests in Iraq.
Political tensions between and within Iraq’s ethnic and sectarian groups intensified following the U.S. withdrawal, and by 2013, violence had reached a level unseen in many years.[33] Although the Iraq war troop surge in 2007 did improve the security situation enough to allow Washington to pull out of the country, it failed to solve sectarian violence or to create a stable political environment. In this context, most Western oil companies have reduced their activity in Iraq while focusing on other areas in the region, including the autonomous Kurdistan to the north. Beyond the sectarian war, other factors, such as rampant corruption, led to the Western companies’ assessment that any project initiated now would be unprofitable.[34]
As a result of this instability, beginning in 2012, Western oil companies began to lose interest in Iraq’s oil sector. This has been largely due to growing disenchantment with the Shiite-dominated Baghdad government of Prime Minister Nouri al-Maliki, its bloated, corrupt bureaucracy, and the U.S.’s own energy boom that has lessened its dependence on Middle Eastern oil.[35] For instance, the Iraqi government told ExxonMobil that it must choose between working in the Kurdistan region or working in southern Iraq.[36] So ExxonMobil chose to withdraw from its planned $50 billion project to develop West Qurna-1 in southern Iraq.[37] Analysts believe that despite its vast potential, West Qurna will not be developed in the near or mid-term because of declining security. Clearly, ExxonMobil sees a much brighter future in Kurdistan because of its stability and friendlier government.[38]
When ExxonMobil decided to give up its stake in developing West Qurna-1 in southern Iraq, it left behind an important business opportunity for Chinese oil companies. Since 2012, China National Petroleum Corp (CNPC) has emerged as the frontrunner to take over Iraq’s West Qurna-1 oilfield, a move that would diminish Western oil influence in Iraq a decade after the U.S.-led invasion. By taking on West Qurna-1, Chinese companies would ultimately dominate Iraq’s oil fields with roughly 32 percent of the reserves found in service contracts awarded to foreign companies, up from the current 21 percent now.[39] China, however, cannot ignore the geopolitical risks given the ongoing instability in Iraq. Conflict between the Iraqi central government and the Kurds will influence the development of oil projects. Despite its traditional policy of non-involvement, Beijing will face increasing pressure to become involved in the area’s treacherous political and security situation.
Chinese oil companies are generally far less risk-adverse than Western oil companies. Therefore, they are seeking to fill the vacuum being left by the West’s departure. Additionally, Chinese oil companies are prepared to accept tougher terms and lower profits than Western oil majors and even Russian firms.[40] Therefore, Beijing appears as if it is coming away with the lion’s share of the Iraqi oil, and thus emerging as the big winner in the war, but this is true only in the short term. Although Chinese presence in Iraq has been strongly increasing while Western companies have been retreating from doing business with the country, according to IEA, in the long run Iraq will need a cumulative energy investment of over $530 billion.[41] It will be a huge, costly, and long-term project for Chinese oil companies to ramp up to full oil production in a country so divided and unstable. It takes $30 to $40 billion in annual investment to rehabilitate active wells and to develop new fields in Iraq’s energy sector, and by stepping in to fill the U.S. void, China seems to have volunteered to foot the bill. [42]
The Iraq War contained strategic losses and complex economic challenges for China’s future. In the long term the Iraq War will have serious implications for China’s strategic position in Asia, its energy security, and its economic growth. Those who now criticize the Iraq War because China is seen as having “won” a larger share of Iraq’s oil than the U.S. are equally misguided and do not see the big picture. Even if the Iraq War had never taken place, China’s trade and energy relations with Iraq would have nevertheless expanded rapidly. This is a natural result of Chinese rapid economic development and its need for energy security. Chinese trade with other countries in the Middle East, including post-Saddam Iraq, has also grown rapidly. Beijing can by no means be called a “victor” of the Iraq War. In fact, the war has made it more difficult, costly and risky for Chinese oil companies to invest and conduct business in Iraq’s energy market.
U.S. AND THE IRAQ WAR
Objectives and consequences for the U.S.
For many decades, Washington has defined its threefold national security interests in the Middle East as a) ensuring access to the region’s oil, b) containing any aspiring regional hegemonic powers, and c) limiting the proliferation of weapons of mass destruction.[43] The U.S. has tried to achieve this complex set of goals primarily through a network of informal security alliances, especially with Israel, Saudi Arabia, and Egypt. Washington has also attempted to broker peace between the Israelis and the Palestinians, partly because a resolution of the Israel-Arab conflict would reduce the appeal of anti-Americanism and contain the radical forces in the region.[44]
As of 2010, the U.S. began transitioning its focus away from the Middle East and towards the Asia-Pacific region. (This may change as IS intensifies its ominous presence in the area). If the trend continues over the next years, this will substantially alter the course of U.S. foreign policy and interests in the Middle East. This new policy was designed under the assumption that U.S. interventions in other regions, like the Middle East, will be reduced. The conflicts in the Middle East, primarily Iraq and Afghanistan, have been decreasing, allowing Washington to focus its attention and resources in the Asia-Pacific region. Moreover, this new course represents an acknowledgement that the Asia-Pacific region has become a major driver of global politics and economic and strategic changes, as well as a potential challenge to U.S. foreign policy and interests.[45]
Although the IEA projects that the U.S. will overtake Saudi Arabia as the world’s biggest oil producer by 2020, Washington must remain engaged in the Middle East if it wants to avoid price volatility and keep energy markets stable.[46] At present, the U.S. still imports its crude oil and related products from the Middle East. Thus, for the foreseeable future, Washington will continue to be engaged in the region, to preserve not only the stability of global energy markets but also its energy security.[47]
For the time being, U.S. strategy and objectives in the Middle East include five principal national security interests in the region. First, deterring, containing, and defending against regional threats, especially limiting and channeling Iran’s nuclear ambitions. Second, supporting new and old Arab regimes in order to fight terrorism, stabilize oil prices, and to advance democracy and human rights in the region. Third, mounting counterterrorism efforts to disrupt, dismantle, and defeat al Qaeda; this remains an important objective, though it has been retrenched in both scope and magnitude. Fourth, ensuring Israeli security and ensuring progress toward Arab-Israeli peace as part of its support for Israel’s security and survival. And finally, securing the oil resources in the Gulf to ensure the overall accessibility and stability of world energy supplies.[48]
After ten years, it is clear that the Iraq War had an appreciable impact on U.S. strategy and economic power. Although the war quickly achieved its primary objective of removing the regime of Saddam Hussein and with him, the specter of a nuclear-armed Iraq, its justification was highly questionable. Washington did not find weapons of mass destruction in Iraq or links to the extremist group Al-Qaeda.[49] Therefore, the U.S. failure in Iraq is both resonant and dissonant; resonant because of the failure to achieve the general objectives of the war and dissonant because of its results, e. g. China’s success in Iraq and the failed attempt at the U.S. rehabilitation of Iraq. As Stephen Walt states simply, “The first and most important lesson of Iraq War is that we [the U.S.] didn’t win in any meaningful sense of that term”.[50]
The war has had far-reaching economic consequences. Occupying Iraq seriously weakened the U.S. economy, and according to the Organization for Economic Cooperation and Development (OECD), China’s economy will replace the U.S. economy as the world’s largest by 2016.[51] The cost of the Iraq War to Washington has been estimated at $3 trillion, a painful blow to the U.S. economy. [52] The Iraq War was not only the second longest war in U.S. history, (after the war in Vietnam); it is also the second most costly–surpassed only by World War II. According to the U.S. Department of Defense, the Iraq War led to the death of almost 4,500 U.S. soldiers, with another 30,000 injured.[53]
The Iraq War also impacted global oil prices and U.S. oil imports. On the eve of the invasion of Iraq, the price of oil was less than $25 a barrel, and futures markets expected it to remain around that level. During the Iraq War, oil prices reached over $140 a barrel by 2008.[54] Experts believe that the war and its impact on the Middle East were major factors in this meteoric rise. Not only was Iraqi production interrupted, but the instability the war brought to the region dampened regional investment. The higher energy costs that resulted had a significant impact on the overall costs of U.S. imports and the size of its trade deficit.[55]
There is no dispute that the Iraq War, like the Afghanistan War, added substantially to U.S. federal debt. In a move unprecedented in U.S. history, Washington cut taxes at the very same time it went to war and thus financed the Iraq war entirely on borrowed funds. U.S. debt soared from $6.4 trillion in March 2003 to $10 trillion in 2008.[56] Experts suggested that at least a quarter of that increase was directly attributable to the Iraq War. This amount does not include future payments for health and disability costs to U.S. war veterans, anticipated to total an additional half-trillion dollars.[57] The experts concluded that Washington did not have a spending problem; it had a military spending problem. The current deficits are a result of the major military operations in Iraq and Afghanistan which have increased overspending in the U.S. budget. For instance, since 2001, the base defense budget has soared from $287 billion to $530 billion, not including the primary costs of the Iraq and Afghanistan Wars.[58]
The global financial crisis of 2008, which still reverberates today, can be attributed directly, at least in part, to the Iraq War. The Iraq War and the global financial crisis harmed the image of the U.S. both as a hegemony and an economic influence in the world. Although the Iraq War damaged the image of the U.S. as the predominant international power, the global financial crisis proved that it was still capable of impacting the world economy. Many countries, like China, attributed the crisis to the drawbacks of the U.S.-dominated international financial system, and called for the establishment of a new and more stable international financial order that would be fair, equitable and inclusive.[59]
The Iraq War also made it more difficult for the U.S. government to respond effectively to developing economic problems not only within its own borders but also internationally, and contributed to the severity of the global financial crisis.[60] Washington had far less room to maneuver in the global financial crisis than it otherwise would have had. More specifically, the oil price rise and trade deficit grew because the U.S. occupation of Iraq hampered its own ability to respond to the recession. As of late 2014, the Iraq War has cost U.S. taxpayers $3 trillion and raised oil prices by at least $5-$10 (but more likely by $35) per barrel. Linda J. Blimes of the Harvard Kennedy School, a leading national expert on defense costs, states, “The Iraq and Afghanistan conflicts, taken together, will be the most expensive wars in U.S. history, totaling somewhere between $4 – $6 trillion”.[61] The price tag of the Iraq War will haunt U.S. citizens for decades to come.
As mentioned above, while China suffered moderately from the Iraq War, it has gained remarkably at U.S. expense. Trade between Iraq and China doubled almost 34 times, and in 2012 the volume of bilateral trade soared to $17.5 billion, compared to $517 million in 2002. Meanwhile, the volume of bilateral trade between Iraq and the U.S. increased only 5.6 times. In 2012, bilateral trade between Iraq and the U.S. rose to $21.6 billion compared to $ 3.8 billion in 2002.[62] According to the UN Comtrade database, in 2011 Beijing was both the second-largest purchaser of Iraqi exports, at $12.6 billion, (after the U.S., at $ 19.6 billion) and the second-largest supplier of imports, at $4.9 billion.[63]
Although Washington is still Iraq’s largest trade partner, current trends suggest that China will soon overtake Washington to become Baghdad’s top trade partner.[64] Since 2012, the U.S. has also been steadily losing its edge over Chinese oil companies, which are beginning to take the lead in imports of Iraqi oil, a trend expected to gain momentum in the coming years. In 2012, U.S. imports from Iraq of crude oil were lower in volume than before the invasion.[65] While in 2002 the U.S. imported 485 thousand barrels of crude oil per day (kbpd) from Iraq and the figure from China was almost zero, by 2012, the U.S. imported only 473 kbpd of crude oil, while China’s total reached about 315 kbpd.
LONG-TERM STRATEGIC IMPLICATIONS
The Iraq War has several long-term strategic implications for U.S. foreign policy and objectives in the Middle East.
Access to energy sources
Washington’s basic objective since the late 1940s and early 1950s has been to preserve the flow of energy resources and commerce, which is vital to U.S. regional and global economies. Yet, several years ago, China surpassed the U.S. in imports of Persian Gulf crude, and in 2013 it was on track to overtake the U.S. as the world’s number one buyer of oil from the Middle East energy-exporting bloc. This leaves the U.S. military paradoxically securing China’s growing oil shipments in the region at a time when Beijing is resisting pressure from Washington to back its foreign policy in the Middle East.[66]
For decades, China and other oil-consuming nations have benefited as the U.S. spent billions of dollars a year to secure shipping lanes and a stable energy flow from the Middle East. Yet, in the coming years the U.S. will become energy self-sufficient, thanks to fracking technology which will eventually make the U.S. the number-one oil producer and end its dependence on imported oil, including from the Middle East. Yet it is anticipated that China’s reliance on the region’s oil will keep growing over the same period.[67]
China’s rise as a dominant buyer of Middle East oil presents a new strategic equation for it and the U.S., exposing China’s strategic vulnerability as its economy and energy security grow increasingly dependent on oil from a region dominated by the U.S. military. When tankers depart Persian Gulf terminals for China, they rely heavily on the U.S. Fifth Fleet that secures the area. China’s military capabilities to defend its own interests in the Middle East are limited. The Chinese navy, despite making rapid technological progress in having launched its first aircraft carrier in 2012, is relatively weak and inexperienced. It does not have the military firepower or expertise to actively secure conflict zones or shipping lanes.[68] Its biggest military deployment in the region took place during modest anti-piracy operations off the coast of Somalia. Indeed, when it came to evacuating its citizens from Libya in 2011 during fighting there, China was forced to rely mainly on chartering ferries. With its current resources, China has no way of using military force to protect its interests and energy security in the Middle East. The only protection for China’s oil shipments in the region is the existing strong U.S. military presence.[69]
For the U.S., China’s oil thirst means allocating military funds to benefit a country which many Americans see as a strategic rival and which frequently does not side with its own foreign policy in the region. At a time of global financial crisis and growing national debt, the U.S. cannot continue to “subsidize” China’s oil shipments from the Middle East in this way. More and more Americans now believe China should bear part of these expenses, rather than continue enjoying its “free ride” with the U.S Navy.[70] Moreover, senior U.S. leaders have criticized China for obstructing its own stance against the Syrian and Iranian regimes at the United Nations. Over the coming years, securing energy sources in the Middle East will add more fuel to diplomatic tensions between China and the U.S.[71]
Regional stability
Washington’s second ongoing goal in the Middle East is to preserve regional stability and protect its security through counter-terrorism and counter-proliferation, with particular focus on preventing Iran from becoming a nuclear power. Yet the 2011 pullout of U.S. troops from Iraq and the U.S. military “reset” in the Gulf region that is expected to follow in the coming years will change calculations by Iran and by U.S. allies in the region about their own security needs after two decades of constant U.S. military presence in and around Iraq and its ongoing containment of Iran.[72] As Iran looks to neighboring Iraq for opportunities to exert greater influence, the Iranian nuclear program will continue to challenge U.S. goals in the region. These continuing tensions will raise the risk of military conflict or damage to regional stability.[73]
Furthermore, the U.S. desire to promote democracy and human rights in the changing Middle East is proving increasingly problematic. Given the scale and velocity of political turmoil associated with the Arab uprisings, the U.S. must rebalance and adjust its foreign policy and interests in this volatile environment. Washington must position itself effectively within a region that will is not likely to stabilize soon. Given the economic constraints impacting the U.S. economy, it will probably be unable to consider additional military interventions to deal with regional instability (such as in Syria or Iran) or to embark on new or expanded programs of aid and trade negotiations to encourage emerging democracies (such as Egypt, Libya, and Yemen).[74]
The U.S. is willing to support both new and old Arab regimes in order to fight terrorism and advance democracy and human rights in the region. Indeed, the main objective of the Iraq War was to remove the regime of Saddam Hussein and to create a pro-American democracy. This strategy hinged on the belief that a new Iraqi democracy would launch a far-reaching regional transformation, ushering in a wave of pro-American democracies, solving the terrorism problem, and strengthening the moderate camp for peace and security in the Middle East. However, post-Saddam Iraq is at best a quasi-democracy and far from pro-American. Moreover, the regime change in Iraq created an almost paradoxical reaction: rather than strengthening the moderate camp in the region, it has strengthened the extremists in the Persian Gulf.[75]
Although the Iraq War seriously weakened the U.S. economy and military power, it remains a very powerful country. The economic cost of the Iraq War is largely short-term and relatively manageable. Consequences of the Iraq War on U.S. strategy and objectives in the Middle East for the long term are not necessarily all somber. Washington is still the leading economic and military power and will remain indispensable to any solution of the region’s problems. Further, as the next section will show, the Iraq War has also created economic and strategic opportunities and benefits for the U.S.
ECONOMIC BENEFITS AND STRATEGIC ADVANTAGES
Strategically, the consequences of the Iraq War have not led to any sudden dissolution of U.S. power and influence in the world, and have not led to a split in the western alliance.[76] Also, the aftermath of the Iraq War has not opened more opportunity for contenders to U.S. power and influence in the world. Any existing challengers, like China, Russia, and India, would have emerged in any case, particularly in light of Asia’s growing energy needs and the desire of both oil consumers–China and India–and oil producers–Iraq and the Gulf States–to diversify their markets.[77]
More broadly, the claim that the Iraq War has in some way aided rising powers, like China, or generated new strategic competition between global powers is probably an overstatement. China was already a rising power in the region; its core interests are more economic than political or strategic; and the Iraq War, like any war, provided an opportunity to expand its Middle East footprint. China, as any country would, worked hard to exploit the economic opportunities generated by the occupation of Iraq, just as it does elsewhere in the world.[78]
Finally, the U.S. strategic decision to pivot towards Asia is one of the Obama Administration’s central foreign policy initiatives. The Asia-Pacific region is depicted by the Obama administration as the main arena of U.S. political, economic, and military interest.[79] Washington wanted to signal that the Bush-era obsessions with the Middle East, democratization and terrorism were over. The September 11th attacks and the subsequent occupations of Iraq and Afghanistan diverted U.S. attention from the Middle East as an economic center of gravity.[80]
A 2012 U.S. Department of Defense paper states that Washington seeks to “re-balance” its interests, from Europe and the Middle East toward East Asia, and that it perceives China as a threat to U.S. engagement in the region[81]. According to that paper, China’s emergence as a regional power has the potential to affect U.S. economic, security, and political goals; as China’s military power grows, the U.S. must clarify its strategic intentions in order to avoid causing friction in the region.
Although Obama administration officials have often stated that their strategies do not target any one particular country, many in China believe these are responses, at least in part, to its growing influence.[82] China’s rise in East Asia also represents a strategic threat to U.S. allies in the region, like South Korea, Japan, and Australia. The U.S. is the only power with enough strength to check China’s rise, and many of these allies have sought reassurance from U.S. that it is still and will remain invested in the region. It is not a coincidence that in 2012, the Philippines allowed the semi-permanent rotational deployment of U.S. military forces at Subic Bay base for the first time in almost 20 years.[83]
There is no doubt that the end of the U.S. military presence in Iraq and Afghanistan shifted U.S. attention to the Asia-Pacific Region. Beginning in 2012, Washington’s “Pivot to Asia” policy has swung from attempting to cooperate with China on global problems to pushing back against Chinese assertiveness and challenges to the balance of power in the region and the wider international system.[84] This new American strategy may lead to a zero-sum rivalry in East Asia with China and perhaps a new “Cold War” or “anti-China alliance.” Such a development would be detrimental to Chinese foreign policy, hindering its core interests and rise to great power status in the region.
Additionally, the “Pivot to Asia” strategy offers Washington the chance to reduce its military deployments in the Middle East and increase them in the Asia-Pacific. However, U.S. plans are one thing, and the reality in the Middle East is another. The assumption that conflicts in the Middle East will be reduced and the U.S. military presence become less essential may prove misguided. This shifting U.S. policy in the Middle East may ultimately lead to high costs, with the danger of unnecessary economic and strategic loss. A continuing strong U.S. military presence in the Middle East is vital for protecting its own interests, contributing to regional security, and preparing to respond to regional crisis. The U.S. must maintain its traditional military deployments in the Gulf region so it can deter, contain, and defend against Iranian ambitions for hegemony, as well as to ensure the accessibility and stability of energy supplies.
Economically, the West in fact stands to benefit from the encroachment of Chinese companies into the Iraqi oil industry.[85] First, Chinese companies increasing their investment in the Iraqi oil industry reduces energy competition with U.S. firms elsewhere around the world. China’s heavy investment in the Iraqi oil sector means that U.S. firms can buy oil at a discount in friendly markets where previously they had to compete with Chinese oil companies.[86] Second, since the Iraqi oil sector had been badly degraded by years of U.N sanctions and mismanagement, the rebuilding process will be a huge, costly, and long-term project. Iraq’s Deputy Prime Minister for Energy estimates that energy infrastructure in Iraq requires capital expenditures of $30 billion annually to meet production targets, and U.S. oil firms are not likely to foot that bill.[87] Therefore, China’s willingness to invest billions of dollars in the Iraqi energy sector is a great solution to help rebuild Iraq while allowing for a pause in U.S. investment, which could speed recovery of the American economy.
Third, China’s involvement in the Iraqi oil industry reduces its reliance on energy imports from Iran. Since 2012, due to hard-hitting Western sanctions against it, Iran’s energy sector has become unpredictable as a source of oil for China. By diversifying its energy imports, buying more and more oil from Iraq and reducing its reliance on Iranian oil, China is creating a basis for cooperation with the U.S to enforce sanctions against Tehran and reach a negotiated solution to the Iran nuclear program. Chinese involvement in the Iraqi energy sector will help the U.S. impose sanctions on Iran’s oil exports without severely disrupting the global economy.[88] The Obama administration needs China’s support to pressure Tehran to abandon its nuclear ambitions and to promote security and stability in the region. China also shares the U.S.’s interest in avoiding renewed sectarian or other ethnic conflict in Iraq.[89]
China’s increasing investment in the Iraqi oil industry is actually good news for the U.S., which is finding it harder and harder to finance global policing operations. Chinese oil companies’ investment in the Iraqi oil industry forces Beijing to care more about peace and stability in Iraq and the Middle East.[90] It will likely also forcing China to act less like a “free rider” and more like a responsible stakeholder power actively contributing to regional to peace and stability. Iraq badly needs China’s aid and attention to keep its political system and economy together.
Furthermore, Chinese investment in the Iraqi oil industry makes an important contribution to the rebuilding of the U.S. economy. China is the world’s biggest oil importer and according to all forecasts, its oil import demand will only increase in the coming years.[91] That could put upward pressure on oil prices, raising the price tag for Western oil imports as well. Furthermore, China’s growing oil needs make it vulnerable to the changes in the global energy market and to the instability among suppliers, forcing it to pay more for oil imports. That kind of demand spike could potentially raise prices globally, including for U.S. oil companies. However, with China concentrating its financial and technological efforts on developing Iraqi oil, it will no longer compete with the U.S. for oil from other sources. In consequence, China’s purchase of Iraqi oil reduces the chances of such a scenario and the severity of its consequences.
Although it is clear that China has emerged as one of the biggest energy beneficiaries of the Iraq War, negotiating lucrative deals,[92] while Western energy firms have lowered their interest in Iraq, this development is not necessarily bad for the U.S. economy. Even if China were to purchase all of Iraq’s oil, the U.S. could attain energy self-sufficiency by as early as 2017, according to the IEA, thanks to the new extraction technology of fracking. Fracking will quickly position the U.S. as the number-one oil producer globally, even enabling it to export oil. In fact, the U.S. is projected to become the world’s largest oil producer, overtaking both Saudi Arabia and Russia by 2016.[93] Additionally, new technology is unleashing vast reserves of gas from shale deposits in the U.S., which may overtake Russia in gas production within the next decade. The result will likely be a continued drop in U.S. oil imports from the Middle East and a changing strategy in the region, accelerating the shift towards Asia desired by the the Obama administration.[94]
The bottom line is that the Iraq War did not necessarily damage U.S. economic interests in the long term, and may have even provided some important strategic achievements to U.S. objectives in the Middle East. Although the consequences of the Iraq War certainly did cause strategic and economic losses to U.S., it also provided great economic benefits and strategic advantages. For example, China’s increased presence in the region will absolve the U.S. of further responsibility for the Iraqi economy. With China now the only country taking major risks on Iraq’s future by heavily investing in its oil industry, any blame for a failure in Iraq’s economic rebuilding process will land squarely on China’s shoulders.
CONCLUSION
The Iraq War may have helped shift U.S. predominance in world politics, but its impact on the global balance of power has so far been less severe than predicted. Ten years after the Iraq War, the Middle East geostrategic situation and the balance of power have undergone huge changes, some of which the war helped to generate (like the Arab Spring events), but there have also been many features of continuity. Specifically, U.S. strategic influence in the Middle East has weakened, its economy declined, and its military power been eroded, allowing China and other countries to expand their influence in the region.
The study findings suggest it is important to separate myth from reality and take a long hard look at the impact of the Iraq War. In the short term, China looks like the clear winner of the Iraq War, but this isn’t the whole story. China has reaped many economic benefits and achievements. Yet in the long run, Beijing has little cause for celebration, especially in light of the strategic challenges and economic risks that lie ahead. Increased Chinese involvement in Iraq’s economic rebuilding process and energy sector is not necessarily bad for U.S. economic objectives in the Middle East, while the strategic challenges to the U.S. in the Middle East are reason for concern regarding China’s economic and strategic objectives.
Analyzing the question of who won the Iraq War, in retrospect and looking ahead, the answer depends on our perspective. Taking the short-term perspective, whether from an economic or strategic standpoint, China indeed seems like the clear winner of the Iraq War in every way. However, from a long-term economic and strategic perspective, the results are actually quite different.
Although the Iraq war seriously hindered U.S. strategic objectives in the region, the damage to China has been no less severe, and may even be greater in the future because of its dependence on U.S. presence in the Middle East, a presence which is vital for Chinese economic development and energy security. At present, China has no way of using military force to protect its interests and energy security in the Middle East, so it relies on a strong U.S. military to protect its oil shipments in the region.
Despite the U.S. withdrawal from Iraq, its military presence remains in place throughout the Persian Gulf. Even as the Obama administration has declared its pivot toward Asia and its desire to work toward energy independence, the U.S. is not prepared to abandon its presence in the Middle East. Washington influence in the region provides a valuable level of strategic and economic influence over its competitors and rivals alike. These circumstances present important challenges for Chinese Middle East foreign policy, especially as its reliance on the region’s energy resources continues to grow.
The new challenges of IS
Finally, since the withdrawal of U.S. troops, Iraq has faced a growing crisis as the Sunni jihadist group the Islamic State in Iraq and Syria (ISIS) threatens to drag Iraq back into a state of civil war. Unfortunately for the Obama administration, most prominent among the nations considering aiding the Iraqi government are China and Iran, two countries with which the U.S. has a particularly complex relationship. China, as the biggest foreign investor in Iraqi oil, is anxiously watching the mounting crisis in Iraq. China is ready to work alongside Iran, a key player and ally in the region, to restore stability. In addition, growing ties between Iraq and Iran will challenge U.S. control in the country and the region.
If Iran gains influence and control in Iraq, then this will challenge U.S. control and order in the region. Yet, if Washington’s goal is a stable Iraq, then working alongside Iran makes sense. Cooperation and coordination with Tehran could help stabilize Iraq while letting the U.S. focus on higher priorities–namely, its true competitor, China–and avoiding re-entanglement in the Iraqi mess. Additionally, successful cooperation with Tehran on the Iraq crisis could pave the way for further cooperation on other Middle-East issues, possibly alleviating U.S. tensions surrounding Iran’s nuclear program.
・Dr. Mordechai Chaziza holds a Ph.D. from Bar-Ilan University. Over the past few years, he has focused on China’s foreign policy in the Middle East-North Africa (MENA); China’s relations with Iraq, Iran, Saudi Arabia; China and Arab-Israeli Peace Process, and China’s non-intervention policy in intrastate wars. He is a lecturer at the Department of Politics and Governance, Ashkelon Academic College, Israel.NOTES
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