Why China's investment in Oman matters

Why China's investment in Oman matters
Comment: China has an important role to play in Oman's future and transition away from an oil-based economy toward a knowledge-based one, writes Giorgio Cafiero.
5 min read
17 Oct, 2017
Chinese investors signed a deal establishing an industrial city in the Omani town of Duqm[AFP]
Within the framework of Beijing's One Belt, One Road (OBOR) initiative, the Chinese are busy planning the construction of industrial cities across numerous regions including the Middle East. 

China's plans to invest $10.7 billion in Duqm, an Omani fishing village situated between the Gulfs of Oman and Aden, have recently received significant attention.

Commonly referred to as the Sino-Oman Industrial City, China's endeavor within the Duqm Special Economic Zone (SEZAD) is important for Oman's quest to diversify its economy beyond its traditional hydrocarbon sector in line with Vision 2020.

This "Chinese city" along Oman's Arabian Sea coast will include a solar energy operation, an automobile assembly factory, production sites for oil, gas equipment, plus an oil refinery. Growing Oman's logistics and infrastructure sectors to make the Sultanate home to increasingly important hubs linking numerous continents is key to Oman's Vision 2020.

Beijing's numerous objectives in the Middle East, chiefly securing access to energy supplies, are driving China's growing interest in Oman. As China moves forward with OBOR, Duqm is set to facilitate Chinese firms' ability to better access markets throughout the Arab world and beyond.

As a leading natural gas producer strategically situated along the Strait of Hormuz, Gulf of Oman, Indian Ocean and Arabian Sea, Oman will play an increasingly important role in Beijing's Middle East foreign policy.

Bonds throughout modern history

As recently the 1970s, Oman and China were on hostile terms with Beijing sponsoring Marxist rebels in Dhofar whom the Sultanate officially defeated in 1976.

Yet China's relationship with Oman changed as Beijing's did with the other Gulf states in the period shortly after Mao Zedong's death. By the late 1970s Beijing's foreign policy in the Arabian Peninsula had become much more pragmatic, focused on China's interests in securing access to more sources of oil, rather than ideological endeavors to topple pro-western governments across the Arab world.

Today, Oman is China's fourth largest source of oil and China is by far Oman's top export partner

In 1978, Muscat and Beijing established official diplomatic relations, and by 1983 Oman became the first Arab country to export its oil to China. In 1997, the Chinese began purchasing Omani natural gas. Today, Oman is China's fourth largest source of oil and China is by far Oman's top export partner.

Bilateral ties between Muscat and Beijing have developed substantially throughout the 21st century, becoming about far more than just energy. For years the Chinese have been sending the People's Liberation Army Navy to Salalah for port calls during anti-piracy operations in waters near the Horn of Africa and the Arabian Peninsula.

For the past 12 years, Oman and China have held annual strategic consultations to counter piracy and other threats to global security. The Oman-China Friendship Association, launched in 2010, has led to stronger cooperation between both countries in economic, social, cultural and scientific spheres.

Implications of Muscat and Beijing's blossoming ties

The two countries' growing logistics, trade, investment and security ties are unfolding in a complicated geopolitical context which will prompt Muscat to carefully navigate competition between larger powers in the international arena.

There is no reason to conclude that Oman's deepening relationship with China will realign Muscat entirely to the East at the expense of its historic alliance with western powers, namely the United States and the United Kingdom.

A Chinese investor poses for a picture on the area in Duqm, Oman,
where an industrial city, including an oil refinery, is due to be built
following an economic agreement, on 24 May, 2016 [AFP]

In fact, the Omanis welcome American and Chinese investment in Duqm. That said, odds are good that Oman could secure more leverage vis-a-vis the Trump administration if China's footprint grows further in the Gulf country.

This could well prove the case, if issues such as North Korea, Iran and Taiwan intensify friction in Beijing-Washington relations.

Here, India enters the equation, too.

As New Delhi and Beijing vie for geopolitical clout throughout the Indian Ocean, China's growing influence in Oman will increase the Sultanate's relevance in the China-India rivalry, which intensified in the recent Doklam standoff.

In the past, Oman had capitalised on Muscat's alliance with Washington and warm relationship with Iran to gain greater leverage. This helped bring American and Iranian negotiators to the table in 2010 to start secret talks which produced the watershed - though now endangered - Joint Comprehensive Plan of Action (JCPOA).

Read more: How long can China stay out of Middle East politics?

In a similar vein, the Sultanate may well take advantage of China and India's competitive relationship by making itself useful to both Beijing and New Delhi's transregional trade corridors, which will depend on Oman as an important hub for global trade.

As illustrated by Muscat's response to both the months-old Gulf diplomatic crisis, and years of tension between GCC members and Tehran, Oman hopes to promote regional stability and economic development through maintaining warm relations with all major powers, and respecting the sovereignty of each nation.

Muscat's view is that China has an important role to play in Oman's future and transition away from an oil-based economy toward a knowledge-based one.

Beijing's numerous objectives in the Middle East, chiefly securing access to energy supplies, are driving China's growing interest in Oman

Oman is not seeking to weaken its ties with Beijing's geopolitical adversaries such as the United States, India and Japan by growing close to China. Instead the Sultanate is in a foreign policy strategy based on 360 degrees of close ties with major global and regional powers. This week, it hosted talks between Afghan, Pakistani, American and Chinese representatives on negotiating peace with the Taliban.

Maintaining such an intricate web of alliances and partnerships with countries that are competitors as well as hostile adversaries, presents some challenges for Oman. Yet the Sultanate is keen to function as neutral centre for diplomacy, and a beacon of stability, tolerance and moderation in the Middle East.

Due to economic problems stemming from cheap oil, as well as the major challenge of youth unemployment, the Omanis will welcome China's growing investment.

The country seeks more foreign investment and given that diversification of it is extremely healthy for the Gulf country's long-term interests, everything points to Sino-Omani relations flourishing in the years ahead.

Giorgio Cafiero is the CEO of Gulf State Analytics a Washington, DC-based geopolitical risk consultancy.

Follow him on Twitter: @GiorgioCafiero

Opinions expressed in this article remain those of the author and do not necessarily represent those of The New Arab, its editorial board or staff.