The United Arab Emirates aims for equidistance from China and the United States to become a global energy hub
The signing of historic energy agreements with China National Offshore Oil Corporation and ExxonMobil confirm the strategic role of the UAE in the global energy trade
While Saudi Arabia develops its Vision 2030 strategy to diversify its economy and reduce dependence on oil, the other major power in the Middle East region, the United Arab Emirates, aspires to become a global energy logistics hub, taking advantage of its privileged geostrategic location.
To this end, it has opted for a unique tactic in its commercial relations with the major powers, which is already yielding its first results: balancing its diplomatic and commercial relations with the two great world powers, China and the United States.
The Emirates, key to the Belt and Road Initiative
China chose the UAE as a partner in the Middle East for its Belt and Road Initiative, a China-driven global infrastructure development and international cooperation strategy launched in 2013 that is at the heart of Xi Jinping's government's foreign policy.
The aim of this bid was to take advantage of the UAE's privileged geostrategic position in the Middle East, at the centre of trade routes between East and West, to secure energy supplies. For this reason, the UAE has been a key player in the Bel and Road Initiative since its inception.
On 25 July, the UAE-China trade relationship entered a new dimension with the signing of a strategic partnership between the state-owned China National Offshore Oil Corporation and the Abu Dhabi National Oil Company (ADNOC).
The agreement provides for increased collaboration between the two countries in the exploration, production and trade of oil and liquefied gas. In fact, China is increasing cooperation with countries participating in the Belt and Road Initiative and had already started oil exploration work in the UAE in 2019.
In 2023, the UAE celebrated the tenth anniversary of the initiative. Its participation in the initiative has been very positive during this decade: nearly 90% of the UAE's non-oil trade in 2023 came from countries participating in Belt and Road, with China as the largest partner, accounting for 12% of total trade.
In any case, China had already shielded the energy supply chain by signing the ‘25-year Comprehensive Iran-China Cooperation Agreement’ and other similar regional agreements that allow it to control what happens in the Persian Gulf, the Strait of Hormuz and the Bab El-Mandeb, guaranteeing the flow of oil through the Red Sea, the Suez Canal and from the Mediterranean to the West.
The best proof of the UAE's strategic relevance to China is that it has tolerated commercial rapprochements between its partner and the United States, which Abu Dhabi sees as the best way to diversify trading partners on the basis of mutual benefit.
Agreement with ExxonMobil
In parallel to its trade partnership with China, the UAE has also reaffirmed its alliance with the United States by signing an agreement between the Abu Dhabi National Oil Company and US oil company ExxonMobil for the creation of the world's largest low-carbon hydrogen manufacturing facility.
The United States' strategic interest in the UAE became more pronounced from 2018 onwards, following the escalation of its confrontation with Iran and the exits from Afghanistan and Iraq. The US needed a strong partner in the Middle East and, at the same time, support to position India vis-à-vis China in the Asia-Pacific region.
In the face of China's Belt and Road Initiative, India is proposing its Neighbourhood first strategy. The US supports India as a regional rival to China and understands that the rapid economic and social development of India (which has already surpassed the Chinese giant in population) implies an exponential growth in its demand for energy, mainly oil and gas, in the coming years.
In this respect, the United Arab Emirates plays a key role, as it has a close relationship with India in the energy field. In fact, ADNOC is the only foreign company authorised to hold and store India's strategic oil reserves and is even allowed to export if there is no domestic demand.
The alliance with the United States via India is a textbook ‘win-win’ for the UAE: for the US, it helps it counterbalance China's dominant role in the Asia-Pacific; and for the UAE, it has helped it recover from the 2014-2016 oil price war by doubling its financial resources.
With these economic keys, it is understandable that, in the political arena, the United Arab Emirates agreed to sign the Abraham Accords, at the behest of the United States, in a ceremony presided over by Donald Trump at the White House on 15 September 2020.
The signing of the agreement with ExxonMobil may mark a new rapprochement between Washington and Abu Dhabi, after the cooling off period of Joe Biden's presidency, which has been characterised by ambiguity towards the Gulf states and by the postponement of the joint defence agreement signed by the Trump administration.
It remains to be seen whether a new term of office for Donald Trump will bring the relationship with the Emirates even closer, or whether a victory for Kamala Harris would prolong the period of indifference that characterised the Biden administration.
Fujairah's advantage
The United Arab Emirates consists of seven emirates: Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah and Umm Al Quwain. All of them have major ports and storage facilities, but Fujairah has the best possibilities.
Its geographical location, outside the Persian Gulf and 160 kilometres from the Strait of Hormuz (through which 30% of the world's oil passes), prevents supply disruptions caused by Iran or its regional players, such as the Houthis, the insurgent, anti-imperialist Houthi group.
Aware of this competitive advantage, the Emirati authorities are developing important infrastructures in Fujairah. As the consulting firm S&P Global Platts points out in its report dedicated to the emirate in the third quarter of 2022 and entitled ‘On the road to becoming a global energy hub’, the Emirates aim to turn Fujairah into a global logistics and raw materials hub.
The flagship project is ADNOC's new liquefied natural gas hub at the Port of Fujairah, which will boost its role as a global energy logistics hub with a capacity of up to 9.2 million tonnes of liquefied natural gas per year, with construction to be completed between 2026 and 2028.