The SCO Expansion in the Gulf: A New Centre of Attraction for the Middle East?

In recent years, the Shanghai Cooperation Organisation has become a magnet for the Middle East, with several countries in the region knocking on the group’s door. Its successes testify to the redefinition of global balances and the growing influence of China and Russia in a region considered to be the preserve of the United States. But the group remains far too heterogeneous to worry Washington.

Enlarged meeting at the SCO summit in Samarkand, 16 September 2022
Sergei Bobylyov/Sputnik/ AFP

Over the past few years, the Shanghai Cooperation Organization (SCO) has become a significant focal point for the Middle East, with several countries from the region knocking at the group’s door. This inclusion of actors from the MENA region, just limited a few years ago, has rapidly gained momentum since last September, mirroring the rising Gulf-Asia economic and trade relations and underscoring the growing desire among Gulf states to diversify their foreign relations. More broadly, SCO’s success further indicates the redefinition of global balances in a growingly multipolar world, as well as the rising ambitions and impact of China and Russia (the bloc’s leading actors) on a region traditionally considered a US area of influence.

Founded in 2001 as the successor of the ‘Shanghai Five,’ the SCO is a Eurasian political, economic, and security intergovernmental organisation established by China and Russia with Central Asian Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. Based on the so-called Shanghai Spirit, it focuses on mutual confidence-building, good neighbourliness among its members, and non-interference in their domestic affairs. At its inception, the SCO was mainly concentrated on security-related issues such as counterterrorism, fighting separatism, religious extremism, and drug trafficking.

Since its foundation, the SCO has stepwise expanded to include major Asian powers like India and Pakistan, growing in prominence and becoming an essential platform for cooperation in Asia. As a result, the organisation is currently the largest regional grouping in Eurasia, covering around 40 per cent of the global population and one third of the world’s economic output. Nowadays, the SCO has expanded its regional profile in a relatively short span of time, as more and more Middle Eastern states have made little secret of their interest in joining the group at various levels of engagement.

Tehran’s integration

After holding the observer status since 2005, Iran finally acquired its permanent membership after signing a Memorandum of Understanding (MoU) in 2022 for its full accession – scheduled to take effect in 2023. This was a remarkable accomplishment for the Islamic Republic. Similarly, Arab states have shown a growing inclination to become part of the bloc. In September 2022, at the SCO’s annual summit in Samarkand, Qatar and Egypt were welcomed for the first time as dialogue partners (a status since then enjoyed in the region only by Turkey, the sole NATO member linked to the group). In the following months, the same position was also granted to Bahrain, Saudi Arabia, Kuwait, and the United Arab Emirates (UAE).

The rapid series of applications from the Gulf over the last months is symbolic and indicative of the consolidation of ties between the Middle East and the Asian world (especially China) and, more broadly, a shift in the global balance of commercial power to the East. Middle Eastern countries joined the SCO when the organisation gradually lessened its security-centred shape to embrace a more economical- and energy-oriented profile. As a result, through the Eurasian organisation, newcomers will likely establish closer trade relations with other SCO members and get access to new markets and infrastructural projects.

In the trade and investment area, the SCO engagement offers attractive opportunities for investments (especially for the capital-rich countries from the Gulf) and allows partnerships in the implementation of ambitious projects for infrastructure interconnectivity (such as roads, railways, oil pipelines and telecommunications) from which Arab states have so far mainly been excluded. In addition, technology, artificial intelligence (AI), seaports, electricity, agriculture, and green energy are also considered significant areas of joint investment.

Geopolitical readjustments

Including the Middle East countries in the SCO also underlines their growing desire to balance and diversify their security, economic and diplomatic activities and achieve greater political freedom of action in foreign relations. In many aspects, the Shanghai Cooperation Organization has been conceived as a global governance model alternative to other West-centric models such as NATO, the EU, and the QUAD. As a Eurasian forum focused on the region’s internal affairs, the SCO provides a robust platform for strengthening South-South cooperation outside the oversight of the United States and European powers. This manifests a new multipolar reality in which Asian countries – such as China, Russia, and India – are assuming a growing role in directing their own economic and diplomatic groupings with the support of neighbouring states.

From Theran’s perspective, the accession to a permanent membership within the SCO – which the Islamic Republic perceives as a club of non-Western powers – is a milestone event that could bring more economic, commercial, and strategic opportunities and strengthen its geopolitical position in Asia. Within its ‘Look East’ policy, the Raisi administration has seen the development of relations with its Asian neighbours as a priority of Iranian foreign policy. In this context, a seat at the table of world economic powerhouses such as China, India and Russia is a glimmer of hope for a country crushed by international economic sanctions and mounting domestic socio-economic pressures. In 2021 alone, Iran’s trade with the SCO member countries exceeded US$ 37 billion1, accounting for about one third of its total foreign trade. At the same time, Teheran is exploring ways to achieve its long-term vision of becoming a hub for Eurasian connection through infrastructural initiatives like the International North-South Transport Corridor (INSTC) to channel India and Russia via Iran.

Iran’s limited room for manoeuvre

Even so, Iran’s membership in the SCO seems unlikely to be a panacea for its multiple challenges. Firstly, Iran’s economic ties with the SCO members occurred mainly through bilateral channels, making it hard to extrapolate a specific correlation between its membership and trade relations with the bloc. Although Beijing has long ignored sanctions for acquiring oil from Iran, the economic benefits of this trade for the Islamic Republic are questionable, more so since Tehran is forced to sell at a discount to keep its product competitive with other Gulf exporters. Second, lack of modern rail, road and port networks and the difficulties in financing extensive infrastructure restructuring make Iran an unsuitable transit route for long-term infrastructural projects. Not least, the long-awaited investment by China and India – critical in Teheran’s economic rationale – is unlikely to occur under the current international sanction regime, as neither country seem willing to provoke Washington. Still, the political prestige of the SCO membership status for Tehran is immense, as one of the foreign policy goals of the Raisi administration was to prioritise regional relations to ameliorate the country’s international isolation.

On the Arab side of the Gulf, the SCO’s current traction owes mainly to the growing economic footprint of China, the leading spirit behind the organisation. Over the last decade, China has become the Gulf region’s largest trading partner. In 2021, Beijing’s bilateral trade with GCC states was worth US$ 230 billion2, approximately two thirds of the China-Arab trade volume – and four times greater than the GCC trade with the US. The previous year, despite a severe blow from the COVID-19 pandemic, China had already replaced the EU as the GCC’s leading trading partner. Nowadays, a third of China’s imported oil and a quarter of its natural gas and petrochemical products come from the GCC countries – including the most significant portion from Saudi Arabia. Beijing has also succeeded in expanding the use of its currency by Arab Gulf countries for select transactions, with Qatar being the first to launch a Renminbi Clearing Centre to settle payments in Chinese currencies for energy purchases3.

Beijing’s mediation efforts

China’s interests in the Gulf also encompass a broader range of economic activities, leading Beijing to increasingly view the region as strategically important. China is also the Gulf’s primary investor through its Belt and Road Initiative (BRI). The BRI has increased China’s investment portfolio in the Arab world – currently at US$ 140 billion in GCC countries alone 4– in various sectors, including transportation facilities, industrial complexes, artificial intelligence, emerging technologies, and renewables. In this context, Saudi Arabia is the largest beneficiary of Chinese investment, further proving the growing synergy between the Chinese BRI and other long-term initiatives such as the Saudi Vision 2030. Likewise, through the partnership with the SCO, the Gulf monarchies will likely get access to new markets and infrastructural projects in areas not previously covered – starting with the Central Asia republics.

Beyond the economic dimension, Gulf countries’ decision to join Eastern multilateralism is also a direct consequence of the changes in the global geopolitical landscape towards a more multipolar world, with SCO member powerhouses like China playing a growingly central role in this recalibration of the Gulf foreign policy. Over the past months, China has successfully combined diversified economic cooperation and political engagement to effectively advance its strategic interests in the Gulf, with several Chinese efforts to defuse strains between the two shores of the Strait of Hormuz. The most evident examples in this direction have been President Xi Jinping’s impactful visit to Saudi Arabia in December 2022 and Beijing’s mediation of the Saudi Iranian rapprochement to restore diplomatic relations in the following March. Similar initiatives, which mark an assumption of previously unseen responsibility by China for stability in the region, demonstrate how Beijing’s expanding economic clout has allowed it to play a more significant role in influencing security and diplomatic dynamics of a critical area for its strategic interests.

Tensions with the United States

Based on this, the timing of Arab monarchies’ decision to join the Chinese and Russian-led bloc – per se, a sign of growing diplomatic and security diversification – demonstrates a certain momentum in China-Gulf political relations. In contrast, China’s progressive inroad in the Gulf region comes at a time when relations between the US and GCC states like Saudi Arabia and the UAE, long aligned with Washington, have grown strained over America’s diminishing security guarantees and OPEC+’s decision to cut oil production to keep crude prices high despite (or because of) Russia’s war in Ukraine.

However, it is essential not to overestimate the impact of Gulf Arab states’ decision to join the SCO. Middle East countries’ entrance into a multilateral forum driven by Eastern powers hostile to or non-aligned with Washington mainly relates to their attempt to pursue a strategic balancing act among the great powers – a policy felt imperative for middle and small powers in a multipolar world order. Despite recent challenges in some bilateral relationships, the United States remains the Gulf’s most significant external security provider.

Similarly, several pre-existing challenges weaken the SCO’s political potential. Despite decades of development, the bloc’s level of institutionalisation is still low, and regulations are generally considered soft and flexible. Compared with other regional security organisations, such as NATO, the SCO is a political bloc whose members have relatively loose ties and are at a low level of military integration. At the same time, the complex balance of power among its members, dampened by divergent interests (especially between China and Russia) and deep-seated mistrust (e.g., between India, Pakistan, and China), add more difficulties to consensus and unanimous action (especially after Russia’s invasion of Ukraine). As SCO membership grows, there will be a risk that new members may bring unresolved bilateral issues and rivalry to the bloc (as has happened, for example, with India and Pakistan). Ultimately, the SCO represents, at best, a framework in which members and partners can expand their bilateral relations and dialogue systems, providing at least long-standing regional rivals such as the Arab Gulf States and Iran with a forum to engage in further dialogue. In any case, a group that is too divided to concern Washington.