China's premier recently announced plans to strengthen the foundation of its energy cooperation with the United Arab Emirates (UAE), a move directly responding to the escalating crisis in the Gulf region.
The immediate trigger is the ongoing Iran war, which has led to severe disruptions in the Strait of Hormuz, a critical artery for global oil shipments. With the US announcing a full blockade of Iranian ports and Brent crude prices surging over $100 per barrel, China, as the world's largest oil importer, faces a perfect storm of supply and price risks. This security shock has fundamentally changed the nature of its relationship with the UAE, transforming a commercial partnership into a strategic imperative.
This is about more than just securing oil barrels; it's about building a resilient economic architecture shielded from geopolitical shocks and US sanctions. China's strategy rests on three pillars being reinforced with the UAE: security of supply, settlement in non-dollar currencies, and long-term supply contracts. For years, China has been laying the groundwork for this. The establishment of Yuan clearing banks in the UAE and the joint development of the mBridge CBDC platform were not just financial experiments. They were strategic investments to create an alternative payment system for crucial commodities like oil.
First, the security threat has made existing long-term contracts, known as offtake agreements, more critical than ever. For China, which sees about 57% of its seaborne oil imports pass through the Middle East, securing stable volumes from a reliable partner like the UAE's national oil company, ADNOC, is paramount. These agreements help hedge against both price volatility and physical supply disruptions.
Second, the financial infrastructure is the key to unlocking true strategic autonomy. By enabling energy trades to be settled in Yuan or via a CBDC network, China can reduce its dependence on the US dollar-dominated financial system. This insulates it from potential US sanctions and strengthens the Yuan's international role. The premier's reference to a "foundation" directly points to this pre-built financial and institutional infrastructure.
Ultimately, today's announcement is the culmination of a long-term strategy. Past moves, such as the UAE joining BRICS and ADNOC opening a Beijing office, were all pieces of this puzzle. The current crisis has simply accelerated the timeline, pushing China to activate and deepen this comprehensive partnership to safeguard its energy and economic security.
- Offtake Agreement: A long-term contract to purchase a specified amount of a future product, in this case, oil or LNG, at a pre-determined price or formula.
- CBDC (Central Bank Digital Currency): A digital form of a country's fiat currency that is a direct liability of the central bank. The mBridge project is a multi-country CBDC platform for cross-border payments.
- Strait of Hormuz: A narrow waterway connecting the Persian Gulf to the open ocean. It is one of the world's most important strategic chokepoints for oil transit.