← The Watch Floor with Sarah Adams
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- [00:00]
Sarah Adams
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- [02:10]
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- [02:38]
Sarah Adams
Welcome to the watch for I'm Sarah Adams. China is attempting one of the most complex geopolitical balancing act in modern statecraft. It's simultaneously first leading the way as the number one external buyer of Iranian crude oil. It's deepening its economic partnership with Saudi Arabia, United States and then as we all know it's like the number one systematic strategic competitor of the United States. It's trying to hold all three of these positions at once as the Iranian conflict is unfolding and trying to separate itself at least forward facing from being holding more into this conflict in Iran, For example. Separate the economic side of your goals from the security military side of your goals. Well, the Chinese system of course, is not structurally built that way. It's all intermixed. You do all of it on top of each other. So what we're seeing here is a situation where China's strategy and even the structure of their system isn't built to be able to separate from the situation. Now it's not going to collapse China's strategy in any way, but it's going to put these tensions on the system, which it's very interesting to watch and learn from as we further compete with China going forward. Since this latest escalation cycle between the US and Iran, tensions of course have increased again because the ceasefire has been scrapped. No real deal has been made going forward. IRGC continues to control the country. And we're at a point where there's this continued regional maritime disruption and that is also affecting China. And so they have to play a role in this because of the effects. So there's three major effects we all know of, but they're continuing for first is this energy choke point is continuing. As we've said many times, this is a pressure point. 20% of the world's petroleum liquids have gone through the Strait of Hormuz. Many still have to use this region for exports. And it's affecting kind of the global price volatility in the energy space. Second, we have this issue where there's a lot of enforcement pressures on Iranian oil exports. You know, there's sanctions, there's interdictions, and that of course affects China. And Iran has to go through kind of different intermediaries or systems to move this oil to a partner like China. So some of the things Iran is doing is doing ship to ship transfers. They're reflagging their vessels and then they're trying to use intermediary port ports in the region. And all of this, as you can imagine, is to try to circumvent the enforcement cycles that are occurring around the Strait and in the Persian Gulf area. Now the third major issue is Gulf states are also hedging against what can be the outcomes of this crisis, how it affects them. Of course they want to keep their deep security alignments with the United States intact. That's very important. But they also want to continue their economic alignment with China, you know, as all this unfolds. So it's a very interesting balancing act they're also playing. One thing I've learned over the years working in national security is that performance starts with sleep. If you're not sleeping well, everything suffers. Your focus suffers, your decision making suffers, and frankly, you just never feel your best. I've tried a lot of different products over the years, and my biggest complaint always came down to two issues. One, the product just wasn't consistently working. And two, I would wake up each morning feeling extra groggy. That's why I've been using Ultra's new sleep pouches. They're simple, easy to use, and designed to help you fall asleep faster but not wake up with that next day brain fog. They use a blend of ingredients like magnesium melatonin, L theanine, chamomile and lemon balm to help your body wind down naturally. For me, the biggest difference is waking up feeling rested instead of feeling like I still need a couple more hours of sleep. Ultra sleep pouches deliver better, deeper sleep with properly dosed and natural ingredients. New customers can use Code watch to get 15% off. At takeultra.com, again, that's take ultra for 15% off with code Watch. After your purchase, they'll ask how you heard about them. Let them know the watch floor sent you. So China now is in an interesting place because they're not operating in a system where this instability is sporadic. It's now structural, it's continuing. You know, it's hard for them to guess, you know, what happens next, what outcomes are going to occur, where negotiations are going to go. And so for China, it's no longer about kind of managing the crisis, even kind of from this outside angle. They're taking. It's this permanent friction they're involved in, and it's the idea that their strategy does not align with that friction. So the China Iran relationship is often called an alliance, and that isn't true at all. It's basically this utility relationship based on mutual constraint. They're both trying to get around a system that's trying to impact them in some ways. The best way to put it a lot is, of course, to do with sanctions. So China remains Iran's largest oil customer, but those flows aren't through, like, direct, visible channels. They're bypassing sanctions to do it. So this is basically happening on the black market. A lot of people don't understand the role the black market plays in this, and it's how a lot of Chinese financing actually goes to Iran. So this isn't some sort of like fake formalized trade route as usual, agreements country to country to sell goods. And it's kind of like this situation that's adapted under pressure. So back in 2021, China and Iran did put together this 25 year cooperation framework. And within that framework we had energy cooperation, infrastructure investment, industrial development, and then of course, telecommunications expansion. But critically, there are key pieces missing here where Iran is kind of left shortchanged. One is there's no mutual defense pact, so China does not have to come to the aid of Iran as a part of any of these deals. The other thing is there's no security guarantee and there's no military alignment. So China positioned themselves, at least when they made this agreement about five years ago to be like an economic lifeline to Iran. Now since this crisis has occurred though, China has blurred the lines like they like to do and done things that have helped Iran on the military side of things. One is of course providing dual use technologies. A very great example is the engines they provide to Iran, saying they're for one thing, but we know they're being used in the drones. Another thing recently Chinese companies got sanctioned for is they were providing imagery to the Iranian military to target US forces and their positions overseas. So that of course isn't some clear economic alignment. They are helping them on the military side of things, but doing it at a low level, trying to do it at a covert level, and of course feigning ignorance, saying it's not our fault Iran took these engines and used them for something they're not supposed to. So there's a little smart game they're playing here as well. Kind of what's in it for China. Why would they keep playing this game when a lot of actors in the region are saying it's not worth it to back Iran? But for China, it does give them this strategic leverage against the Western sanctions kind of architecture that's really affecting China. And they're constantly looking at ways to circumvent it. And using Iran is a very simple way to do that. Iran is not China's ally. They are both a part of the sanction pressure node. And China needs Iran at least for a piece of its energy sector. So you have to play with them in some way because you made yourself so reliant on this black market oil. So just look at it that way. It's not like China's gonna go to blows to protect Iran. That's not it at all. They're gonna do what they need to do to get what they can out of the situation and try to keep their hands clean. Now, we brought up kind of this issue with the Gulf, but I want to walk through it so it's a little clearer. First off, China has a lot of other dependencies when it comes to energy. And of course these are legal structured frameworks, so it's not a black market thing. So of course they have to get energy from Saudi Arabia, the uae, Iraq, and then Qatar, where they're doing a lot of the LNG out of it. So they have to also be a diplomatic actor in this region because they have to stay aligned with these countries. That Iran is of course striking and focusing on striking kind of this energy infrastructure that China also relies on. So before this conflict really unfolded, China did a really good job of saying, hey, I'm just a diplomatic actor in the region. We play an economic role and we want to help move that forward. Some interesting examples of that is in 2023, China publicly supported and facilitated the Saudi and Iran normalization agreement. They also, as we've all seen, they have expanded their own belt and Road initiative across the Gulf states, particularly in the energy corridors. And then they've been involved in a lot of this high level diplomacy and engagement, saying, hey, we're with you, but being smart to play both sides of this regional divide and not really be called out for it. But here's where the structural problem is that China's facing Iran is the primary source of risk in the region, even if we just are looking at the economy of things or the energy sector. And then you need the Gulf to be the primary source of stability, especially when we're looking at the economy or the energy sector. China, though, is based in both those systems. They're on the risky side and they're on the stable side. And they're not exactly choosing between Iran or the Gulf. They're attempting to strategically take advantage of each side, like on the same fault line. So they're playing this game against each side. And it's still been to a point where the two sides haven't exactly noticed or cared. So China can keep pulling value out of those relationships as long as they're focused on other threat actors or kind of economic competition to where, yeah, let's not worry about China right now. We have different issues to focus on. So we spend time talking about Iran, China, the Gulf. But of course, what role does the United States play? Well, right now, because of the conflict with Iran, we are the key security architect in the region. So that has changed to the way things were just a few years ago. This was really reinforced during the recent high level meetings between obviously the US Administration and Beijing where President Trump met with President Xi. And they spent a considerable amount of time talking about this war in Iran, the Strait of Hormuz, et cetera. And when you look at the multiple readouts from the meeting, of course they both have a shared goal of keeping the Strait of Hormuz open and reducing any escalation risk. But there's critical details here that not a lot of people are talking about. First off, China gave no formal commitment to pressure Iran. So very interesting, they got away with not having to do that. There was no kind of enforcement alignment or real deal or discussion when it came to sanctions. And then there was no operational or cooperation framework put into place to deal with Iran. So even at this direct leader to leader engagement, China kept this strategic ambiguity. Almost like we're a little separated from the situation. We're not really a place player in this. You know, we do a little economically, but you know, we don't really have any control or influence over the situation. So they played it very well. At the same time though, we do have US Officials saying we need to continue to pressure China to reduce its engagement in Tehran. But again, we had this high level diplomacy and China came out without having to kind of like signal any sort of agreement or on enforcement, they only said, yeah, we want stability too, but they didn't agree to be part of the enforcement operations to make it happen. So that's this interesting thing, how they play within their own strategy. Now I want to talk a little bit about Iran's strategy, more like the hidden hand piece of it, because I think it's really important and it's how they support a country like Iran without direct evidence of support to kinetic operational activities. So they do some really interesting things. First off is they shape the information environment. So they do a lot of messaging campaigns. You know, they go out publicly, it's not exactly tied to China and they're done very smartly. One of the key things they focus on is criticizing U.S. sanctions frameworks. Another thing is they put out narratives of Western instability and, and lastly they promote China themselves as this kind of economic stabilization factor in the region. Like, oh thank heavens China's level headed and keeping things running and keeping things going. And it's an interesting way they do this messaging. It's consistent, it's long term. It's not like this one off piece of propaganda. They're putting out there. Another thing we all know, and this was even asked of Trump as he was like leaving this trip, is the cyber and intelligence collection activity going on by China. It was interesting to hear Trump speak and we'll play that clip in a minute. And he was saying, hey, we both do this, but I don't think we do it to the level China does. Yes, we both try to collect information, but China is attacking us in our infrastructure or even preparing for future attacks against our infrastructure. Even if they have to use proxies and really keeping a hidden hand. I don't think we have a grasp on everything they've seeded themselves into over the years. And one day I think it's going to be pretty shocking for us. But let's play that clip really quick.
- [20:21]
Donald Trump
Did you talk to him about the cyber attacks that he's done in the United States or the mss? I did. And he talked about attacks that we did in China. You know what they do? We do too. It's like the spying they're talking about. Oh, the spying. I said, well, we do it too. Look, no, I'm talking about spying. The question was asked to me yesterday, I guess, what about the fact that China's spying in the United States? I said, well, it's one of those things because we spy like hell on them too. So what about the fact that China is putting in the US Infrastructure code that they could use if we, if you ever decided to come to the U.S. well, you don't know that. I mean, I'd like to see it, but it's very possible that they do and we're doing things to them. I told them we do a lot of stuff to you that you don't know about. And you're doing things to us that we probably do know about, but we do plenty. It's a double. It's a double excellence.
- [21:16]
Sarah Adams
So when we talk about persistent threats from China, it's usually against our government networks, as we all know, of course against our energy infrastructure and then our telecommunications systems. And again, this is a strategic function. It's not some sort of battlefield coordination. It's still would occur if the Iran crisis wasn't going on. But having this crisis gives them openings because of course, when we're focused on one thing, we lose sight of another. I mean, it's just very general and simple how things work. That's how they're always able to take advantage of us crisis after crisis after crisis. Because a crisis isn't exactly with China, it's with someone else. And they get kind of behind the scenes of what we're working on during that time. Cause nobody's got this constant strategic focus on, hey, how is China taking advantage of this situation? Now when we talk about the infrastructure piece of China's targeting or their collection, of course they do it all through the Belt and Road initiative. But it's not just the expansion of this initiative, it's this digital infrastructure development they're building alongside of it that increases the, their logistical networks, their energy flows, the regional trade architecture. So a lot of people focus on the intelligence or spying side of it. But we forget the competition and the military uses they can gain out of this in the future if we ever do go to war with China. So just think of it this way, this informational advantage they have now in the future can turn into an operational control or a military advantage that we can't lose sight of. Prior to our conflict in Iran, China's Middle east strategy was based on one simple assumption. It's the fact that economic influence could be kept separate from the security responsibility of things. And now that assumption is under pressure because Iran is playing a role, even if they're not outwardly admitting it on the security side of things, not just on the economic side of things. Because the two are intermingled. As the entire region, the entire Middle east gets pulled into this and things become more unstable, it's going to be harder for China to remain neutral and to play both sides of a conflict and benefit themselves simultaneously in the way that they've always done. So this balancing act they have and had has not been about choosing sides, but it's getting to a point where their strategy isn't actually working on the ground the way they expect it to. And they might be forced by these external actors to make a choice. And it'll be interesting who gets to the point where they tell China, hey, enough's enough. You don't play with the enemy and play with us and, and expect, you know, these economic cooperations when you're undercutting us on the security side of things. Thanks for tuning in today to the watch floor.