How Saudi Arabia has built new alliances

Jeddah - Yasmine El Tohamy - The world’s economic center of gravity has been moving inexorably eastwards for the past 50 years as the great trading powers of Asia – China, India, Japan, South Korea and a handful of others – have transformed themselves into modern consumer economies.

Asia is on the verge of overtaking the combined economic power of North America and Europe in terms of gross domestic product. Measured by accumulated wealth, Asia is already richer than either.

Saudi Arabia, located right at the geographic center of this great tilt in economic power, has been increasingly looking towards the East. That process has accelerated in the past three years, with a number of trading and investment relationships struck between the Kingdom and its new partners in what are still bizarrely referred to by some economists as “emerging markets.”

For Saudi Arabia, these countries have already emerged as a big focus for future economic and strategic direction. Even the global crisis of the coronavirus pandemic seems unlikely to slow the long-term process. 

The most important relationship is with China, the world’s biggest manufacturer and exporter, apparently destined to overtake the US as the world’s biggest economy in absolute terms sometime this decade.

However, since 2017 Saudi Arabia has also forged new commercial relations with India, a long-time trading partner of the Middle East, as well as enhancing older alliances with Japan and South Korea.

There has also been a blossoming of the partnership with Russia, based mainly on common interests in the energy sector, but also reflecting shared values across a range of investment goals in industry and infrastructure.

This increasing eastward orientation also reflects a desire by the Kingdom to reduce a reliance on the US as its single strategic partner.

“Maybe Saudi Arabia has realized that it risks being over-reliant on one big international partner in the USA. It is logical for the Kingdom to want to diversify its great power relationships.”

Frank Kane

Jonathan Fulton, assistant professor of political science at Zayed University in Abu Dhabi, told Arab News: “Maybe Saudi Arabia has realized that it risks being over-reliant on one big international partner in the USA. It is logical for the Kingdom to want to diversify its great power relationships.”

Surprisingly, given its historic role as a great power and trading base, China is the relative newcomer among the Kingdom’s eastern friends. Next month marks the 30th anniversary of the establishment of diplomatic relations between Riyadh and Beijing. 

The past three years have marked a rapid increase in Saudi-China links. King Salman visited the country as part of a six-country Asian tour early in 2017, setting the seal on a “comprehensive strategic partnership” between the two countries when he met Chinese President Xi Jinping.

A joint high-level committee was established to guide future economic development strategy. 

That was followed by a later visit by Crown Prince Mohammed Bin Salman, adding greater depth to the relationship and further aligning the two countries’ main economic development plans – the Belt and Road Initiative by which China seeks to play a leading role in regional development, and the Vision 2030 strategy aimed at diversifying Saudi Arabia away from oil dependency.

“Saudi Arabia is willing to work with China to enhance synergy of development strategies, deepen cooperation in jointly developing the Belt and Road and bring benefits to both countries and peoples,” the crown prince said on his visit in February 2019.

Energy relations are at the heart of the new partnership. China is the biggest consumer of oil in the world, and Saudi Aramco is its biggest single supplier of crude. But the trading relationship goes a good deal farther.

“China is the economic base of the future in energy, and China’s appetite is the biggest in Asia. But it is not just crude oil. Increasingly, Saudi Aramco is a partner with China in downstream projects, like refining, petrochemicals and energy infrastructure,” Fulton said.

One of the first fruits was the Huajin Aramco Petrochemical Company, a joint venture with big Chinese partners to develop a $10 billion refining and petrochemicals complex. Aramco’s chief executive, Amin Nasser, said it was key to his strategy to move beyond a simple “buyer-seller relationship” in crude oil.

Similar commercial imperatives applied to the blossoming relationship with Japan, augmented by close personal relations between the Saudi royal family and the Japanese imperial dynasty. A big Saudi delegation attended the enthronement of the new Emperor Naruhito last year, coinciding with the launch online of Arab News Japan.

Energy and petrochemicals are again at the heart of the partnership. Japan is reliant on oil imports, and some 40 percent of its crude supplies are provided by Saudi Aramco, which has a long-term presence in Japan. SABIC, the big industrial conglomerate now part of Aramco, also has significant operations in the Tokyo area.

As Saudi Arabia extends its horizons beyond more traditional western partners, perhaps the best example of how common interests in the energy field can extend into other areas has come with Russia.

King Salman and the crown prince made the first official Saudi visit to Russia (or the former Soviet Union) in 2017, reflecting perhaps the most significant new alliance in the global energy sector for many decades.

The growth of American shale oil since the end of the global financial crisis gave Saudi Arabia and Russia – two of the top three global oil powers along with the US – a common interest in energy, which has translated into the Opec+ arrangement, an alliance of 23 of the biggest oil producers, to help regulate oil markets.

Just recently, Opec+ signed a historic deal to cut nearly 10 percent of the world’s crude output. which had been made surplus by the collapse in demand following global pandemic lockdowns. The deal is credited with having pulled global oil markets back from the chaos they suffered a couple of months ago.

An important player in the Opec+ negotiations was Kirill Dmitriev, chief executive of the Russian Direct Investment Fund (RDIF), an institution aimed at attracting inward investment into the country as well as entering into foreign investment partnerships. Saudi Arabia has been a key partner with RDIF in a range of investments in both countries, in areas such as transport, infrastructure and logistics.

To complete the circle of Saudi Arabia’s eastward shift, China has been brought into the Saudi-Russia partnership in a multi-billion dollar investment fund.

• Frank Kane is an award-winning journalist based in Dubai. Twitter: @frankkanedubai