Energy, Infrastructure Deals Focus of Xi’s Saudi Visit
- December 7, 2022
- Posted by: Quatro Strategies
- Category: Politics
Xi’s visit to Saudi Arabia, which will start on Wednesday, will include a regional summit with Saudi Crown Prince Bin Salman and other Arab leaders, where sides are expected to sign energy and infrastructure agreements worth around $30 billion. The summit will give a chance to Xi and Bin Salman to deepen ties amid worsening U.S.-Saudi relations. Washington’s anger over OPEC+ oil production cuts has created a low point in relations, but they have already been fraying for some time as the United States shifts its global focus on China competition.
A decade has passed since the U.S. was Saudi Arabia’s biggest partner. In that time, not only China, but India and Japan have also surpassed the U.S. as Riyadh’s biggest trading partners. Trade volume between the U.S. and Saudi Arabia has plunged to $29 billion last year from as much as $76 billion.
Part of the reason for shrinking trade is the development of U.S. shale industry, which means it no longer imports as much oil as before from the Middle East. China has become Saudi Arabia’s top crude buyer, and oil exporters in the Middle East are looking for information on China’s plans for lifting Covid restrictions.
Another friction between the U.S. and Saudi Arabia has been the Biden administration’s attempts to revive the nuclear deal with Iran, a Saudi rival in the region. Riyadh’s alliance with Russia in OPEC+ is another cause for tension.
While U.S.-Saudi ties have worsened, U.S.-blacklisted Chinese telecoms giant Huawei is looking for opportunities in the Middle East and so is the State Grid Corporation of China in regional electricity transmission and distribution. Saudi Arabia and China agreed to coordinate their investments in Belt and Road Initiative participating nations. The countries will sign pacts for the further “harmonization” of the Belt and Road Initiative with Saudi Arabia’s own Vision 2030 development plan.
Moreover, a free trade agreement between China and the six-nation Gulf Cooperation Council is entering its final stages. Gulf States have started seeing the United States as an “unreliable partner”.
Still, the U.S. maintains a significant troop presence in Saudi Arabia and across the region, and there are limits to how far Gulf states will look elsewhere. As an example, it is seen unlikely that Saudi Arabia will move forward with accepting Chinese yuan instead of the dollar for oil trade.
Biden had promised a hardline against Saudi Arabia and Crown Prince Bin Salman for his alleged involvement in the murder of journalist Khashoggi, after facing a high inflation at home, he visited the kingdom in July to seek help to lower global oil prices.
Although Biden expressed optimism that Saudi Arabia would comply, Saudi Arabia and OPEC+ announced in October a production cut, which prompted Biden to say it was time for the U.S. to rethink the relationship.
Buoyed by higher oil revenues spurred by Russia’s war, Bin Salman has cast the kingdom as a growing power capable of standing up to U.S. pressure.
Meanwhile, China praised the kingdom for its “independent energy policy” and “efforts to stabilize the international energy market”.
Since China held its last biennial dialog with Arab states in July 2020, Saudi Aramco revived discussions to build a multi-billion dollar refining and petrochemicals complex in China.
Saudi Arabia also started working with Huawei to develop artificial intelligence systems and using Chinese expertise to make drones. According to a U.S. intelligence assessment, the kingdom is even manufacturing ballistic missiles with China’s help.
Despite efforts, China will not be able to replace the United States in the region overnight. High oil prices hurt China as much as the United States, and Beijing has close ties with Iran. China also cannot replicate U.S. military support for the region.
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