PINR - Saudi Arabia Looks East: Woos China and India

PINR - Saudi Arabia Looks East: Woos China and India

''Saudi Arabia Looks East: Woos China and India''

In January 2006, Saudi Arabia's monarch, Abdullah bin Abdul Aziz al-Saud, undertook a tour of Asia that brought him to China and India (along with Malaysia and Pakistan). It was a strategically significant trip and one that may have some important long-term implications. Some have labeled the Saudi king's Asia visit "a strategic shift in the foreign policy of the country" and have argued that it "heralds a new era."

Saudi Arabia and China Improve Relations

The fact that China was the first destination on the king's list speaks volumes not only about the rising profile of China in global politics, but also about a growing intimacy between the two states. China has been working hard to improve its relations with Saudi Arabia, the world's biggest oil exporter. It was in 2004 that the two countries decided to hold regular political consultations at the same time when China's state oil company, Sinopec, signed a deal to explore gas in Saudi Arabia's vast Empty Quarter. King Abdullah's visit followed Beijing's first formal talks with the Organization of Petroleum Exporting Countries (O.P.E.C.) in December 2005.

It is instructive to note that Saudi Arabia's ties with China have been on an upswing at a time when its relationship with the U.S. has come under severe strain. While China has emerged as the Saudi Kingdom's largest customer, the United States' share in Saudi oil exports has been going down after peaking in 2002 at 1.7 million barrels per day. Saudi Arabia's traditional share of the U.S. oil market has been a function of the country's "strategic relationship" with the U.S., a tie that many think has been weakening for some time now, especially in the aftermath of the September 11 attacks and the Iraq war.

Saudi Arabia reacted angrily to a multi-trillion dollar lawsuit against Saudi Islamic organizations and three top Saudi royals filed by the relatives of the September 11 attack victims. Riyadh called the lawsuit political and financial blackmail aimed at undermining the country's economic strength. It also refused to grant the U.S. access to bases in the kingdom for an attack on Iraq. The unpopularity of the U.S. in the Arab world may be forcing the Saudis to weaken the U.S. hold over their economy and polity.

Additionally, Saudi Arabia itself has come under direct pressure from the U.S. to curtail extremist Islamic groups flourishing in its territory as well as to initiate political reforms, especially when democracy promotion is at the heart of the U.S. foreign policy agenda. Some have called the recent weakening of the U.S.-Saudi "special relationship" as one of the most profound changes occurring in the oil market.

China, a rising political and economic power with little interest in the domestic affairs of other states, must seem like a much more attractive option to Saudi Arabia. Moreover, being a net exporter of oil until 1995, China has emerged as the world's second largest oil market after the U.S. It has been estimated that by 2010, 95 percent of China's imported oil will come from the Middle East. China's rapidly growing economy is dependent on imports of oil and oil products, more than 51 percent of which originate in the Gulf states. China's burgeoning appetite for oil is only going to grow in the coming years and its dependence on Middle Eastern sources of energy will only increase further.

In the last few years, China's exports to the Gulf countries have also been increasing. Saudi Arabia, in particular, has emerged as a major investor in China. Saudi Arabia's Aramco Overseas Company has provided US$750 million of the total US$3 billion in investment to construct a petrochemical complex in southeastern Fujian province in China that will process eight million tons of Saudi crude oil. Several members of O.P.E.C., including Saudi Arabia and Kuwait, intend to build a new refinery in Guangzhou, the capital of China's Guangdong province, involving a total investment of US$8 billion.

Therefore, it was no surprise that King Abdullah decided to visit China first in his trip to Asia. It was Abdullah's first trip outside the Middle East since taking the throne in August 2005, and it was also the first trip by a Saudi ruler to China since the two countries established diplomatic relations in 1990. Saudi Arabia accounts for about 17 percent of China's imported oil and total trade between the two countries grew by a substantial 59 percent in 2005 to US$14 billion. Saudi Arabia is China's largest trading partner in the region between West Asia and North Africa. Today, China is Saudi Arabia's fourth largest importer and fifth largest exporter while Saudi Arabia is China's tenth largest importer and biggest oil supplier.

Apart from the burgeoning economic relationship, Saudi Arabia and China have also developed close military ties since the mid-1980s, an aspect of their bilateral relationship that has not received much attention. It has been reported that Saudi Arabia has imported from China CSS-2, nuclear capable intermediate range ballistic missiles with a 3,000 kilometer (1,864 miles) range. Now, with CSS-2 largely obsolete, Beijing is interested in newer, more advanced CSS-5 and CSS-6 weapons.

During Abdullah's trip, the two states signed a pact on energy cooperation that calls for increased cooperation and joint investment in oil, natural gas, and mineral deposits. Several other agreements were also signed on economic, trade, and technical cooperation, on avoiding dual taxation, on vocational training cooperation and granting of an urban development loan to the far western Chinese city of Aksu by the Saudi Arabian Development Bank. The Saudi king also invited Chinese investors to invest in his country since it is now engaged in a series of economic reforms, especially the privatization of its state-owned firms. Saudi Arabia is working toward diversifying its economy as relying on just one source of income has proved counterproductive.

Saudi Arabia and India Recognize Mutual Interests

From China, Abdullah went to India, the other emerging Asian power, where he was invited as the chief guest at the country's Republic Day celebration on January 26. It was the second visit of a Saudi monarch to India, the last one being in 1955. The Cold War precluded the development of close ties between the two states. However, once the structural constraint of the Cold War era was gone, the two states have tried to build bilateral relations on a number of complementary factors.

For instance, India is home to the second-largest Muslim population in the world; India's Muslim population has their holiest shrines at Mecca and Medina in Saudi Arabia. Numbering at around 1.5 million, Indians also constitute the largest expatriate community in Saudi Arabia. This, by itself, makes it imperative for the two states to have a deeper engagement with each other. But several other factors come into play in shaping this relationship.

For India, the issue of cultivating an Islamic state that can act as a counterweight to Pakistan in the Islamic world is very significant. India has tried to build close ties with Iran, but these ties have come under stress in recent years; Saudi Arabia has filled that gap. Riyadh agreed to support India's claim for observer status in the Organization of the Islamic Conference. It has also been supportive of recent Indian moves to deescalate tensions in Kashmir. More importantly, both India and Saudi Arabia are not at all enthusiastic about the emergence of an Iran armed with nuclear weapons.

The issue of terrorism also binds the two states as both face the risk of domestic turmoil if Islamic extremists are not controlled and sidelined. India and Saudi Arabia signed a memorandum of understanding dealing with terrorism, transnational crime, and subversive underworld operations during Abdullah's recent visit.

However, as with Saudi Arabia's relations with China, it is energy that has become the driving force in its relations with India; India has emerged as Saudi Arabia's fourth largest destination for oil exports and Riyadh is the largest supplier of oil to India. India, like China, is reshaping its diplomacy to serve energy needs as its booming economy also needs new supplies of oil to ensure its continued growth.

Reliance, a private Indian energy firm, has decided to invest in a refinery and petrochemicals project in Saudi Arabia. In addition, India's state-owned energy firm, Oil and Natural Gas Corporation, is planning to engage Saudi Arabia as its equity partner for a refinery project in the Indian state of Andhra Pradesh. The recent upheavals in India's relationship with Iran, and Iran's decision to renege on some of its oil supply commitments in the aftermath of India's vote against Iran at the I.A.E.A., has also alerted India to the importance of having a diversified set of suppliers.

The recent visit of the Saudi monarch to India saw the signing of the Indo-Saudi "Delhi Declaration" that calls for a wide ranging strategic partnership in the critical energy sector, putting economic cooperation on overdrive coupled with major investments in the petroleum sector as well as joining hands in dealing with the problem of terrorism. Saudi Arabia's emphasis was also on learning from an established industrialized state such as India and it invited India to either participate alone or form joint ventures with Saudi companies to bid for gas exploration and refinery projects.

Conclusion

Notwithstanding these attempts by Saudi Arabia and India to upgrade their bilateral ties, various factors are bound to play a constraining role in the future. The most important of these is the Sino-Indian energy competition that is bound to emerge sooner, rather than later. As long as Saudi Arabia is able to deal with China and India without impinging on either's interests, the present relationships can flourish. But once China and India start competing over energy resources, as they have started doing in various parts of the world, Saudi Arabia will be forced to make some complicated choices. [See: "China's Strategy of Containing India"]

If the U.S. is thrown in the matrix, the picture becomes all the more complicated. With the U.S. viewing China as the most likely potential threat to its global supremacy, while at the same time helping India to emerge as a global player, the pressures under which Saudi Arabia will have to operate will only become stronger. [See: "U.S. Quadrennial Defense Review Reveals a Strategy Void"]

What this recent visit highlights unambiguously is the growing economic and strategic importance of China and India in the new global order, and the substantial effect their growth is having on global energy demand and diplomacy.

Report Drafted By:
Dr. Harsh V. Pant

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