Aramco’s new deals with China signal a further deepening of Sino-Arab relations

A little less than a year before the Russian invasion in February 2022, Saudi Aramco chief executive Amin Nasser spent several days at the annual China Development Forum hosted in Beijing, during which he stated: “Ensuring the continued security of China’s energy. needs remain our highest priority – not just for the next five years, but for the next 50 and beyond.” On the anniversary last week of the multiple “9/11” terrorist attacks on the US, which killed 2,996 people, Aramco announced on its website that it had entered into new agreements with two firms from China, the country’s main geopolitical rival , which “reinforce Aramco’s continued contribution to China’s long-term energy security and development.” During the same period, Chinese Premier Li Qiang and Saudi Arabia’s Crown Prince Mohammed bin Salman co-chaired the fourth Saudi-Chinese High-Level Committee, which Li hopes will “further strengthen the alignment of (our) development strategies and raise bilateral ties to a higher level”. It might seem to many, therefore, that any residual hope that Washington had that Saudi Arabia’s flourishing relationship with China was simply being used by Riyadh as a means of positioning itself for a better relationship with the US in the future it’s just an illusion.

The genesis of the broader and deeper relationship between Saudi Arabia and China was not the establishment of diplomatic relations between the two countries on July 21, 1990. Rather, it was more likely China’s offer to buy the entire 5% in a private placement. of Saudi Aramco that was put up for sale in an initial public offering (IPO) in late 2016/early 2017, according to multiple industry sources. At the time, Saudi Arabia was reeling financially and politically from the 2014-2016 Oil Price War it instigated to destroy or at least severely disable the then-nascent US shale oil sector . It was the then Prince Mohammed bin Salman (MbS) who promoted the idea of ​​an IPO of part of Saudi Aramco, which had three key positives. First, it could raise a lot of money, some of which could be used to offset the economically disastrous effect of the 2014-2016 Oil Price War, as discussed in my latest book about the new order on the world oil market. Second, it could boost Saudi Arabia’s reputation in global financial markets, which would help new IPOs. And thirdly, both new funding streams could be used as part of the 2020 “National Transformation Program” – in turn part of Saudi Arabia’s “Vision 2030” development plan – which sought to diversify the Kingdom’s economy far of its dependence on oil and gas exports. Senior Saudis were also assured that the flotation of 5 percent of Saudi Aramco would raise at least $100 billion for Saudi Arabia, valuing the entire company at least $2 trillion, and that it would be listed on a among the major stock exchanges. However, the IPO was seen as toxic by many large Western investors, and China then made a face-saving private placement offer to the Saudis that has never been forgotten.

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For China even then, a deeper relationship with Saudi Arabia had considerable benefits. One, of course, was preferential access to its considerable oil production. Another was the influence over the price of oil that it still rightfully held de facto head of OPEC, despite his failure in the 2014-2016 oil price war. Later, with the addition of major oil producer Russia to an expanded OPEC+ group, Beijing believed that Riyadh could exert a moderating influence on any moves by Moscow to move oil prices in a sustained direction that China did not he wanted her. By then, it had become the world’s largest oil importer, so it did not want long price trends, nor did it want the economies of its main Western export markets to be adversely affected for a sustained period. An added benefit for China of a strengthened relationship with Saudi Arabia was its leadership position in the Islamic world, which could be used by Beijing to further expand its influence in the Middle East and beyond, including by seizing power for several generations. project, “Belt and Road Initiative”. Since the world’s oil supply is a zero-sum game, another benefit for China was that its gain in any of these aspects would be the loss of the US, its key superpower rival.

Beijing’s expectations of the benefits of this relationship have grown as it has developed, as seen in the first China-Arab Summit and the first China-Gulf Cooperation Council Summit in December 2022, as Li again noted in his recent visit to Saudi Arabia. “For over a year, both sides have actively implemented the key outcomes of the summits…maintaining close communication and coordination in regional and international affairs and the continuous improvement of the China-Saudi Arabia comprehensive strategic partnership,” he said. At the 2022 meeting and tangential meetings with other Arab states during the same period, 34 agreements were signed between Chinese and Saudi companies covering a wide range of sectors, including energy, technology, security, science and technology, aerospace, banking and infrastructure, among many others. However, it was President Xi Jinping who identified two “priority areas” for the new relationship between China and Arab states, including Saudi Arabia. These were the transition to using China’s renminbi (RMB) in oil and gas transactions between them and bringing Chinese nuclear technology to them, as detailed in my latest book on the new global oil market order. All this was to be done in the context of “forming deeper strategic cooperation in a region where US dominance is showing signs of retreat”, according to Chinese state media.

On the first of these priorities, China has long viewed its RMB’s position in the global currency rankings as a reflection of its own geopolitical and economic importance on the world stage. An early indication of China’s ambition for the RMB was evident at the G20 summit in London in April 2010, when Zhou Xiaochuan, then governor of the People’s Bank of China, flagged the idea that the Chinese wanted a new global reserve currency to replace the US dollar at a given moment. China has also long been aware that, as the world’s largest annual gross importer of crude oil as of 2017 (and the world’s largest net importer of total petroleum and other liquid fuels in 2013), it is subject to the whims of US foreign policy tangentially through the oil pricing mechanism of the US dollar. This view of the US dollar as a weapon has been strongly reinforced since Russia’s invasion of Ukraine and the US-led sanctions that followed, the most severe of which – like the 2018 sanctions on Iran – refer to the exclusion from the use US. dollar. Former Bank of China Executive Vice President Zhang Yanling said in a speech on April 6, 2022 that the latest sanctions against Russia “would cause the US to lose credibility and undermine the hegemony of the (US) dollar in the long run.” She also suggested that China should help the world “get rid of the hegemony of the dollar sooner rather than later.”

Regarding the second of Xi’s urgent priorities, there was a particular moment attached to the statement at the time. Just before Christmas 2021, news broke that US intelligence agencies had discovered that Saudi Arabia was producing its own ballistic missiles with the help of China. Given China’s long-standing and extensive “assistance” for Iran’s nuclear ambitions, this information was received very poorly in Washington, focusing on what could be Beijing’s end in developing the nuclear capabilities of key rival states in Middle east. Saudi Arabia has repeatedly said it wants to add about 17 gigawatts (GW) of nuclear capacity by 2040, and to that end it wants to bring online two nuclear reactors with a combined capacity of 3.2 GW by 2030. The Kingdom had previously been in talks to acquire US nuclear technology under the “1-2-3” protocol. As US Energy Secretary Rick Perry pointed out in 2019, Saudi Arabia has told the US it wants to continue with a full-cycle nuclear program, including the production and enrichment of uranium for atomic fuel. At the time, the US made it clear that in order for US companies to compete for the Saudi Arabian project, Riyadh would have to sign an agreement with Washington on the peaceful use of nuclear technology. The “1-2-3” protocol was intended to limit the enrichment of uranium for weapons purposes. Whether China insists on such a protocol remains unclear.

By Simon Watkins for Oilprice.com

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