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Tuesday, November 08, 2022
China-Saudi Arabia Cooperation and Its Geopolitical Influence
He Jun

The Wall Street Journal reported on November 7 that Chinese state leaders plan to visit Saudi Arabia by the end of this year. Officials from both countries are finalizing details of a summit between Chinese President Xi Jinping and Saudi Crown Prince Mohammed bin Salman. The visit, which has been in the works for months, is tentatively scheduled for the second week of December, according to people familiar with preparations for the trip.

There have been hints that such a visit would take place. On October 27, Chinese Foreign Minister Wang Yi held an online meeting with Saudi Foreign Minister Faisal bin Farhan Al Saud, and said that the Chinese consider "Saudi Arabia as a priority in its overall diplomacy, its Middle East diplomacy in particular". On October 28, an AFP journalist asked Chinese Foreign Ministry spokesperson Wang Wenbin to confirm whether the Chinese leader is going to Saudi Arabia for a state visit, but Wang neither denied nor admitted this, and replied that there is currently no information to provide.

Regarding the possibility of Chinese leaders visiting Saudi Arabia at the end of the year, the Wall Street Journal comments that "Beijing and Riyadh seek to deepen ties and advance a vision of a multipolar world where the U.S. no longer dominates the global order".

Given the importance of the Middle East in oil interests, the United States has always attached great importance to the geopolitical pattern of the region. Although the situation in the Middle East is highly complex, the U.S. has never loosened its control over the region.

In the 21st century, however, the structural shifts in the global energy field have gradually changed the relationship between the U.S. and Saudi Arabia. Driven by capital, the rapid development of the U.S. shale oil industry has transformed the U.S. from the largest energy importer to a net exporter. In order to tap the shale oil market, the U.S. has asked the Organization of the Petroleum Exporting Countries (OPEC) to cut production, causing its share of the oil market to shrink sharply. Dissatisfied with this, OPEC took advantage of the cost of crude oil production to increase supply to drive down oil prices, thereby putting pressure on the U.S. shale oil industry.

During the COVID-19 pandemic, Saudi Arabia and Russia jointly assaulted the U.S. shale oil companies with a price war and won back their voices in the market. Now, OPEC+ still maintains a monopoly in the field of global oil exports. The seven Middle Eastern countries and Russia's daily crude oil production reached 27.79 million barrels and 10.94 million barrels respectively, much higher than the daily output of the United States of 16.58 million barrels. Recently, Saudi Prince Mohammed bin Salman proposed to spend trillions of dollars to transform Saudi Arabia into a comprehensive manufacturing powerhouse. To do this, Saudi Arabia must keep oil prices above USD 100 per barrel. However, soaring oil prices this year have fueled severe inflation, to the great dissatisfaction among U.S. voters. The Biden administration has therefore changed its stance and hopes that Saudi Arabia would increase oil production. Judging from the current situation, Saudi Arabia does not seem to have the intention to do so. In this regard, the game between OPEC+ and the U.S. is essentially a battle for oil pricing power. Saudi Arabia may choose to use more yuan, euro, or even ruble to settle crude oil, thus threatening the dominance of the dollar. The U.S. may then take countermeasures to maintain its other Middle Eastern oil-producing allies, as well as to reassess its relations with Saudi Arabia.

While the relationship between the United States and Saudi Arabia is being adjusted, the economic and trade relations between China and the latter have been constantly deepened. On October 20, Zhang Jianhua, director of the National Energy Administration, held a video meeting with Saudi Energy Minister Abdulaziz bin Salman to strengthen cooperation in the energy sector. As important energy producers and consumers in the world, China and Saudi Arabia are willing to work together to maintain the "stability of the international oil market" and work together to "address risks and challenges". The two sides expressed that the current international situation is complex, which brings many unstable factors to the oil market, and that the long-term reliable supply of oil is crucial to the overall stability of the market. Saudi Arabia also said it will be "China's most reliable partner and supplier of crude oil", and take advantage of its geographical advantage of connecting three continents to build a regional center for Chinese manufacturers. The two sides agreed to cooperate under the framework of the intergovernmental agreement on the use of nuclear energy, as well as in the fields of electricity, renewable energy, and hydrogen energy.

The relationship between Beijing and Riyadh has been getting closer, particularly in economic cooperation. In 2021, China's foreign dependence on oil was about 72%, and natural gas 44%. According to data released by China's General Administration of Customs, in 2021, the country imported a total of 513 million tons of crude oil, 105 billion cubic meters of liquefied natural gas, and 56.6 billion cubic meters of pipeline natural gas. Although there are nearly 50 sources of crude oil imports for China, the main crude oil importers are relatively concentrated, including Saudi Arabia (accounting for about 17%), Russia, Iraq, Oman, Angola, the United Arab Emirates, Brazil, Kuwait, and Malaysia. The crude oil imported from these nine countries accounted for 83% of total imports. China has 27 LNG importers. Among them, Australia is the most important importer, accounting for 39%, followed by the United States with 11%, and Qatar, Malaysia, Indonesia, Russia, and Papua New Guinea. LNG imports from the above seven countries accounted for 87% of all imports.

Admittedly, the U.S. still maintains strong control over the Middle East, and it retains a special alliance relationship with Saudi. As much as the Saudi Crown Prince might dislike this, he cannot change such a status quo. Yet, the increasingly closer relations between China and Saudi undoubtedly have strong geopolitical significance. As analyzed by the Wall Street Journal, the oil-rich Riyadh is increasingly connected with Beijing. China could also take a stake in Saudi Aramco, the state-owned oil giant. In addition, military ties between the two countries have deepened through arms sales as well.

For China, strengthening cooperation with Saudi Arabia and establishing a more stable and in-depth bilateral relationship has many impacts. The first is a stable energy supply cooperation relationship. If China can maintain a long-term and stable energy cooperation relationship with Saudi Arabia and Russia, it will be of great significance. Secondly, in the process of Saudi Arabia's economic, industrial, and energy transformations, China could participate in the local construction market. Thirdly, in some non-economic fields (such as arms export), China might also reach cooperation with Saudi Arabia. Fourthly, in the shuffling of international relations against globalization, China is expected to establish a multi-dimensional cooperative relationship with Saudi Arabia in diverse fields. For instance, during the Shanghai Cooperation Organization (SCO) summit held in Samarkand, Uzbekistan September this year, Egypt, Qatar, Saudi Arabia, and other countries all signed memorandums to become partners of the SCO. Finally, in the financial field, Saudi Arabia is also trying to settle the non-dollar oil trade in recent years. In the trade with China, increasing RMB settlement may become a crucial part of such cooperation.

Final analysis conclusion:

The world is now at the beginning of a great change in trends since the era of globalization. With the West's estrangement from China, the latter now extensively seeks to strengthen geopolitical and geo-economic cooperation with other countries. This is undoubtedly an important adjustment to China's international cooperation strategy. In this transition, the deepening of the relationship between China and Saudi Arabia undoubtedly has important benchmarking significance.

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