Hong Kong
CNN Business
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Chinese President Xi Jinping is visit Saudi Arabia this week is the first in nearly seven years in which he is expected to sign multi-billion dollar deals with the world’s largest oil exporter and meet leaders from across the Middle East .
The visit is a sign that China and the Gulf are deepening economic ties at a time when US-Saudi relations are fractured following the OPEC decision. cut crude oil supply. As Tap wrote in a article announced by Saudi media, the trip aims to strengthen China’s relations with the Arab world.
China is Saudi Arabia’s largest trading partner and a growing source of investment. It is also the world’s largest oil buyer. Saudi Arabia is China’s largest trading partner in the Middle East and a leading global supplier of crude oil.
“Energy cooperation will be at the heart of all discussions between the Saudi and Chinese leadership,” said Ayham Kamel, head of Middle East and North Africa research at Eurasia Group. “There is great recognition of the need to develop a framework to ensure that this interdependence is politically regulated, especially in the energy transition in the West.”
Governments around the world have committed to strong cut carbon emissions in the coming decades. Countries like Canada and Germany have doubled invest in renewable energy to accelerate their transition to a zero economy.
The United States has significantly increased domestic oil and gas production since the 2000s, while accelerating the transition to clean energy.
Russian Ukraine invasion in february activated global energy crisis that has caused all countries to race to increase the supply. And the West has continued to compete for the oil market by imposing sanctions and price ceilings on the world’s second-largest crude exporter.
Energy security is also increasingly becoming a top priority for China, which is facing its own significant challenges.
Last year, bilateral trade between Saudi Arabia and China reached $87.3 billion, up 30% from 2020, according to Chinese customs data.
Much of the trade is focused on oil. China’s crude oil imports from Saudi Arabia are at $43.9 billion in 2021, accounting for 77% of total imports from the kingdom. That amount also accounts for more than a quarter of Saudi Arabia’s total crude exports.
Eswar Prasad, a professor of trade policy at Cornell University, said: “The stability of energy supplies, both in terms of price and quantity, is Xi Jinping’s main priority for the Chinese economy. China is still heavily dependent on oil and natural gas imports.
The world’s second largest economy is highly dependent foreign oil and gas. According to official data, 72 percent of the country’s oil consumption was imported last year. 44% of natural gas demand also comes from abroad.
In At the 20th Party Congress in October, Mr. Xi emphasized ensuring energy security as a top priority. The comments are made after a series of serious power shortage and global energy prices skyrocketed after Russia’s invasion of Ukraine.
As the West shunned Russian crude in the months following the invasion, China take advantage about Moscow’s desperate search for new buyers. From May to July, Russia was the No. 1 supplier of oil to China, until Saudi Arabia regained the top spot in August.
Diversity is a key component to China’s long-term energy security because it cannot put all its eggs in one basket and make itself a prisoner of geostrategic and energy interests. of another great power,” he said. Ahmed Aboudouh, a non-resident member of the Middle East Program at the Atlantic Council, a research institute based in DC.
“Although Russia is a cheaper source of supply chain, no one can guarantee that the China-Russia relationship will continue to develop over the next 50 years,” Aboudouh said.
Saudi Arabia’s state news agency quoted Saudi Energy Minister Prince Abdulaziz bin Salman as saying on Wednesday that the kingdom would remain “China’s reliable and trustworthy partner in this area”.
According to Gal Luft, co-director of the Institute for the Analysis of Global Security, Saudi Arabia also has strong incentives to strengthen its energy ties with China.
“Saudi Arabia is concerned about losing market share in China in the face of a tsunami of sharp declines in Russian and Iranian crude prices,” he said. “Their goal is to make sure China remains a loyal customer even when competitors supply [a] cheaper products.”
Oil prices have fallen back to pre-war Ukraine levels on fears of a severe global economic slowdown. The extent to which China’s economy can accelerate next year will have a huge effect on how bad that downturn is.
Beyond supply security, Saudi Arabia could hand Beijing another prize with larger geopolitical ramifications.
Riyadh has negotiated with Beijing to price some of its oil sales to China in Chinese currency, the yuan, instead of the US dollar, as reported by the Wall Street Journal. Such an agreement could be a boost to Beijing’s ambitions to expand the global influence of the Chinese currency.
It would also hurt the longstanding agreement between Saudi Arabia and the United States that requires Saudi Arabia to sell only its oil for US dollars and keep its reserves. part of the US Treasury, all in exchange for guarantees of the security of the United States. The “petroleum dollar system” has helped maintain the dollar’s position as the leading global reserve currency and the means of payment for oil and other commodities.
Although Beijing and Riyadh have never confirmed the reported talks, analysts say it makes sense for the two sides to explore the possibility.
“In the near future, Saudi Arabia could sell some of its oil and receive revenue in Chinese yuan, which makes economic sense as China is the kingdom’s top trading partner. this country,” said Naser Al Tamimi, senior researcher at ISPI, an Italian thinker. tank on international affairs.
Some believe it happened, but neither the Chinese nor the Saudis want to highlight it publicly.
“They know all too well how sensitive this issue is. [is] for the United States,” Luft said. “Both sides are too dependent on the US currency and there is no reason for them to continue to conduct bilateral trade in a third-party currency, especially since this third party is no longer a friend. of either party.”
Xi’s visit could mark another step in “eroding the dollar’s position” as a reserve currency, he added.
However, there are limits to development relations between Riyadh and Beijing.
“The Biden administration’s approach to the Middle East has unnerved the Saudis, and they see the growing relationship with China as a hedge against potential abandonment by the United States and a leverage in negotiations with the United States,” said Jon B. Alterman, director of the Middle East Program at the Center for Strategic and International Studies, a Washington DC-based think tank.
The Biden administration has reoriented its policy priorities with focus on countering China. At the same time, it has shown intent to shrink its own presence in the Middle East, arouse anxiety among allies there that the United States may not be as committed to the region as it once was.
“All that being said, the China-Saudi relationship pales in both depth and complexity compared with the relationship between Saudi Arabia and the United States,” Alterman said. “The Chinese are still a novelty to most Saudis, and they are extras. The United States is fundamental to how the Saudis see the world and how they have seen the world for the past 75 years.”
Despite the possibility of a switch to yuan-denominated trading, it is too early to say that Saudi Arabia will ditch the dollar in pricing its oil sales, analysts said.
Eurasia Group’s Kamal believes it is “very unlikely” Saudi Arabia will take such a step, unless there is an explosion in US-Saudi relations.
“In essence, there could be discussion about pricing oil barrels for China in yuan, but this would be limited in size and probably only relative to the volume of trade,” he said. bilateral trade”.
Prasad from Cornell University said countries like China, Russia and Saudi Arabia are all eager to reduce their reliance on the dollar for oil contracts and other cross-border transactions.
“However, in the absence of serious alternatives and few international investors willing to place their trust in the financial markets and governments of these countries, the dominant role of the dollar in global finance is hardly under serious threat,” he said.
