Hong Kong
CNN
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Chinese President Xi Jinping is visiting Saudi Arabia this week for the first time in almost seven years that he is expected to sign Billions of dollars in deals with the world’s largest oil exporter and meet executives from across the Middle East.
The visit comes as a sign that China and the Gulf region are deepening economic ties at a time when US-Saudi Arabia ties have been crumbling over OPEC’s decision cut the supply of crude oil. As Xi wrote in one article Published in Saudi media, the trip was intended to strengthen China’s ties with the Arab world.
China is Saudi Arabia’s largest trading partner and a source of growing investment. It is also the world’s largest consumer of oil. Saudi Arabia is China’s largest trading partner in the Middle East and the world’s leading supplier of crude oil.
“Energy cooperation will be at the heart of all talks between the Saudi-Chinese leaders,” said Ayham Kamel, head of Eurasia Group’s Middle East and North Africa research team. “There is general recognition that a framework needs to be put in place to ensure that this interdependence is taken into account politically, particularly given the scale of Energy transition in the West.”
Governments around the world have committed to it cut drastically CO2 emissions in the coming decades. Countries like Canada and Germany have doubled Investments in renewable energy to accelerate their transition to net-zero economies.
The United States has significantly increased domestic oil and gas production since the 2000s, while accelerating the clean energy transition.
The Russian invasion of Ukraine in February triggered a global energy crisis This has resulted in all countries being armed around the supply. And the West has further roiled oil markets by imposing an embargo and price cap on the world’s second largest crude oil exporter.
Energy security has also increasingly become a key priority for China facing the crisis big challenges of their own.
Last year, bilateral trade between Saudi Arabia and China was $87.3 billion, up 30% from 2020, according to China Customs.
Much of the trade was focused on oil. China’s crude oil imports from Saudi Arabia in 2021 were US$43.9 billion, accounting for 77% of its total goods imports from the Kingdom. This amount also accounts for more than a quarter of Saudi Arabia’s total crude oil exports.
“Energy stability, both in terms of prices and volumes, is a top priority for Xi Jinping as China’s economy remains heavily dependent on oil and natural gas imports,” said Eswar Prasad, professor of trade policy at Cornell University.
The second largest economy in the world is heavily dependent on foreign oil and gas. According to official figures, 72% of oil consumption was imported last year. 44% of natural gas demand also came from overseas.
at At the 20th Party Congress in October, Xi stressed that ensuring energy security is a key priority. The comments came after a violent spate power shortage and rising global energy prices following Russia’s invasion of Ukraine.
As the West shunned Russian crude in the months following the invasion, China gain an advantage Moscow’s desperate search for new buyers. Between May and July, Russia was China’s No. 1 oil supplier until Saudi Arabia retook the top spot in August.
“Diversity is a key factor in China’s long-term energy security because it cannot afford to put all its eggs in one basket and make itself a prisoner of another power’s energy and geostrategic interests,” he said Ahmed Aboudouh, a non-resident fellow in the Middle East programs at the Atlantic Council, a research institute based in DC.
“Although Russia is a source of cheaper supply chains, no one can guarantee with absolute certainty that China-Russia ties will be maintained 50 years from now,” Aboudouh said.
The Saudi Press Agency quoted Saudi Energy Minister Prince Abdulaziz bin Salman as saying on Wednesday that the Kingdom of China will remain “a credible and reliable partner in this field”.
Saudi Arabia also has strong motivations to deepen energy ties with China, according to Gal Luft, co-director of the Institute for the Analysis of Global Security.
“The Saudis are concerned about losing market share in China amid a tsunami of heavily discounted Russian and Iranian crude,” he said. “Their goal is to ensure that China remains a loyal customer even when the competition is offering [a] cheaper product.”
Oil prices have fallen back to pre-war levels in Ukraine amid fears of a sharp slowdown in the global economy. The extent to which China’s economy can pick up steam over the next year will have a big impact on how bad this slump will be.
Beyond security of supply, Saudi Arabia could offer Beijing another prize with greater geopolitical implications.
Riyadh has started talks with Beijing price some of its oil sales according to a report by the Wall Street Journal to China in the Chinese currency yuan instead of US dollars. Such an agreement could bolster Beijing’s ambitions to expand the Chinese currency’s global influence.
It would also damage the long-standing deal between Saudi Arabia and the United States, which obliges Saudi Arabia to sell its oil and hold its reserves for US dollars only partly in US Treasuries, all in exchange for US security guarantees. The “petrodollar system” has helped preserve the dollar’s status as the primary global reserve currency and means of payment for oil and other commodities.
Though Beijing and Riyadh never confirmed the reported talks, analysts said it made sense that both sides would explore the possibility.
“In the near future, Saudi Arabia could sell some of its oil and generate revenue in Chinese yuan, which makes economic sense given that China is the kingdom’s main trading partner,” said Naser Al Tamimi, a senior associate research fellow at ISPI, an Italian think International affairs tank.
Some believe it’s already happening, but that neither China nor the Saudis want to publicly highlight it.
“You know only too well how sensitive this issue is [is] for the United States,” said Luft. “Both parties have too much exposure to US currency and there is no reason for them to continue conducting their bilateral trade in a third party’s currency, especially when that third party is no longer a friend of either.”
Xi’s visit could mark another step “in the erosion of the dollar’s status” as a reserve currency, he added.
However, there are limits to growth Relations between Riyadh and Beijing.
“The Biden administration’s approach to the Middle East has concerned the Saudis, and they see a growing relationship with China as a hedge against a possible US withdrawal and as a tool for leverage in negotiations with the United States,” Jon B. Alterman said , Director of the Middle East Program at the Center for Strategic and International Studies, a Washington DC-based think tank.
The Biden administration has realigned its policy priorities a focus on fighting China. At the same time, it has announced its intention to reduce its own presence in the Middle East, To worry among allies there that the United States may not be as committed to the region as it once was.
“All in all, the Sino-Saudi relationship pales in both depth and complexity to the Saudi-US relationship,” Alterman said. “The Chinese remain a novelty to most Saudis, and they are additive. The United States is fundamental to how Saudis see the world and how they have seen it for 75 years.”
Despite the possibility of switching to yuan transactions, it’s too early to say Saudi Arabia would dump the dollar in pricing its oil sales, analysts said.
Eurasia Group’s Kamal says it is “highly unlikely” that Saudi Arabia would take such a move unless there is an implosion in US-Saudi relations.
“Essentially, there could be discussions about pricing barrels to China in yuan, but that would be of limited size and likely only reflect bilateral trade volume,” he said.
Cornell University’s Prasad said countries like China, Russia and Saudi Arabia are all looking to reduce their reliance on the dollar in oil deals and other cross-border transactions.
“However, with no serious alternatives and few international investors willing to trust these countries’ financial markets and their governments, the dollar’s dominant role in global finance is unlikely to be seriously threatened,” he said.
