Saudi Arabia Deepens Energy Ties With China

Saudi Arabia Deepens Energy Ties With China

Saudi Arabia has long had deep ties with the East and the West thanks to its strong position in the international energy arena. The Kingdom has been an oil and gas superpower for decades and is now focusing its attention on the development of its green energy capacity, to lead in the world of renewables.

But as it goes forward, it will have to decide on which international energy partners its wants to maintain and who it wants to compete with. China, a superpower in pretty much every energy source, is one such power. Over the last year, Saudi Arabia has been deepening its ties with the Asian giant, with greater collaboration suggesting a long-term energy partnership. 

China and Saudi Arabia have several long-standing ties, in energy and beyond. Until recently, when Russia overtook, Saudi Arabia was China’s top oil supplier. In 2022, it provided China with the equivalent to 1.75 million bpd of crude. And in December 2022, Saudi Arabia hosted the China-Arab summit, which was attended by Chinese President Xi Jinping.

The two leaders discussed trade ties and regional security, an ongoing discussion for the states. They decided to align policies across several areas, including security and oil, without interfering in one another’s internal affairs. Saudi Arabia and China stressed the “the importance of stability in the world oil markets,” highlighting that Saudi Arabia is a reliable exporter of oil to its Chinese partner. 

In March, the two powers announced they would be working together to construct a landmark $10-billion refinery in the north-eastern Liaoning province of China, with funding from Saudi’s state-owned Aramco. This brings together the largest energy consumer worldwide and one of its biggest exporters.

The development will consist of an integrated refinery and petrochemicals complex. Ashok Dutta, an oil industry executive based in Calgary, believes the move says “I’m committed to what you are doing, I will help you out and make this relationship more meaningful.” Aramco also acquired an expanded stake in a privately controlled Chinese petrochemical group for $3.6 billion. 

That same month, Saudi Arabia’s cabinet approved the decision to join the Shanghai Cooperation Organisation, a China-led political, security and trade alliance that includes member states such as Russia, India, Pakistan and four other central Asian nations. While it will not be considered a full member, the partial membership shows Saudi’s commitment to aligning its interests with China.

Earlier in the month, China helped secure a deal for long-time Middle Eastern rivals Saudi Arabia and Iran to resume diplomatic relations and reopen embassies in one another’s countries, demonstrating China’s involvement in the region. 

And this month, Saudi’s Energy Minister, Prince Abdulaziz bin Salman, said that the Kingdom wanted greater cooperation with China on trade and energy, rather than competition. Bin Salman stated during the 10th Arab-China Business Conference: “We came to recognize the reality of today that China is taking, had taken a lead, will continue to take that lead. We don’t have to compete with China, we have to collaborate with China.”

The energy minister highlighted the value in working in partnership with China, as the Asian giant has already strongly developed its renewable energy sector, getting the “right manufacturers”. Further, China’s oil demand continues to grow year on year, showing significant potential for Saudi’s crude export market as demand in other parts of the world begins to wane. 

However, bin Salman was quick to state that this partnership does not mean that Saudi Arabia will stop collaborating with other world powers, such as Europe, South Korea, Japan, the U.S., and Latin America. When asked whether the strengthening of ties with China would affect Saudi’s relationship with other countries the minister said: “We are Saudi Arabia, we don’t have to be engaged in what I call a zero-sum game. We believe that there are so many global opportunities.”

Also at the event, Saudi Arabia signed a $5.6-billion deal with China’s electric vehicle maker Human Horizons to design and manufacture EVs. A total of $10 billion worth of agreements were signed in total during the Arab-China conference, across the technology, renewables, agriculture, real estate, minerals, supply chains, tourism, and healthcare industries.

This demonstrates a greater commitment to deepening ties with China, as the Kingdom expands its investments beyond oil and gas to renewables. This also aligns Saudi’s Vision 2030, with the aim for greater economic diversification and the establishment of a strong renewable energy sector, that will support the development of smart cities. 

Over several meetings during the last year, Saudi Arabia has made it abundantly clear that it intends to continue developing its relationship with China, particularly in energy and security. As the two powers look to become world leaders in renewable energy, while also continuing their commitment to fossil fuels in the mid-term, they will align policies to support their energy industries.

The Kingdom has suggested that this will not negatively affect its relations with other world powers, although some remain sceptical about this commitment. by Felicity Bradstock, June 22, 2023