Sino-Saudi ties: Oil, gas, bauxite ...
then arms? By Stephen Blank
scandal is brewing in the United States over Saudi
Arabia's promise to President George W Bush that it
would lower oil prices in time for his election in order
to aid his victory. This offer, if true - and one should
not dismiss the evidence gathered by journalist Bob
Woodward in 75 interviews with top officials - would
represent a major scandal in American politics, and in
Washington's ties with Riyadh.
Remember: 15 of
the 19 hijackers on September 11 were Saudis, and Saudi
Arabia has had a close and ambivalent relationship with
that nation's least-favored son, Osama bin Laden. Also,
while selling prodigious amounts of oil to the US and
the West, Riyadh has allowed ferociously intolerant, and
anti-US Wahhabist Islam to flourish, though it now is
trying to rein in the Islamist militants.
even more revealing is the sign that Saudi Arabia is
prepared to play hardball with energy in order to
achieve its objectives. Indeed, China's recent deals
with Saudi Arabia show that Riyadh is moving
determinedly to cultivate ties with all major players in
world affairs. Last year it made important oil deals
with Russia, and now it is closing deals of similar
magnitude with China in order to demonstrate and achieve
its independence from Washington, obtain and secure
important new customers, and retain market share in
critical global energy markets.
China, for its
part, also satisfies critical objectives through Saudi
and other such deals, showing again that converging
economic interests, especially oil, often lubricate
relationships whose compatibility might otherwise be
China's interests are
relatively easy to explain. Its booming economy is
sending demand for commodities of all sorts, including
gas and oil, higher than markets can easily tolerate.
Indeed, the spiraling demand for oil in China and East
Asia more generally might well exceed prognostications
that already project this region as the future driver of
demand for energy. Indeed, the International Energy
Agency expects China's demand for oil to grow at a rate
of 580,000 barrels a day.
Since China, once an
energy exporter, has been an energy importer on an
increasing scale for over a decade, it clearly cannot
meet this demand from its own sources. For obvious
reasons it also does not wish to be excessively
dependent on oil and gas that originates in areas whose
security depends on the capacity and will of the US
navy, China's potential adversary in possible military
conflicts in Asia, in the Taiwan Strait and elsewhere.
China desperate to diversify energy
sources Accordingly, Beijing long been aimed to
diversify its energy holdings all over the world and to
seek market share in numerous locations, among them
Ecuador, Sudan, Gabon and other states in Sub-Saharan
Africa, Yemen, Central Asia, Russia, and elsewhere. The
kingdom of Saudi Arabia, despite the unstable Middle
East, is part of that strategy by the Middle Kingdom.
However, many of these potential suppliers have
turned out to be unreliable. Russia not only rebuffed
Chinese efforts to buy Slavneft, a major state-owned oil
company that was scheduled for privatization, but it
also has evidently reneged on the projected Angarsk to
Daiqing oil pipeline that China was counting on.
Instead, the pipeline will go to Nakhodka, a container
port in the Russian Far East, on the Sea of Japan, from
where China must buy oil like everyone else.
Earlier programs for investing in Kazakhstan in
Central Asia have also encountered numerous problems.
Thus, by default, China has had to turn with redoubled
interest to Gulf-based producers. So China has begun
negotiations with Iran for the provision of liquefied
natural gas and has signed major deals with Saudi Arabia
for both oil and gas.
Saudi Arabia has already
been exporting sizable amounts of oil to China, and now
it will expand those exports to include Liquefied
Natural Gas (LNG). Thus China has signed an agreement
with Saudi Arabia to build a refinery for natural gas in
Fujian. Sinopec, one of China's major energy concerns,
also won the right to explore for natural gas in Saudi
Arabia's Rub al-Khali Basin. In return, Chinese firms
will also explore for the possibly of extensive
extensive bauxite and phosphate reserves in Saudi
These deals open the way for a
productive relationship with Saudi Arabia, and even more
so with Iran, that might help offset the loss of
expected energy supplies from Russia (through loss of
the China, Daqing, pipeline deal) and increase political
understanding between China and Saudi Arabia, each of
which would like to distance itself to some degree from
Saudi motives also combine economic
with political purposes. First of all, Saudi Arabia
clearly wishes to expand its share in China's rapidly
expanding market. Although it already sells China 17
percent of Beijing's oil imports, this is proportionally
much less than Saudi Arabia sells to other Asian
markets, such as South Korea. In fact, as China's market
took off, Saudi Arabia faced the possibility of actually
losing market share to China since Riyadh's sales were
not expanding to China. Beijing's strategy of
diversification had already given it many other options
besides Saudi Arabia's overvalued oil.
get greater entry to China market These new deals
in oil and gas go a long way toward giving Saudi Arabia
a greater entry into the Chinese market, and these will
help it maintain a strongly competitive profile there.
They also represent a way to diversify Saudi interests
in China, because much of the energy that will be
processed in the new refinery in Fujian province will
then go into China's plastics markets. Aramco, the Saudi
oil company, will thus help secure a lasting presence
for Saudi Arabia in the China market.
Arabia is also signaling, through its deals with China
and other East Asian states, that it is responding to
strong US pressure on the Organization of Petroleum
Exporting Countries (OPEC) to abandon the production
cuts it adopted on March 31.
At the same time,
Saudi Arabia is entering a new field by exporting LNG to
China and by opening up its potential holdings to
private Chinese exploration. Saudi officials openly
voice a desire to diversify their exports beyond oil, to
include gas and commodities like bauxite and phosphates,
hence the deals with China in these minerals. But for
Saudi Arabia to mine those reputed world-class bauxite
and phosphate reserves, it needs substantial volumes of
gas for transportation and support infrastructure, and
for the downstream industries tied to them.
explains the need to explore for gas as well as to sell
excess holdings abroad to diversify its export base.
Expansion of ties to China as both explorer and customer
are therefore a logical progression, given the rising
attraction of the rapidly growing Chinese market and
China's capital holdings.
Saudi Arabia also
wishes to enter into the World Trade Organization (WTO)
by the end of 2004. To satisfy the WTO it must make
deals with major customers for its products, and it must
make itself more open and attractive to foreign
investment and to privatization, not least in the energy
sector. Therefore, the deals with China represent a
significant fulfillment of these WTO requirements. In
other words, there are strong economic and political
factors driving China and Saudi Arabia to conclude major
deals in the energy and related sectors to their mutual
However, there is also a
potential political and strategic sub-text to these
deals. Not only are there compelling economic reasons
for the transactions, but also both sides seek to create
greater distance between themselves and Washington and
US pressure. Likewise, analysts like Gal Luft have
openly expressed the concern that economic ties might
create bases for political and strategic ties that would
lead to Chinese proliferation of advanced weapons of
mass destruction (WMD) and missile capabilities to Saudi
China, Saudi Arabia aided Pakistan's
arms buildup After all, both governments were
major supporters of Pakistan's nuclearization and
continuing buildup of conventional and WMD capabilities.
Moreover, in the 1980s, China sold Saudi Arabia Silkworm
missiles to defend its shipping and energy holdings
during the Iran-Iraq War, so that a renewed military
relationship is by no means out of the question.
Therefore, there may well be more than meets the eye in
these initially "purely" commercial deals that may open
doors to a deeper and more strategic engagement between
Riyadh and Beijing.
While nobody can really
question the fundamental logic of the need for demanders
and suppliers of energy and investment to get together,
if these economic deals are merely the prelude to a
reinvigorated and expanded weapons proliferation
relationship, the ensuing crisis and inevitable scandal
might have profound reverberations throughout the Middle
East, Asia - and in Washington.
Arabia replace Iraq as an energy power and military
power with WMD, it would be more than an ironic
traducing of the objectives for which the recent war
against Iraq was fought. Then Saudi Arabia, like Iraq,
would no longer be in America's good graces, and also
would no longer be, so to speak, in line with
Washington. Given what we are learning these days, that
could well be one scandal too many in Arabia.
Stephen Blank is an independent
analyst of international security affairs living in
Harrisburg, Pennsylvania, US.
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