September 18, 2024 [Oilprice]- A little under a year before the Russian invasion of February 2022, Saudi Aramco’s chief executive officer, Amin Nasser, had spent several days at the annual China Development Forum hosted in Beijing, during which time he stated: “Ensuring the continuing security of China’s energy needs remains our highest priority – not just for the next five years but for the next 50 and beyond.” On last week’s anniversary of the ‘9/11’ multiple terrorist attacks on the U.S. that killed 2,996 people, Aramco announced on its website that it has concluded new agreements with two firms from the country’s key geopolitical rival China that “reinforce Aramco’s ongoing contribution to China’s long-term energy security and development”. Around the same time, Chinese Premier Li Qiang and Saudi Arabia’s Crown Prince Mohammed bin Salman co-chaired the fourth Saudi-Chinese High-Level Committee, which Li hopes will “further strengthen the alignment of [our] development strategies and elevate bilateral ties to a higher level”. It might appear to many, then, that any residual hopes Washington may have that Saudi Arabia’s burgeoning relationship with China was simply being used by Riyadh as a means of positioning for a better relationship with the U.S. in the future is wishful thinking only.
The genesis of the broader and deeper relationship between Saudi Arabia and China was not the establishment of diplomatic relations between the two countries on 21 July 1990. Rather, it was more likely the offer made by China to buy the entire 5 percent in a private placement of Saudi Aramco that was being touted for sale in an initial public offering (IPO) from late-2016/early-2017, according to several industry sources. At that point, Saudi Arabia was reeling financially and politically from the 2014-2016 Oil Price War it had instigated to destroy or at least severely disable the then-nascent U.S. shale oil sector. It was the then-Prince Mohammed bin Salman (MbS) who pushed the idea of an IPO of part of Saudi Aramco, which had three key positive factors going for it. First, it could raise a lot of money, part of which might be used to offset the economically disastrous effect of the 2014-2016 Oil Price War, as analysed in my latest book on the new global oil market order. Second, it could boost Saudi Arabia’s reputation in the global financial markets, which would help with further IPOs. And third, both new funding flows could be used as part of the ‘National Transformation Program’ 2020 – in turn part of Saudi’s ‘Vision 2030’ development plan – that sought to diversify the Kingdom’s economy away from its reliance on oil and gas exports. Senior Saudis were also assured that the flotation of 5 percent of Saudi Aramco would raise at least US$100 billion for Saudi Arabia, placing a valuation on the entire company of at least US$2 trillion, and that it would be listed on one of the world’s major stock exchanges. However, the IPO was seen as toxic by many big investors in the West, and it was then that China made the face-saving private placement offer to the Saudis, which has never been forgotten.
For China even back then, a deeper relationship with Saudi Arabia had considerable benefits. One, of course, was preferential access to its sizeable oil production. Another was the influence over oil prices that it still held as the de facto head of OPEC, despite its failure in the 2014-2016 Oil Price War. Later, with the addition of major oil producer Russia to an expanded OPEC+ group, Beijing believed Riyadh could exert a moderating influence over any moves by Moscow to move oil prices in a sustained direction that China did not want. By then, it had become the world’s biggest importer of oil, so did not want long upward trends in prices, and nor did it want the economies of its major export markets in the West adversely affected for a sustained period by these either. An additional benefit to China of an enhanced relationship with Saudi Arabia was its position as a leader in the Islamic world, which could be used by Beijing to extend its influence further across the Middle East and beyond, including through its multi-generational power-grab project, the ‘Belt and Road Initiative’. As the world’s oil supply is a zero-sum game, a further benefit for China was that its gain in any of these respects would be the loss of the U.S., its key superpower rival.
Beijing’s expectations of the benefits of this relationship increased as it developed, as seen in the first China-Arab States Summit and the first China-Gulf Cooperation Council Summit in December 2022, as referenced again by Li in his very recent visit to Saudi Arabia. “For over a year, both sides have actively implemented the key outcomes of the summits… maintaining close communication and coordination on regional and international affairs, and continuously enhancing the China-Saudi Arabia comprehensive strategic partnership,” he said. At the 2022 meeting, and tangential meetings with other Arab states around the same time, 34 agreements were signed between Chinese and Saudi companies covering a huge array of sectors, including, energy, technology, security, science and technology, aerospace, banking, and infrastructure, among many others. However, it was President Xi Jinping himself who identified two ‘priority areas’ for the new relationship between China and the Arab states, including Saudi Arabia. These were the transition to using China’s renminbi (RMB) currency in oil and gas deals done between and bringing Chinese nuclear technology to them, as also detailed in my latest book on the new global oil market order. This was all to be done within the context of “forging a deeper strategic cooperation in a region where U.S. dominance is showing signs of retreat,” according to China’s state media.
On the first of these priorities, China has long regarded the position of its RMB in the global league table of currencies as a reflection of its own geopolitical and economic importance on the world stage. An early indication of China’s ambition for the RMB was evident at the G20 summit in London in April 2010, when Zhou Xiaochuan, then-governor of the People’s Bank of China, flagged the notion that the Chinese wanted a new global reserve currency to replace the U.S. dollar at some point. China has also long been acutely aware of the fact that, as the largest annual gross crude oil importer in the world since 2017 (and the world’s largest net importer of total petroleum and other liquid fuels in 2013), it is subject to the vagaries of U.S. foreign policy tangentially through the oil pricing mechanism of the U.S. dollar. This view of the U.S. dollar as a weapon has been powerfully reinforced since Russia’s invasion of Ukraine and the accompanying U.S.-led sanctions that followed, the most severe of which – as with sanctions on Iran from 2018 – relate to exclusion from use of the U.S. dollar. The former executive vice-president of the Bank of China, Zhang Yanling, said in a speech on 6 April 2022 that the then-latest sanctions against Russia would “cause the U.S. to lose its credibility and undermine the [U.S.] dollar’s hegemony in the long run.” She further suggested that China should help the world “get rid of the dollar hegemony sooner rather than later.”
On the second of Xi’s urgent priorities, there was a peculiar timing attached to the statement at the time. Just before Christmas 2021, news emerged that U.S. intelligence agencies had found that Saudi Arabia was manufacturing its own ballistic missiles with the help of China. Given China’s long-running and extensive ‘assistance’ to Iran’s nuclear ambitions, this information was received very poorly in Washington, with the focus being on what Beijing’s endgame might be in building out the nuclear capabilities of rival key states in the Middle East. Saudi Arabia has stated several times that it wants to add around 17 gigawatts (GW) of nuclear capacity by 2040 and, to this end, wishes to bring two nuclear reactors with a combined capacity of 3.2 GW online by 2030. Previously, the Kingdom had been in talks to acquire nuclear technology from the U.S. under the ‘1-2-3’ protocol. As highlighted in 2019 by then-U.S. Energy Secretary, Rick Perry, Saudi Arabia had told the U.S. that it wanted to go ahead with a full-cycle nuclear programme, including the production and enrichment of uranium for atomic fuel. At that point, the U.S. made it clear that in order for U.S. companies to compete for Saudi Arabia’s project, Riyadh would need to sign an accord on the peaceful use of nuclear technology with Washington. The ‘1-2-3’ protocol was intended to limit the enrichment of uranium for arms purposes. Whether China insists on such a protocol remains unclear.
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