Saudi Arabia has clinched a raft of economic deals with China to reverse or slow down the pace at which the kingdom is losing its status as China's predominant oil supplier.
Riyadh struggles with a slumping oil market and a desperate need to diversify its economy, prompting the senile King Salman to embark on a six-week lavish tour of Asia in order to fix the profligate kingdom’s financial woes.
Saudi Arabia is facing grim economic outlooks because of low crude prices in the face of a global oil glut and the country’s leaders are on a force majeure drive to shock the country out of intense dependence on oil.
Under the circumstances, the kingdom’s market share has come under strain in a lot of places globally. Saudi Arabia lost its position as China’s biggest crude oil supplier to Russia last year and was briefly overtaken by both Angola and Iraq.
Loss of market share
That share is vulnerable to fresh inroads from resurgent players such as Iran which is ramping up production after the lifting of sanctions.
China’s Iranian crude oil imports are expected to rise to a record this year. Chinese firms’ imports are forecast to be 7 percent higher than the 620,000 barrels per day (bpd) of Iranian crude they lifted during the first 11 months of 2016.
Moreover, China's demand for foreign crude is set to touch new highs but Saudi Arabia's inability to meet it means the kingdom will be losing its status as China's predominant supplier.
On that account, Riyadh has to gamble on other assets and that is where its oil and gas behemoth Aramco comes into play. The state-owned firm is reportedly being prepared for a public listing as the Arab country is seeking to plug its fourth consecutive budget deficit.
According to Bloomberg, China Investment Corporation would be the biggest investor in the Aramco initial public offering (IPO), which could be worth up to $100 billion. China National Petroleum Corporation would also take a stake under plans being discussed between the two sides, the report added.
New cash cow
With a bulging sovereign wealth fund and an urge to put it to work on the global scale, China is the best source of cash for Saudi Arabia which is burning through its foreign reserves at an alarming pace.
Riyadh’s troubles with its financial books are chiefly rooted in a militarist approach which the new Saudi rulers have adopted, waging a costly war against their impoverished neighbor in Yemen for more than two years now.
Some observers believe the current drive to diversify the economy, championed by Saudi defense minister and heir apparent, Prince Mohammed bin Salman, is a masquerade to cover the war expenses.
On Thursday, King Salman oversaw in Beijing the signing of up to $65 billion worth of deals, spanning sectors from energy to space, though the Chinese government disclosed few specifics. Saudi Arabia and China also signed more than 20 agreements on oil investments and in renewable energy.
While President Xi Jinping couched China’s future role in Saudi Arabia in purely economic terms, King Salman tried to add a political touch to their latest association.
“Saudi Arabia is willing to work hard with China to promote global and regional peace, security and prosperity,” Salman said.
However, the new tie-up is more a marriage of convenience than anything else.
As Beijing is expanding its footprints in the Middle East, it is boosting military cooperation with the Syrian government which Saudi Arabia wants to topple with the help of armed militants.
Furthermore, China is worried that Uighurs from its western Xinjiang region have gone to Syria and Iraq to fight for Takfiri groups which are inspired by the Wahhabi ideology preached in Saudi Arabia
“For the moment, the world's biggest oil importer and its biggest exporter are natural allies -- but they will always be ruthless when it comes to their national interests,” a commentary piece on Bloomberg said on Thursday.