EAST ASIA FORUM, Australian National University
Saudi Arabia the next stop on China’s Maritime Silk Road
22 March 2017
Micha’el Tanchum, Truman Institute
Like
a weathervane, the recent visit to China by Saudi Arabia’s King Salman
points to changing strategic directions in the Middle East–Asia security
architecture. The significance of the Saudi monarch’s meetings with
Chinese President Xi Jinping and other top officials goes well beyond
the hefty US$65 billion in economic and trade deals signed between
Riyadh and Beijing. The visit confirmed the nascent strategic
partnership developing between China and Saudi Arabia as Beijing seeks
to promote stability on its 21st century Maritime Silk Road (MSR).
The
most strategic and significant leg of King Salman’s six-week tour of
Asia was this mid-March visit to China. The first day of the king’s
visit grabbed international headlines with the signing of the US$65
billion Sino–Saudi trade and investment package that included more than
20 agreements on oil investment and energy. Among the agreements was a
memorandum of understanding between Saudi Aramco and China North
Industries Group Corporation to build refineries in China and an
agreement between Saudi Basic Industries Corporation and Sinopec to
develop petrochemical products.
The
refinery agreement reflects Saudi Arabia’s desire to protect its oil
export market share in the face of rising Russian oil exports to China.
In 2016, Russia overtook Saudi Arabia for the first time as the largest oil exporter to China.
The petrochemicals agreement reflects Saudi Arabia’s ambition to catch
up with Iran, a major Middle East exporter of petrochemicals to Asian
markets. Iran’s booming petrochemical export industry was developed as a
strategy to sustain its economy under international sanctions, and has
also boosted Iran’s position in the value chain and insulated its
economy from oil price shocks.
With Saudi Arabia seeking to transform its economy, it is also looking to petrochemicals for these advantages.
Both
agreements serve Beijing’s interest in maintaining a diverse range of
suppliers for energy and critical inputs. In 2016, China imported about
7.6 million barrels per day, representing about 66 per cent of China’s
oil supply. With China’s demand expected to grow by 2.4 per cent over
the next five years, China’s 2022 oil demand will be an estimated 9.4
million barrels per day. By becoming a significant stakeholder in Saudi
Aramco, Beijing will be able to better oversee the management of Saudi
Arabia’s aging fields to ensure continuity of supply.
Despite
the monetary value of the trade and investment package, the agreements
largely follow the traditional transactional pattern of Sino–Saudi
cooperation. Three days prior to the Saudi monarch’s visit, China’s
Foreign Ministry declared that
‘we stand ready to take King Salman’s visit as an opportunity to take
China–Saudi Arabia comprehensive strategic partnership to a higher
level’. King Salman reciprocated with his declaration in Beijing that ‘Saudi Arabia is willing to work hard with China to promote global and regional peace, security, and prosperity’.
At
the heart of China and Saudi Araba’s increasing alignment of interests
is China’s effort to create its self-declared 21st century MSR — a
maritime commercial transportation corridor between China and Europe.
The MSR consists of a series of Chinese-built port installations
extending westward across the Indian Ocean and then via the Red Sea and
Suez Canal to the now Chinese-owned Port of Piraeus, on Greece’s
Mediterranean coast. After heavy Chinese investment, Piraeus is now one
of Europe’s major seaports and a hub for Chinese goods to enter European
markets.
Iran
is the single greatest threat to China’s economic interest in creating
and preserving a reliable and cost-efficient flow of commerce across the
MSR. Beijing is therefore being careful to maintain balanced
relations between Iran and Saudi Arabia. In his January 2016 visit to
Tehran, Xi Jingping and his Iranian counterpart agreed to a 10-year
program to raise Chinese–Iranian bilateral trade to US$600 billion.
But
Tehran’s effort to expand its sphere of influence to the Gulf of Aden
and Red Sea corridor through its proxy war against Saudi Arabia in Yemen
and the Horn of Africa represents
a disruption to the maritime security domain that China cannot
tolerate. In January 2016, Beijing declared its support for Yemen’s
efforts to defeat Iranian-backed Houthi rebels.
In
April 2016, China began construction of its first overseas bases in
Djibouti, which strategically straddles the Gulf of Aden and the Red
Sea. Just prior to Xi Jinping’s January 2016 visit to Riyadh, Djibouti
formally severed diplomatic relations with Tehran and then signed a
security cooperation agreement with Riyadh. Saudi Arabia is currently
finalising arrangements with Djibouti for the establishment of a Saudi
base in addition to the Chinese naval base that will have the capacity
to house 10,000 personnel.
The
Sino–Saudi agreement to collaborate on drone manufacturing signed
during King Salman’s Beijing visit is another indication of the
countries’ intention to strategically cooperate to contain Iranian
activities in the Gulf of Aden and Red Sea corridor.
The
growing partnership between China and Saudi Arabia signals a
consequential shift in the Middle East–Asia security architecture and
will be an increasingly important space to watch.
Micha’el
Tanchum is a Fellow at the Truman Research Institute for the
Advancement of Peace, The Hebrew University of Jerusalem and the Energy
Policy Research Center at Bilkent University, Turkey. You can follow him on Twitter at @michaeltanchum