Nael Shehadeh
Associate Researcher, Gulf Research Center Foundation,Geneva
When it comes to economic ties between Saudi Arabia and countries like China and South Korea, the focus has very much been on the energy dependency that these Asian countries have with the Gulf region, in particular with Iran and Saudi Arabia. The present situation is no exception. With the current instabilities surrounding the Iranian question, China needs to secure an energy source which is less reliant towards Iran while at the same time ensuring its future growth potential. Decisions taken on the international relations level can thus be hard to grasp without a good idea of the trade dependency both countries have towards each other. The same goes for the Saudi relationship with its key customers in Asia.
While China is seeing the situation deteriorates in Iran, and uncertainties lie with future oil supply, China and Korea have been on important meetings to the countries of the GCC. Emerging Asia is very exposed to Iranian risks, due to marked oil dependency and trade links. Certainly, China is highly concerned about the stability of the Gulf as 43% of total oil import come from both Iran and the GCC. For China, Saudi Arabia represents a quarter of their oil import, but this proportion is expected to rise in the near future.While the main objective of the six-day visit of Chinese Premier Wen Jiabao to Saudi Arabia, Qatar and the UAE was to secure more oil contracts, other tangibles, including widespread cooperation in infrastructure projects for Saudi Arabia, or even more strategic aspects in terms of nuclear cooperation projects were also engendered. In terms of infrastructure projects, Chinese and South Korean companies have gained key contracts with the China Railway Construction Corporation winning phase of the Haramain High Speed Rail project in the Kingdom. Such project serves both sides well; it helps alleviate some of the serious infrastructure and transport problems from which the Kingdom suffers, helps boost religious tourism during the haj period, and allows Asian companies to gain a foothold in one of the key strategic area of the Gulf's lucrative projects market.
China is not only increasing its cooperation with Saudi Arabia but also with its neighbors. Recently, two multi-billion dollar currency swap deals were signed between the UAE and China and Turkey and China, further strengthening and easing bilateral trading. One could infer the possibility of Saudi Arabia following in the UAE's footsteps, especially as an increase in liquidity in an economic partners' currency enables an ease in financial transactions.
As seen in table 1, China already represents the third biggest trade partner of Saud Arabia with the trade volume set to expand further to the point at which China could surpass the United States. Traditionally, Japan represents the biggest trade partner of the GCC as a whole, but the ratios of China and Korea have seen the biggest growth in the trade with the GCC block since 2007. Almost 70% of total GCC exports are with Asia, and China represents $52.7 bn of total trade for the GCC, whereas it was worth just $10.2 bn back in 2007. Additionally, China has a very large car market, and will remain extremely dependent on oil supply in the coming years. As a result, one of the agreements signed during the visit of the Chinese Premier in January was a memorandum of understanding between Saudi Aramco and the Sinopec Group of China for an $8.5 billion full conversion oil refinery in Yanbu. Significantly located on the Red Sea coast, the refinery will allow tankers to avoid the Strait of Hormuz, where Iran has repeated threats to close the strategic strait recently.
Table 1:
Source: Eurostat
The Chinese Premier also called for the conclusion to a GCC-China Free Trade Agreement therefore highlighting the fact that the relationship outside of energy also spans to commerce, investments, infrastructure, finance, security and technology. As seen in table 2, while Saudi Arabia does not yet represent a very significant trade partner as far as China is concerned, the amount of signed cooperative agreements does indicate that this dynamic is changing. Moreover, Saudi Arabia and China have inked a nuclear cooperation pact signifying a more strategic component to the relationship. A statement from the Chinese embassy in Riyadh stated that: "Political will for closer ties between China and the Arab world is evidently strong."
Table 2:
Source: Eurostat
Similarly, when the President of South Korea toured the GCC countries in September 2012, it was not only in an effort to secure more oil contracts (South Korea receives 10% of its oil by Saudi Arabia), but also to increase non-oil cooperation. On the energy front, South Korea has emerged as a contender for an oil concession agreement, being granted the right to develop the Tafula offshore oil field as well as two onshore concessions. Seoul's third largest refiner S-Oil also signed a long-term 20-year deal to buy oil from Saudi Arabia. But again, beyond energy, industrial and defense contracts were at the heart of recent negotiations with Saudi Arabia, one beingwith the Hyundai Engineering & Construction company who won an important construction contract in the kingdom. As a general result, South Korea has seen the biggest growth in bilateral trade with the countries of the GCC over the last few years.
Table 3:
Source: Eurostat
Saudi Arabia holds an increasingly important place as a South Korean trade partner, and the initial mainly energy dependent relationship between the two countries is now evolving into one of multifaceted inter-dependence. Recently, a South Korean company won a $1.5 billion deal to build an aluminum refinery in Saudi Arabia. Furthermore, South Korean companies now hold the largest amounts of building orders for a foreign firm within the kingdom, which places Korea behind the recent efforts of the kingdom to increase its infrastructure. Indeed, total building contracts in the country amounted to $72 billion, while industrial plant orders in 2011 increased by 59% over 2010. Additionally, similar to China there is also a security component included with South Korea, having entered the market for nuclear energy in the GCC and cooperating with the GCC states in the combatting of piracy. To characterize the relationship between the GCC and key Asian countries like China and South Korea as a simple energy relationship no longer adequately depicts the emergence of much broader, multi-faceted ties. The relative share of trade weight between the US and Saudi Arabia has been slowly declining, and the increase in economic importance that the Asian and Gulf blocks represent for one another will eventually formalize with a political angle.The GCC states are definitely looking towards the east, even if they have not completely turned towards that direction. But given the fact that the East Asian countries are not in a position to provide the Gulf region with the security guarantees which it requires, the partnership will most probably evolve into one with political dimensions while at the same time falling short of replacing the existing ties with the US and EU blocks.
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