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When China and Saudi Arabia meet, nothing matters more than oil | CNN Business

Hong Kong
CNN Business

Chinese President Xi Jinping will visit Saudi Arabia this week for the first time in nearly seven years, during which he is expected to sign billions of dollars in deals with the world’s biggest oil exporter and meet leaders from around the world. Middle East.

The visit is a sign that China and the Gulf region are deepening their economic relations at a time when ties between the United States and Saudi Arabia have collapsed over the OPEC decision. to cut the supply of crude oil. As Xi wrote in a Article Published in Saudi media, the trip was aimed at strengthening China’s relations with the Arab world.

China is Saudi Arabia’s largest trading partner and a growing source of investment. It is also the world’s largest buyer of oil. Saudi Arabia is China’s largest trading partner in the Middle East and the world’s leading supplier of crude.

“Energy cooperation will be at the center of all discussions between the Saudi and Chinese leaders,” said Ayham Kamel, head of the Middle East and North Africa research team at Eurasia Group. “There is great recognition of the need to build a framework to ensure that this interdependence is politically accommodated, especially given the scope of energy transition in the West.

Governments around the world have committed to drastically reducing carbon emissions in the coming decades. Countries like Canada and Germany have doubled their investments in renewable energy to speed up their transition to net-zero economies.

The United States has significantly increased domestic oil and gas production since the 2000s, while accelerating its transition to clean energy.

The Russian invasion of Ukraine in February it has triggered a global energy crisis that has left all countries competing to shore up supplies. And the West has further roiled oil markets by imposing an embargo and price cap on the world’s second-biggest crude exporter.

Energy security has also increasingly become a key priority for China, which faces significant challenges of its own.

Last year, bilateral trade between Saudi Arabia and China reached 87.3 billion dollars, 30% more than in 2020, according to Chinese customs figures.

Much of the trade centered on oil. China’s crude oil imports from Saudi Arabia amounted to $43.9 billion in 2021, accounting for 77% of its total imports of goods from the kingdom. That amount also represents more than a quarter of Saudi Arabia’s total crude exports.

“The stability of energy supplies, both in terms of prices and quantities, is a key priority for Xi Jinping as the Chinese economy remains highly dependent on oil and natural gas imports,” said Eswar Prasad, professor of trade policy at Cornell University.

The world’s second largest economy is heavily dependent on foreign oil and gas. 72% of its oil consumption was imported last year, according to official figures. 44% of the demand for natural gas also came from abroad.

A At the 20th Party Congress in October, Xi stressed that ensuring energy security was a key priority. The comments came after a series of severe power outages and rising global energy prices following Russia’s invasion of Ukraine.

While the West avoided Russian crude in the months following the invasion, China He took advantage from Moscow’s desperate search for new buyers. Between May and July, Russia was China’s main oil supplier, until Saudi Arabia reclaimed the top spot in August.

“Diversity is a key ingredient for China’s long-term energy security because it cannot afford to put all its eggs in one basket and become a captive of another power’s energy and geostrategic interests,” he said. Ahmed Aboudouh, a non-resident fellow for the Middle East Programs at the Atlantic Council, a DC-based research institute.

“Although Russia is a source of cheaper supply chains, no one can guarantee, with the greatest certainty, that the China-Russia relationship will continue to strengthen 50 years from now,” Aboudouh said.

The Saudi Press Agency quoted Saudi Energy Minister Prince Abdulaziz bin Salman as saying on Wednesday that the kingdom would remain China’s “credible and reliable partner in this field.”

Saudi Arabia also has strong motivations to deepen energy ties with China, according to Gal Luft, co-director of the Institute for Global Security Analysis.

“The Saudis are worried about losing market share in China in the face of a tsunami of heavily discounted Russian and Iranian crude,” he said. “Their goal is to ensure that China remains a loyal customer even when competitors offer [a] cheaper product.

Oil prices have fallen back to where they were before the Ukraine war on fears of a sharp global economic slowdown. The extent to which the Chinese economy can pick up pace next year will have a big influence on the severity of the recession.

Beyond security of supply, Saudi Arabia could offer Beijing another prize with greater geopolitical ramifications.

Riyadh has been in talks with Beijing to price some of your oil sales to China in the Chinese currency, the yuan, instead of the US dollar, according to a report in the Wall Street Journal. Such a deal could be a boost to Beijing’s ambitions to expand the global influence of the Chinese currency.

It would also hurt the long-standing agreement between Saudi Arabia and the United States that requires Saudi Arabia to sell its oil only for US dollars and hold its reserves partly in US Treasury bonds, all in exchange for security guarantees from the United States. USA. The “petrodollar system” has helped preserve the dollar’s status as the world’s primary reserve currency and means of payment for oil and other commodities.

Although Beijing and Riyadh never confirmed the reported talks, analysts said it was logical for the two sides to explore the possibility.

“In the near future, Saudi Arabia could sell some of its oil and receive revenue in Chinese yuan, which makes economic sense as China is the kingdom’s main trading partner,” said Naser Al Tamimi, a researcher. senior associate of ISPI, an Italian think tank. tank in international affairs.

Some believe that it is already happening, but that neither China nor the Saudis want to highlight it publicly.

“They know very well how delicate this issue is. [is] for the United States,” Luft said. “Both parties are overexposed to the US currency and there is no reason for them to continue to trade bilaterally in a third party’s currency, especially when this third party is no longer friends with either of them.”

Xi’s visit could mark another step “in the erosion of the dollar’s status” as a reserve currency, he added.

However, there are limits to growth ties between Riyadh and Beijing.

“The Biden administration’s approach to the Middle East has worried the Saudis, and they see a growing relationship with China as a hedge against potential US abandonment and a tool to influence negotiations with the US,” said Jon B. Alterman, director of the Middle East Program at the Center for Strategic and International Studies, a Washington DC-based think tank.

The Biden administration has refocused its political priorities with a focus on countering China. At the same time, she has indicated her intention to reduce her own presence in the Middle East, raising concerns among allies that the United States might not be as engaged in the region as it used to be.

“All of that said, Sino-Saudi ties pale in both depth and complexity to Saudi-US ties,” Alterman said. “The Chinese are still a novelty for most Saudis, and they are additive. The United States is central to the way the Saudis see the world and how they have seen it for 75 years.”

Despite the possibility of switching to yuan transactions, it is too soon to say that Saudi Arabia will dump the dollar in the price of its oil sales, analysts said.

Kamal of Eurasia Group believes it is “highly unlikely” that Saudi Arabia would take such a step, unless there is an implosion in the US-Saudi relationship.

“Essentially, there could be a barrel price discussion for China in yuan, but this would be limited in size and probably only correspond to bilateral trade volumes,” he said.

Prasad of Cornell University said countries like China, Russia and Saudi Arabia are eager to reduce their reliance on the dollar for oil contracts and other cross-border transactions.

“However, in the absence of serious alternatives and with few international investors willing to place their trust in the financial markets of these countries and their governments, the dominant role of the dollar in global finance is hardly under serious threat,” he said.

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