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Saudi Arabia in diplomatic shift away from old ally US

A bitter diplomatic row between US and Saudi Arabia has burst into the open in a development that could threaten one of the Middle East’s core alliances and Washington’s leadership in the region

BST 22 Oct 2013
By Peter Foster, in Washington, Ruth Sherlock in Beirut and Alex Spillius

The public rupture saw the head of Saudi intelligence declare that the kingdom was “scaling back” co-operation with the CIA over arming and training Syrian rebels and seeking alternate weapons suppliers to the United States.

The unprecedented rebuke by Prince Bandar Bin Sultan al-Saud came after Saudi Arabia stunned diplomats by rejecting a prized seat on the UN Security Council.

The decision to reject the seat, Prince Bandar reportedly told diplomats, was intended as “a message for the US” about Saudi frustration with the Obama administration’s long-running failure to arm rebels in Syria and the rising prospect of a nuclear deal that would favour Riyadh’s arch-foe, Iran.

John Kerry, the US Secretary of State, yesterday confirmed that he had been forced to defend US policy at lengthy meetings with Prince Saud Al-Faisal, the Saudi foreign minister, in Paris.

Mr Kerry said Mr Obama agreed to the meetings, held on the sidelines of a gathering to discuss the progress of the Middle East peace talks.

He described a “very frank conversation” that covered “every one of these things” – Egypt, Middle East Peace, Iran and Syria.

“I explained exactly where the US is coming from and will continue to consult with our Saudi friends as we always have in the past,” said Mr Kerry.

On Iran, Saudi Arabian alarm was such that he felt obliged to “reaffirm President Obama’s commitment that he will not allow Iran to have a nuclear weapon”.

Referring to Washington’s decision to back down from missile strikes against the Damascus regime, Mr Kerry admitted that “the Saudis were obviously disappointed the strikes didn’t take place, and have questions about some other things that may be happening in the region”.

But he added that “the United States and Saudi Arabia will continue to be the close and important friends and allies that we have been”.

Analysts and diplomats in Washington were divided over whether the row, first reported in the Wall Street Journal, presented a serious threat of divorce or was merely a ‘marital tiff’ in an 80-year relationship founded on the mutual interests of Saudi Arabian oil and the US ability to provide security guarantees.

Michael Doran, a Middle East expert with the Brookings Institution who served on the National Security Council during the George W Bush administration, said relations were at an all-time low.

‘I’ve worked in this field for a long time, and I’ve studied the history. I know of no analogous period. I’ve never seen so many disagreements on so many key fronts all at once. And I’ve never seen such a willingness on the part of the Saudis to publicly express their frustration,” he said.

“Iran is the number one issue — the only issue for Saudi policy makers.

When you add up the whole Middle Eastern map — Syria, Iraq, Iran — it looks to the Saudis as if the US is throwing Sunni allies under the bus by trying to cut a deal with Iran and its allies.”

Saudi frustration with Mr Obama’s failure to carry out air strikes last month appears to have boiled over amid fears that the US is backing a peace deal, with Russian and Iranian support, that would leave much of the infrastructure of the Assad regime in place.

“The reason the Saudis are furious is because of the deal between Russia and the US, and Iran and the US,” Dr Kamal Labwani, a member of the opposition Coalition who has recently left Syria, told The Telegraph.

“The deal for Geneva, they believe, is that they will change Bashar, but keep the base of the regime active: they feel it will be Iran-led change – that Iran will get the bigger share of the pie in Syria in terms of deciding who leads next”.

Senior European diplomats in Washington told The Telegraph yesterday they were still trying to assess whether the Saudi move represented a real shift in relations or was part of a factional struggle in which Prince Bandar was seeking to influence the top decision-maker king Abdullah bin Abdulaziz al Saud.

Noting that Saudi Arabia had already been “tricky” over Syria, the diplomat said their remained an assumption that the core US-Saudi Relationship would remain intact. “If they are going to beat their own path, that would be more worrying, but it’s really too early to tell,” the source said.

Frederic Wehrey, a senior Middle East expert, with the Carnegie Endowment for International Peace, also judged that ructions with Saudi Arabia were more likely a reflection of domestic political tensions.

“I take a long view of these things. These developments are unsettling, but they’re not catastrophic. The Saudis need us more than we need them,” he said. “This could be a power-play by [Prince] Bandar. When states are consumed with domestic facitonal struggles they tend to behave erratically.”

Those who are sanguine about a possible split and talk of Riyadh seeking alternate weapons suppliers point to a Pentagon announcement last week of plans to sell Saudi Arabia and the United Arab Emirates $10.8 billion (£6.7bn] worth of missiles and advanced munitions, including “bunker-buster” bombs.

However, other analysts like Mr Doran argue that America’s ability to influence events in the Middle East has already been fundamentally undermined by the tensions between Riyadh and Washington.

He pointed to Saudi Arabia’s decision to give billions of dollars to the Egyptian military leadership last July, which fatally undercut American calls for restraint that had been backed by the threat of removing financial support to the regime.

“The gumming up of US-Saudi relations causes a cumulative but significant lack of influence by the United States in the Middle East,” concluded Mr Doran, “That influence can only be achieved by a coalition which we don’t have because we’re racing after enemies and dispensing with the interests of our allies.”


Saudi Arabia “warned the United States IN WRITING about Boston Bomber Tamerlan Tsarnaev in 2012”

By David Martosko and The American Media Institute

  • Saudis developed intelligence separately from Russia, which also warned the U.S. about the accused Boston bomber
  • A letter to the Department of Homeland Security allegedly named Tsarnaev and three Pakistanis as potential jihadis worthy of U.S. investigation
  • Red flags from Saudi Arabia to have included Tsarnaev’s name and information about a planned explosive attack on a major U.S. city
  • Saudi foreign minister, national security chief both met with Obama in the oval office in early 2013The Kingdom of Saudi Arabia sent a written warning about accused Boston Marathon bomber Tamerlan Tsarnaev to the U.S. Department of Homeland Security in 2012, long before pressure-cooker blasts killed three and injured hundreds, according to a senior Saudi government official with direct knowledge of the document.The Saudi warning, the official told MailOnline, was separate from the multiple red flags raised by Russian intelligence in 2011, and was based on human intelligence developed independently in Yemen.

    Citing security concerns, the Saudi government also denied an entry visa to the elder Tsarnaev brother in December 2011, when he hoped to make a pilgrimage to Mecca, the source said. Tsarnaev’s plans to visit Saudi Arabia have not been previously disclosed.

    The Saudis’ warning to the U.S. government was also shared with the British government. ‘It was very specific’ and warned that ‘something was going to happen in a major U.S. city,’ the Saudi official said during an extensive interview.

    It ‘did name Tamerlan specifically,’ he added. The ‘government-to-government’ letter, which he said was sent to the Department of Homeland Security at the highest level, did not name Boston or suggest a date for his planned attack.

    If true, the account will produce added pressure on the Homeland Security department and the White House to explain their collective inaction after similar warnings were offered about Tsarnaev by the Russian government.

    A DHS official denied, however, that the agency received any such warning from Saudi intelligence about Tamerlan Tsarnaev.

    ‘DHS has no knowledge of any communication from the Saudi government regarding information on the suspects in the Boston Marathon Bombing prior to the attack,’ MailOnline learned from one Homeland Security official who declined to be named in this report.

    The White House took a similar view. ‘We and other relevant U.S. government agencies have no record of such a letter being received,’ said Caitlin Hayden, a spokesperson for the president’s National Security Council.

    The letter likely came to DHS via the Saudi Ministry of Interior, the agency tasked with protecting the Saudi kingdom’s homeland.

    A Homeland Security official confirmed Tuesday evening on the condition of anonymity that the 2012 letter exists, saying he had heard of the Saudi communication before MailOnline inquired about it.

    An aide to a Republican member of the House Homeland Security Committee speculated Tuesday about why the Obama administration contradicted the knowledgeable Saudi official.

    ‘It is possible the Department of Homeland Security received the information from the Saudi government but never passed it on to the White House,’ the GOP staffer said. ‘Communication between DHS and the White House’s national security apparatus isn’t always what it should be.’

    ‘I can easily see it happening where one hand didn’t know what the other was doing because of a turf war.’

    ‘Just like the different agencies in the Boston JTTF [Joint Terrorism Task Force] want credit for breaking the Tsarnaev case,’ the aide added, ‘they sometimes jealously guard the very intel they should be sharing the most freely. Sometimes it makes no sense at all.’

    House Homeland Security Committee chairman Mike McCaul plans to announce on Wednesday an investigative hearing to probe what U.S. intelligence knew prior to the Boston attacks, two senior Republican sources told MailOnline.

    Separately, President Obama announced Tuesday that the U.S. government will launch a wide-ranging inquiry into the sharing of information among the Federal Bureau of Investigation, the Department of Homeland Security and other intelligence and law-enforcement agencies of the federal government.

    ‘We want to leave no stone unturned,’ the president said in a rare White House press conference.

    The internal review will be led by Director of National Intelligence James Clapper and several inspectors general.

    ‘This is not an investigation,’ Clapper’s spokesman Shawn Turner said in a prepared statement. ‘This is an independent review of information-sharing procedures. It is limited to the handling of information related to the suspects prior to the attack.’

    It is not yet clear whether information from Saudi Arabia will be involved in Clapper’s inter-agency review.

    Utah Republican Rep. Jason Chaffetz appeared on CNN Tuesday afternoon, upbraiding the Obama administration for presuming that the federal government’s handling of intelligence prior to the Boston bombings was appropriate and effective.

    ‘As soon as the bombing happened we had officials, locally and from the feds, saying, “Oh, this was an isolated case, there was just one person involved.” We didn’t know that,’ Chaffetz said.

    The ‘starting point’ for a federal investigation, he said, must be, ‘This is unacceptable, we will not stand for it, we will get to the bottom of it, and we will not rest until we figure it out.’

    ‘Mr. President,’ he said, addressing Obama, ‘the starting point should be an intolerance that this thing happened.’

    The high-ranking Saudi official whom MailOnlne interviewed at length provided a wealth of detail about the warning he says his government sent to the United States. He spoke on condition of anonymity because he is not authorized to talk publicly about foreign intelligence, or about Saudi Arabia’s diplomatic relationship with the United States.

    He suggested that the Saudi Ministry of Interior sent the letter out of an abundance of caution in order to be helpful to the United States, even though its intelligence on Tsarnaev wasn’t yet fully developed.

    ‘With Saudi Arabia it’s always code red,’ he said. ‘There’s no code orange, or code yellow. Always red.’

    The Saudi government, he added, alerted the U.S. in part because it believed American authorities should be inspecting packages that came to Tsarnaev in the mail in order to search for bomb-making components.

    The written warning also allegedly named three Pakistanis who may be of interest to British authorities. The official declined to provide more details about the warning to the UK, but said the two governments received the same information.

    The Ministry of Interior, he said, sent the letters in 2012, likely after Tsarnaev returned from Russia to the United States in July.

    President Barack Obama’s published schedule indicates that he met in the Oval Office with Prince Mohammed bin Naif bin Abdulaziz, the Saudi Interior minister, on January 14, 2013.

    The Saudis denied Tsarnaev entry to the kingdom when he sought to travel to Mecca in December 2011 for a pilgrimage known as an Umrah – one that is undertaken during months that don’t fall within the regular Hajj period of the year.

    That rejected application came one month before he traveled to Russia, where U.S. intelligence sources believe he acquired training enabling him to construct and detonate the bombs that he and his younger brother placed hear the Boston Marathon’s finish line.

    The younger brother, Dzhokhar Tsarnaev, is in federal custody at a prison medical facility.

    The Saudi official speculated that Tsarnaev’s residence in the United States might have made it more difficult for him to gain entry into the kingdom.

    ‘U.S.-based Muslims who become radicalized and want to visit Mecca create an unusual problem,’ he said, compelling the Saudi government ‘to carefully examine applications.’

    In the wake of the April 15 Boston Marathon bombings, Saudi Foreign Minister Prince Saud al-Faisal met with Secretary of State John Kerry on April 16, and then had an unscheduled meeting with President Obama on April 17.

    ‘This is the DNA of the Saudi government,’ said the Saudi official, referring to officials in the royal court in Riyadh. ‘This is how they work. They sent the letter, but that wasn’t enough. They then sent the top guy to meet personally with the president.’

    He dismissed the idea that Tamerlan Tsarnaev was likely trained by al Qaeda while he was outside the United States last year.

    The Saudis’ Yemen-based sources, he explained, said militants referred to Tamerlan dismissively as ‘the volunteer.’

    ‘He was a gung-ho, self motivated jihadi who wasn’t tasked by a larger group,’ he said.

    ‘There is no reason for anyone in Afghanistan to have in his thinking a scenario like this,’ the official added, referring to pressure-cooker bombs at the Boston Marathon. ‘He took the initiative. That’s why they call him “the volunteer.”‘

    ‘The Boston thing is beneath them,’ he said of al Qaeda. ‘They don’t think like this. This is like a firecracker to them. They want something big.’

    Tamerlan may have boasted about his plans online, the Saudi official said, offering an explanation for how Yemen-based sources first learned of him. Islamist militants have well-developed social networks that can enable news to migrate quickly across vast distances.

    The Saudi government sometimes tracks such radicals by launching fake jihadi websites to attract extremists. The Ministry of Interior then tracks them electronically, often across the world, and shares information with governments it considers friendly, including the United States.

    ‘The Saudi Arabian government is doing everything it can to wipe out these people and treat America as a true friend,’ the official said.

    The Saudi intelligence services have a long history of providing credible information to America and Great Britain about looming threats.

    ‘This is the fourth time the Saudi Arabian government has given the U.S. specific intel’ about a possible terror plot, the official said, citing prior warnings about Richard Reid, the so-called shoe bomber who repeatedly tried to light a fuse in his shoe to bring down American Airlines flight 63 bound for Miami in December 2001.

    He also cited the 300-gram ‘ink-cartridge bombs’ planted on two cargo planes headed for the United States from Yemen in October 2010. Those explosives were intercepted in Dubai, and at an East Midlands airport in Great Britain.

    Tamerlan Tsarnaev’s namesake was a 15-century Central Asian warlord who referred to himself as ‘the sword of Islam.’ Sometimes spelled ‘Tamerlane’ in English, he was known for his cruelty.

    When he conquered Baghdad, he reportedly made a pyramid of human skulls from unfortunate residents of that city.

    Although still revered in Chechnya and throughout Central Asia, the original Tamerlane is sometimes vilified in modern-day Saudi textbooks.


More Saudi Supertankers Headed for the US


Aries Star, a 317k DWT VLCC, image courtesy VELA International

By gCaptain Staff On April 5, 2012

LONDON (Dow Jones)–Saudi Arabia’s state shipping company, Vela, is set to ship more oil to the U.S. this month, after a flurry of activity in March caught the attention of market participants, shipbrokers told Dow Jones Newswires Thursday.

Vela has chartered at least three supertankers, capable of carrying around 6 million barrels of oil, to ship crude to the U.S. later this month, shipping fixtures show.

“They definitely are having a more active program going west,” a shipbroker said.

In mid-March the Saudi shipping company chartered 11 ships to carry oil to the U.S. Gulf, in part to feed the expansion of a Gulf Coast refinery co-owned by Saudi Arabia’s national oil company, a person familiar with the matter said.

-By Sarah Kent, Dow Jones Newswires


Saudis face waning power in North America


While the green movement naively harbors hopes it will be able to shut down unconventional oil and gas development, in Saudi Arabia they are already contemplating a time when North American fossil fuel will replace their oil.

Looking past the din of protesters, state-owned oil giant Saudi Aramco is resigned to the fact that its influence will wane because of the massive unconventional fossil-fuel development underway in North America. As such, Saudi Arabia has no plans to raise its production output to 15 million barrels per day from 12 million, said Khalid Al-Falih, the powerful chief executive of Aramco.

“There is a new emphasis in the industry on unconventional liquids, and shale gas technologies are also being applied to shale oil,” Al-Falih, president and CEO of Saudi Aramco, warned a domestic audience in a speech in Riyadh Monday.

“Some are even talking about an era of ‘energy independence’ for the Americas, based on the immense conventional and unconventional hydrocarbon resources located there. While that might be stretching the point, it is clear that the abundance of resources and the more ‘balanced’ geographical distribution of unconventional’s have reduced the much-hyped concerns over ‘energy security’, which once served as the undercurrent driving energy policies and dominated the global energy debate.”

Aramco is the powerful state entity that manages the Kingdom’s nine million barrel-plus oil output. Saudi Arabia has long dominated oil markets by leveraging its spare oil capacity and, as the OPEC kingpin, striking a delicate balance between the interests of oil consumers and the exporter group.

But the oil chief’s remarks reveal Saudi fears that the market dynamics are changing and its dominance over energy markets is under threat by new unconventional finds.

OPEC estimated in a recent report that global reserves of tight oil could be as high as 300 billion barrels, above Saudi Arabia’s conventional reserves of 260 billion barrels, which are currently seen as the second-largest in the world after Venezuela.

Global output of non-conventional oil is set to rise 3.4 million bpd by 2015, still dominated by oil sands, to 5.8 million bpd by 2025 and to 8.4 million bpd by 2035, when tight oil would be playing a much bigger role. By 2035, the United States and Canada will still be dominating unconventional oil production with 6.6 million bpd, the group forecasts.

Last year, even as the world consumed nearly 30 billion barrels of oil, not only was the industry able to replace this production but global petroleum reserves actually increased by nearly seven billion barrels, as companies increasingly turned toward higher risk areas, Al-Falih noted.

Clearly, the Kingdom is preparing for new market realities as the discussion on energy has changed from scarcity to abundance, particularly due to the new finds that can be produced feasibly and economically.

In the past, Saudi Arabia, along with its OPEC allies, could drive prices down by opening the taps to ensure unconventional fossil fuels remained firmly buried in the ground. But most analysts now expect oil prices to remain high, at least over the medium term, thanks to tight supplies and continued demand from emerging markets. That’s great news for Canadian oil sands developers, which need prices around US$60 to US$70 per barrel to make their business models economically feasible.

Saudi Arabia’s own break-even oil price has also risen sharply in the past few years, making it less likely to pursue a strategy of lower prices. The Institute of International Finance estimates that Saudi Arabia’s break-even price has shot up US$20 over the past year to US$88, in part due to a generous spending package of US$130-billion announced this year to keep domestic unrest at bay.

The Saudis now find themselves between a shale rock and a hard place: While high crude prices mean the Saudis can maintain their excessive domestic subsidies for citizens, in the long run that means the world is developing new sources, making it less dependent on Saudi oil.

Although the Saudis have vigorously fought the Ethical Oil ads, which paint them in a negative light, they already know their oil is less welcome in the Americas – Saudi oil made up a mere 9.3% of U.S. oil imports last year, down from 11.2% five years ago, according to the U.S. Department of Energy.

But while Saudis would be cheering on the green groups with ‘No KXL’ signs, they don’t hold out much hope for renewable energies either. Calling them ‘green bubbles,’ Al-Falih says governments should stop focusing on unproven and expensive energy mix, as there is frankly no appetite for massive investments in expensive, ill thought-out energy policies and pet projects.

“The confluence of four new realities – increasing supplies of oil and gas, the failure of alternatives to gain traction, the inability of economies to foot the bill for expensive energy agendas, and shifting environmental priorities – have turned the terms of the global energy dialogue upside down. Therefore, we must recast our discussion in light of actual conditions rather than wishful thinking,” the pragmatic chief said.

Somebody should explain this wishful thinking to the green movement.


Libyan Oil Bristles OPEC Once More


by  Benoit Faucon & Summer Said

Dow Jones Newswires

Six months after Libya‘s production shutdown sparked a clash within the Organization of Petroleum Exporting Countries, Tripoli‘s oil status is set to pour oil again at the group’s next meeting on Dec 14. This time it’s not because Libyan barrels are out but because they are back on the market.

Following a swift return of the country’s production, a split has resurfaced within the Organization of Petroleum Exporting Countries between members like Kuwait which believe the market still requires extra oil and those like Iran which want other members to cut their output.

“The market still needs more oil even with the return of the Libyan oil,” Kuwait oil Minister Mohammad Al-Busairi said Sunday, as he announced his country had boosted production above 3 million barrels a day.

The remarks came after Rostam Ghasemi, Iran’s oil minister and OPEC’s current president, on Friday said “we will tell members of the organization that increased their production that given that Libya’s production has returned” they need to reduce their oil flows.

In June, Gulf states led by Saudi Arabia advocated a production boost as global oil demand was increasing amid the loss of Libyan supplies. They clashed with an Iran-led group that opposed the move because of an uncertain outlook for the global economy. After the meeting collapsed without an agreement, the Saudi-led coalition boosted its production in a lock-step move with global oil demand.

Though nobody expects the December meeting to be as acrimonious, the return of Libyan oil is reviving differences regarding demand and supply that had narrowed in recent weeks.

Libya’s oil head Nuri Berruien said Thursday that the country’s production would be back to half of its prewar level of 1.6 million barrels a day by the year’s end, twice as fast as some experts had forecasted.

Such a return has triggered fears in Iran and other countries that markets could be oversupplied and prices may fall if other members don’t cut production.

However, in the short term, OPEC’s most recent statistics don’t suggest any need to rush to the panic button.

Based on its latest monthly report, the group’s production in October was about 750,000 barrels a day short of the average demand it sees for its crude in the fourth quarter.

Meanwhile, U.S. commercial oil inventories have been wearing thinner –down by 9.8 million barrels in October, suggesting the market is still slightly tightening despite Libya’s return. But at the same time, continuous concerns in the euro zone show OPEC will still face a balancing act in the coming months. The group has downgraded its global oil demand growth forecasts four times in recent months and, although it didn’t cut its prospects this month, has warned it could slash them again.

Furthermore, in the first half of 2012, amid lower seasonal consumption, demand for OPEC crude is expected to fall by over 1.3 million barrels a day compared to the fourth-quarter to an average of 29.29 million barrels a day. That’s higher than OPEC’s current production and will likely come amid higher Libyan production. So the numbers will likely give ammunition to those in the group calling for a reduction of Gulf production.

“The Saudis will cut whether they like it or not,” said an OPEC delegate with a country that opposed an increase in June. “The conditions in the market dictate that.”

Copyright (c) 2011 Dow Jones & Company, Inc.

Source – RIGZONE

Shifting Sands: Saudi Arabia’s Oil Moves East to China

Published April 05, 2011 in Arabic Knowledge@Wharton

The pivotal year was 2009, according to the Paris-based International Energy Agency (IEA). It was then that China consumed more energy than any other country in the world, even the U.S., prompting an expert at the IEA expert to proclaim “the start of a new age in the history of energy.”

For Saudi Arabia, which has the world’s largest oil reserves and is the world’s largest oil exporter, that new age couldn’t begin fast enough. Over the past 10 years or so, the Kingdom had been forging closer trade ties with China, becoming its key source of oil. In 2009, Saudi oil exports to China reached one million barrels per day (bpd), or 20% of its total oil imports and nearly double the number of barrels it exported the previous year; in contrast, U.S. imports of Saudi oil fell to less than one million bpd in 2009 for the first time in over two decades.

According to Tim Niblock, professor of Arab Gulf studies at the University of Exeter in the U.K., the growing Sino-Saudi oil trade is a reflection of the two countries’ “mutually dependent relationship that has advanced fairly steadily since 2000.” The Chinese need Saudi Arabia as a stable, established oil producer — all the more so today as turmoil across the Middle East continues, pushing the price of Brent crude to as high as US$116 a barrel in early March, and the Kingdom calms markets with pledges to increase production to fill any shortfall in supply. The Saudis need China’s burgeoning demand for oil in light of flat, or even decreasing, demand among consumers in developed markets. Even with the Chinese government lowering the official target earlier this year for average GDP growth over the next five years to 7% from 7.5%, the country’s thirst for oil looks unlikely to abate.

But are those ties now being tested? As unrest sweeps across the Middle East and North Africa, the entire region is on the cusp of change in ways that will affect the geopolitics of oil. “The whole political situation is different than what it was a couple of months ago, and it will stay different for a long time,” says Niblock. “It is a major turning point. Inevitably, that will have foreign policy effects. But it is very difficult at this stage to know what the nature of those effects will be, because we’re really only at the beginning of a process.” Equally unclear, then, is where the Sino-Saudi oil relationship goes from here.

Growing Interest

Though diplomatic relations between the two countries were established in 1990, it wasn’t until 2006, when Saudi Arabia’s King Abdullah made China the first destination for his early state visits after succeeding his half-brother to the throne the previous year, that the bilateral relationship began to gel. As a result, “the Sino-Saudi relationship is expanding across all levels,” says Paul Gamble, head of research at Riyadh-based Jadwa Investments. He cites 2009 data showing that China was the source of 11.3% of the Kingdom’s imports, including textiles and heavy machinery, compared with 6.6% in 2004, while Saudi Arabia’s share of China’s imports rose to 11.2% from 4.8% over that time, thanks mostly to oil. In 2010, bilateral trade reached a record high of US$43 billion, a year-on-year increase of 33%, scooting the countries closer to their goal of having their trade reach $60 billion by 2015.

As for oil, Saudi Arabia shipped 36.7 million metric tons of oil to China in the first 10 months of 2010, about 19% of its foreign purchases, according to Chinese government data. Angola, the second-biggest source, sent 33.7 million tons and Iran 17.2 million tons.

It’s not just about trade, however. “One needs to take into account the significant contracts coming China’s way in Saudi Arabia,” says Niblock. Those contracts involve Chinese companies getting a slice of the US$385 billion that the Saudi government is investing in infrastructure, such as highways and railways, under its five-year development plan launched in 2009.

In reverse, Saudi companies are also investing in China. Saudi Aramco, the world’s largest oil company, has two refineries in China, one in Qingdao province that is fully owned and another in Fujian province run as a joint venture with Sinopec, a Chinese petroleum giant, and ExxonMobil of the U.S. Then there’s the US$32 billion oil-processing joint venture in Tianjin in northern China between two other Saudi-Sino giants — Sabic and Sinopec — which went into operation last year to produce 3.2 million tons a year of ethylene derivatives. More such partnerships could be on the way. During the Tianjin venture’s first quarter results announcement, Sabic’s chief executive, Mohammed al-Mady, cited lower labor and materials costs is a big reason why his company is open to making further investments in China.

An Insatiable Appetite

In other parts of the world besides Saudi Arabia, China has deployed a relatively straightforward strategy to secure access to natural resources — it simply opens its check book and uses a combination of inward investments and trade deals. In Brazil, for example, China lent US$10 billion to national oil company Petrobrás to secure future oil supplies. China’s oil giant Sinopec, meanwhile, bought a 40% stake in Brazil’s other major oil company RepsolBrazil for US$7.1 billion. By August last year, China was Brazil’s top foreign investor, with a finger in everything from iron ore and mineral processing to telecoms and electricity grids.

Though China is driven by an overwhelming need for secure oil supplies via the likes of Saudi Arabia, it’s not afraid of also tapping high-risk countries. Iraq is one example. Precarious political stability aside, Iraq has abundant oil reserves and underdeveloped oil fields. In 2009, China National Petroleum Corporation (CNPC) and BP entered into a 20-year service contract with Iraq’s State Oil Marketing Company to develop the war-ravaged country’s Rumaila oil field. Reports in China’s state press from earlier this year say that daily output from Rumaila, currently the world’s fourth-largest oilfield, is 1.03 million barrels and rising. “The scale and the dynamics of this contract have no precedent,” observes David Butter, head of Middle East research at the Economist Intelligence Unit (EIU) in London. “It provides an interesting paradigm in terms of the working relationship between an increasingly confident Chinese oil company and an old-school Western major.”

China is also banking on oil-rich Russia. “China’s oil production is pretty much maxed out and it needs Russian oil,” Laban Yu, an energy analyst at Macquarie Hong Kong, told Bloomberg in September. “In fact, it needs oil full stop and Russia is close and convenient. As part of agreements to supply oil, Russia wants to have stakes inside China in ventures,” including a venture being discussed between CNPC and Russia’s state-owned Rosneft to build a US$5 billion refinery in Tianjin. And to increase exports from Russia, the first oil pipeline between the two countries was opened earlier this year, financed by a US$25 billion loan from China to Russia.

And it’s not only China’s sizeable check book that has made it such an attractive business partner. Its policy of refusing to meddle in the politics of the countries in which it invests has also opened doors in parts of the world shunned by other governments. While such policy “agnosticism” might be a welcome counterweight in some oil-producing markets to what’s seen as meddling U.S. foreign policy, it has been drawing increasing criticism from other trading partners.Iran, which has the world’s second-largest oil and gas reserves, is a case in point. Despite several rounds of arms and financial sanctions by the United Nations Security Council, the U.S. and the European Union over Iran’s contentious nuclear program, China has continued to sign oil deals with it.

But even close partnerships that eschew politics cannot guarantee oil supplies, according to Ben Simpfendorfer, an economist and editor of China Insider web site. “The best security [for supply] Chinese companies can hope for is to buy oil at the highest possible price,” he noted in his 2009 book, The New Silk Road: How a Rising Arab World Is Turning Away from the West and Rediscovering China, citing examples of China’s state-owned oil companies with deep pockets paying above market rates for oil imports around the world.

Drilling Down

Meanwhile, in cash-rich Saudi Arabia, China has needed a different deal-making strategy. “With one of the world’s most developed energy sectors in terms of infrastructure and operating efficiency, Saudi Arabia is not desperate to attract foreign investment to help expand its capacity to produce and export oil,” a blog on the Saudi-U.S. Relations Service web site notes.  Instead, Saudi Arabia wants to find new sources of steady, long-term demand as Western countries decrease their oil consumption of oil.

“Chinese investment in the Saudi energy sector is relatively modest at present, owing to limited opportunities in the upstream segment and Saudi Arabia’s historical preference for tying up with Western firms offering advanced technology,” says David Butter, head of Middle East research at the Economist Intelligence Unit (EIU) in London. “What is interesting is the building of partnerships and joint ventures between Chinese and Saudi companies. That’s as close as the Chinese can get to owning any oil assets,” he adds.

Those partnerships and joint ventures mark an important recalibration of the Kingdom’s oil policy. “Saudi’s economic relationship is certainly shifting,” says Niblock. “Most Saudi oil is going eastward than westward. Its relationship with the East is becoming more important, and probably more so in the future. It’s not just China. Japan and South Korea are importing a lot of Saudi oil, too.” And as more Saudi oil goes eastward than westward, there’s a new layer of complexity in the geopolitics of oil, involving one of Saudi Arabia’s closest ally, the U.S.

In a bid to diversify its energy sources, the U.S. has been reducing its oil imports from Saudi Arabia, now its fourth-largest supplier of oil, behind Canada, Mexico and Venezuela. But Saudi Arabia and the U.S. are tethered together in ways that go beyond oil. That includes interlocking defence and security strategies in the region. The U.S. State Department also confirmed last autumn that it plans to sell as much as US$60 billion in advanced military aircraft, the largest-ever U.S. overseas arms deal. “Neither China nor Saudi Arabia want to politicize their relations because each of them have good reason not to,” says Niblock. “Saudi Arabia because it remains strategically dependent on the U.S. in weaponry and some other key ways; and in conversations I have had with Chinese officials, they say they are worried about the relationship with the U.S. — they realize the Gulf is very important to the United States, and they don’t want to undermine this.”

But other observers wonder whether tensions might be mounting. In a 2008 report titled, “The Vital Triangle: China, the United States and the Middle East,” Washington, D.C.-based Center for Strategic and International Studies (CSIS) noted that China military buildup around the “vital” sea lanes for shipping oil out of the Middle East, for which the U.S. has long provided security is causing unease. “Analysts wonder about the purpose of the Chinese-built deep-sea port in Gwadar, Pakistan, and its implications for a Chinese military presence far beyond the Pacific Ocean. Gwadar is only 45 miles from the Iranian border and 250 miles from the Strait of Hormuz, making it close to the region’s most vital waterways,” the report noted. Nonetheless, the report’s authors conceded that the China’s “capacity to regulate and dominate the 7,000 miles of ocean between Shanghai and the Strait of Hormuz lies, by generous estimate, half a century down the road. In addition, at present, the Chinese have expressed satisfaction with simply ‘free-riding’ off of U.S. control of the aforementioned supply lines.”

In a radio interview shortly before a China-Arab trade forum last September, Yang Guang, director of the Institute of West Asia and African Studies at the Chinese Academy of Social Sciences in Beijing, said he sees no real sign of a geopolitical rebalancing, even though China is increasingly important for Saudi Arabia and its Middle Eastern neighbors. “If you look at the proportion of trade and investment in the Arab world, China still accounts for a very, very limited proportion. The lion’s share of the business is done with U.S. and Europe,” said Yang.

( Original Aritcle )

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