Saudi Arabia’s growing closeness to China was again marked by the long-discussed possibility of raising Yuan-denominated bonds, that made its way into Saudi Aramco’s prospectus.
Saudi Aramco, one of the world’s biggest petroleum companies, is a state-controlled enterprise that has been hit hard amid the pandemic with plummeting oil prices globally.
Aramco’s prospectus, issued this month, stated that renminbi notes “may be issued” under the bond program. It also laid out the risks associated with the proposal including the liquidity concerns and the currency’s limited availability outside China, reported Nikkei Asia.
While the US dollar has been the traditional currency in the global oil market, it is now threatened by the Chinese Yuan among other currency competitors. China is among the largest trading partners of Saudi Arabia, and one of the largest buyers of Saudi oil, however, the Gulf country has long-standing strategic relations with Washington.
“Long before Donald Trump came to power and began a trade war with Beijing, China was making noises about challenging the dollar’s dominance as the world’s universal currency,” noted Joseph Dana, editor-in-chief of emerge85, a lab that explores the change in emerging markets and its global impact.
“This would give China more control over its own economy and help with long-term economic projects designed to challenge the US as the world’s sole economic superpower. But unseating the dollar is much easier said than done.”
The US has been the biggest supplier of arms to Riyadh. According to a Stockholm International Peace Research Institute (SIPRI) report, 73 percent of arms imported by Saudi Arabia came from the US in the 2015–19 period.
Besides, after the US-brokered Israel peace deals with the UAE and Bahrain, Saudi Arabia may be next on the list of Gulf countries to normalize relations with Israel, as EurAsian Times reported earlier.
US President Donald Trump has continuously pushed for arms sales even after several political leaders and critics have raised concerns over human rights violations by Saudi Arabia, Riyadh’s role in the Yemen war, and the brutal murder of a Washington Post journalist, Jamal Khashoggi.
However, the Trump era is coming to an end as the President-elect Joe Biden is preparing to take command in two months. Biden has been openly critical of Saudi Arabia and may take the US-Saudi Arabia relations in a different direction.
“It is past time to restore a sense of balance, perspective, and fidelity to our values in our relationships in the Middle East,” Biden told the Council on Foreign Relations last year. “We will make clear that America will never again check its principles at the door just to buy oil or sell weapons.”
China, the second-largest economy, looking to grow its clout in the Gulf. In March 2017, King Salman signed up to $65 billion deals with Chinese President Xi Jinping during his visit to Beijing as part of the six-country trip through Asia. Saudi Arabia is seeing Asia as a lucrative market and has been vying to increase market share in the region.
Again in 2019, Crown Prince Mohammed bin Salman visited China and signed an agreement to build a refining and petrochemical complex in Liaoning province as a joint Saudi-Chinese venture, among other deals. Riyadh, however, shelved the $10 billion project in August this year, in the wake of the global pandemic that hit the oil prices.
“Is China playing a bigger role in the Gulf? Absolutely,” Randolph Bell, director of the Global Energy Center at the Atlantic Council, a think tank in the nation’s capital told US News. “Those relationships are growing deeper.”
However, what might be a barrier between building strategic ties is Saudi Arabia’s long-standing rivalry with Iran, which Washington supports through its “maximum pressure” policy. On the other hand, China is a part of the Joint Comprehensive Plan of Action (JCPOA) or the Iran nuclear deal.
“The US still matters from a security perspective, the US still matters vis-a-vis Iran. And I suspect that the Saudis are not terribly happy with China stockpiling Iranian oil in storage. Once it gets released it has the potential to drop oil prices even further,” Bell told US News.
It is yet to be seen how strategic relations between China and Saudi Arabia will unfold after Biden takes office in January 2021.