Why Saudi Arabia is tilting East
The ineluctable process of what a wise man called “easternization” continued with the visit of Saudi Crown Prince Mohammed bin Salman to three of Asia’s biggest economies. But it would be a mistake to see it as a reaction to any perceived hiccup in relations between the Kingdom and the West.
In truth, the tilt of the global economy toward the fast-growing economies of Asia has been an unstoppable force in the world since Deng Xiaoping, the former president of China, opened up the country to entrepreneurial capitalism at the end of the 1980s.
It was given a huge impetus in 2008, when the global financial crisis made many in the eastern hemisphere realize that perhaps the old ways of the West were not the best for the world economy. There were other economic models that could be adopted, and they were already in effective service in the fast-growing economies of Asia.
The Saudi visit has resulted in hundreds of billions of dollars of deals between the Kingdom and the powerhouse economies of the biggest continent on Earth: Pakistan, India and China. These will be a source of trade and commercial benefit between the Kingdom and its partners for decades to come.
But the permanent significance of the trip is that it has demonstrated that Saudi Arabia — the biggest economy in the Middle East and the world’s largest exporter of oil — is the pivot on which the easternization tilt is happening. The Kingdom finds itself at the center of gravity of world economics, and it is using these unique circumstances in history to its advantage.
Pakistan has historic cultural ties with Saudi Arabia, so it is not surprising that the crown prince stopped there first. Pakistan’s new government under Prime Minister Imran Khan finds itself with a difficult financial legacy, but the $20 billion worth of deals that were announced will help alleviate some of that pressure. The Kingdom is in good company, as the International Monetary Fund similarly extended financial help to Pakistan.
The crown prince’s Asian visit put Saudi Arabia in direct contact with economies holding nearly half the world’s population. When the global eastward tilt is complete, that will stand the Kingdom in good stead.
Frank Kane
Perhaps the most eye-catching Saudi investment in Pakistan is the $8 billion earmarked for an oil refinery and petrochemicals plant in Gwadar, in the strategically important southwest of the country. But the Kingdom is also making a significant investment in the renewable and mining sectors of resource-rich Pakistan.
From Islamabad to New Delhi, capital of the gigantic Indian economy. There, the crown prince inked deals worth as much as $100 billion across sectors such as industry, mining, tourism, real estate and construction.
Inevitably, energy figures high on that list. Saudi Aramco has already signed a joint venture with the Abu Dhabi National Oil Co. and Indian oil leaders to develop the huge refinery and petrochemicals plant at Ratnagiri on the west coast.
That plan has hit some bureaucratic hurdles, but there are plenty of alternatives in India’s energy sector. The country needs Saudi energy sources to fuel its rapid economic expansion, currently the fastest-growing big economy in the world.
In China, the world’s second-biggest economy and closing in fast on the US to contest the top slot, the numbers became even more incredible. In Beijing, Saudi Aramco signed an agreement with Chinese conglomerate Norinco to develop a $10 billion refining and petrochemicals plant that will help ease the country’s deficit in certain petrochemical products vital for its ongoing economic growth.
What does Saudi Arabia get from all this financial largesse? Of course, it helps secure supplies of crude oil at a time when its long-time biggest customer, the US, has become a major producer of crude oil itself. Security of supply is one of the most important priorities on the Kingdom’s agenda.
But just as importantly, the deals in China will enhance Saudi Arabia’s diversification beyond oil, by giving it a market for the vital petrochemical and industrial products that the Kingdom sees as the logical next step in its economic strategy. It will also help attract Chinese investment into the Kingdom in support of the recently announced National Industrial Development and Logistics Program.
The crown prince’s Asian visit put Saudi Arabia in direct contact with economies holding nearly half the world’s population. When the global eastward tilt is complete, that will stand the Kingdom in good stead.
• Frank Kane is an award-winning business journalist based in Dubai.
Twitter: @frankkanedubai
