Saudi Arabia has, in recent years, shown a willingness to form more in-depth relationships with its main Asian customers, China, India and Japan. The Chinese energy demand, which is still the main driver of the global oil and gas market growth, is considered to be vital for Saudi Arabia’s future. The Kingdom is currently in a heavy battle with Russia and arguably Iran for the title of China’s biggest oil supplier, a title that Russia took from Saudi Arabia at the start of this year. Several analysts have been very worried about this development as it could weaken the IPO of Saudi Aramco. However, Aramco’s prominent position in the Chinese market, and the ongoing investments that the Saudi oil giant is making in downstream production and capabilities in China, will contain any negative repercussions from loss of market share. In the long-run, Aramco’s position in China will only strengthen, which will allow the Kingdom to lock in a hefty portion of its export volumes.
The fact that both sides are willing to set up a new investment fund, holding $20 billion, is a clear sign of not only the readiness of Saudi Arabia to link its future to China, but also its eagerness to support any Chinese involvement and interest in the Aramco IPO. The willingness of Saudi Arabia to consider funding in yuan not only reflects the interest of Riyadh in China, but also indicates the rising importance of the Chinese currency in Gulf markets. The possible threat to the U.S. dollar, English Pound or Euro, should not be overestimated though.
The total trade value between both China and Saudi Arabia is still low in comparison to other trade partners. The current focus is still on the extension of an energy-based economic relationship. This can and will however change in the coming years, analysts expect.
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