Crown Prince Mohammed bin Salman visits Pakistan, India and China
Last week, the Saudi Crown Prince Mohammed bin Salman effectuated a tour in three of Asia’s nuclear powers: Pakistan, India and China. Spending 2-days in each of those countries, the Crown Prince was accompanied by a large contingent of Saudi businessmen who looked to expand the international reach of their companies and investments.
Last year, the Crown Prince visited North America, Europe and North Africa to increase Saudi overseas investments and gain international support for his ambitious socio-economic reforms at home, entailed in Vision 2030. The visits to the Asian countries were also maiden trip for the Crown Prince and will help the Kingdom to gradually pivot towards Asia, where governments see great potential in the Kingdom’s young leadership and Saudi Arabia’s economic growth.
In addition to striking deals worth billions of dollars, this was a tour for image management and the result shows that the Saudi Crown Prince enjoys a great reputation as a bold reformer in Asia. Already during the G20, Xi Jinping and Narendhra Modi were some of the world leaders showing the warmest interactions with the Saudi Crown Prince. For Imran Khan, this support was even clearer as the Pakistani Prime Minister was one of the prime guests of the Future Investment Fund in Riyadh, organised in October 2018.
From a security-based to an economic-based relation with Pakistan:
The visit of the Saudi Crown Prince and the fruitful deals following could not come at a better moment for the populist government of Imran Khan, who has reluctantly been forced to implement austerity measures. Indeed, Pakistan is in a balance sheet crisis, importing at least $4 billion worth of goods every month, thus leaving the central bank’s foreign reserve at a mere $8.2 billion. This is just enough to cover a few months worth of imports. Last year, Saudi Arabia was one of the first countries, alongside China and the UAE, to provide economic aid to Pakistan by providing $3 billion in loans and another $3 billion in deferred oil payments. Oil imports are a significant drain on Pakistan’s state finances as the country imports 70% of its oil from abroad, amounting to $13.2 billion last year.
In addition to the recent deals signed this week, this economic assistance is not likely to help Pakistan in the long term, but it will allow the country to gain more financial breath and to have a better leverage for its negotiations for a 13th IMF loan, which could amount between $6 to $15 billion. Overall, the deals signed with Pakistan are said to reach as much as $20 billion, however it is yet unsure whether the previously announced $6 billion in aid are part of that figure. The Pakistani Interior Minister, Shehryar Khan Afridi, said he would make sure than none of the money entailed in such deals would be used for corruption or fraud purposes.
The Saudi delegations signed Memoranda of Understanding in investment, science, renewable energy, internal security, tourism, defence production, media, culture and sports. Business-to-business meetings have also been held on food-processing, IT, finance, construction and hospitality. $4 billion of deals were also agreed upon to develop alternative energy plants and bolster mineral mining companies. These deals are likely to make the economic relation between the two countries more lopsided as Saudi exports to Pakistan were already in the billions whilst Pakistani exports to Saudi Arabia were worth only $317 million last year.
The most important achievement of this visit was an agreement on an oil refinery in the port of Gwadar, amounting to a maximum of $10 billion of investments. Crown Prince Mohammed bin Salman expressed himself in English on the potential of Pakistan by saying: “We believe that Pakistan is going to be a very very important country in the coming future. We want to make sure we are part of that“. The Crown Prince also added that Pakistan was the first Asian country that he chose to visit during his tour, thus showing the importance of Saudi-Pakistani ties. Building infrastructure, particularly for energy, will help Saudi Arabia position itself well to not only supply Pakistan’s growing market but also all the other countries linked to the China-Pakistan Economic Corridor (CPEC). Pakistan imports 23% of its oil from the Kingdom. The refinery in Gwadar is likely to increase that share whilst lowering the cost of imports as Pakistan will be able to import unrefined crude to be refined home.
Although these deals are likely to take months of technical work before being implemented, those agreements are meant to strengthen investor confidence in Pakistan. The Crown Prince met with Imran Khan, cabinet members, Chief of Army Javed Bajwa and Pakistan’s President Arif Alvi. The Crown Prince was handed Pakistan’s most important medal Nishaan-i-Pakistan and a golden gun. Most importantly, Crown Prince Mohammed bin Salman’s visit heralds a new dimension into Saudi-Pakistani relations as economic deals are a new testament to Saudi Arabia’s will to diversify its economy, gain high returns on investments in emerging or frontier markets and increase the global reach of its companies. This does however not mean that security relations will be set aside as Pakistan remains one of Saudi Arabia’s most significant military allies, providing it with military technology and human capital. In fact, it is believed that as much as 65,000 Pakistani soldiers are involved in the Saudi Armed Forces.
Crown Prince Mohammed bin Salman’s visit was also accompanied by an announcement that 2,107 Pakistani prisoners in Saudi jails will be released. Saudi Arabia is the largest host of Pakistanis abroad accounting for a quarter of all Pakistanis abroad. The Crown Prince also stated that he would like to see the number of tourists in Saudi Arabia increase by an exponential amount, even stating as much as 100 million tourists annually as an end target. More realistically, the Crown Prince said he hoped to reach between 30-50 million annual tourists by 2030. Entertaining strong socio-cultural ties with Saudi Arabia, the growing middle class in Pakistan will be a prime target for the Saudi tourism sector. But Pakistan is not the only country from where Saudi Arabia hopes to attract tourists, as India also comes to the fore in this matter. To show how Indian tourists are important for the vibrancy of the Saudi economy, the Saudi delegation to India presented the Qiddiya entertainment city, a 334 square meter amusement park that is going to be one of the world’s largest amusement parks.
Elevating Saudi-Indian Relations to a Strategic Level:
The Crown Prince arrived on the 19th February in New Delhi from Riyadh, as it is believed that the Indian authorities did not want his plane to come straight from Pakistan. Indeed, his arrival followed an intense escalation between New Delhi and Islamabad, primarily due to the 14th February terror attack on Indian soldiers in Pulwama Kashmir, claiming 44 lives. Prime Minister Modi gave the Army full control of the situation and revoked Pakistan’s Most Favoured Nation clause, thus raising custom duties on Pakistani products as much as 200%. The Saudi Minister of State for Foreign Affairs, Adel al Jubeir said that he would do all his possible to de-escalate the relations between the rival neighbours. Yet, Saudi Arabia and China have said they would also oppose the politicisation of the issue through listing regimes at the UN, which would entail adding militant groups having links to Pakistan to the global terror list.
Similar to Saudi announcements in Pakistan, 850 Indian prisoners are set to be released from Saudi jails. Additionally, the quota for Indian Muslim pilgrims to Mecca was increased to 2 lakhs. There are at least 3.2 million Indians in the Kingdom who send around $10 billion of remittances annually.
India entertains strong relations with both Saudi Arabia and Iran, two of its largest oil suppliers. In spite of US sanctions, India has been able to gain waivers from the American Departments of Justice and Treasury, allowing it to import around 300,000 bpd from Iran. More than happy to oblige, Iran has even offered India preferential prices, paid for transport and insurance costs and upped its official delegations to New Delhi. India’s foreign policy is now developing a strong expertise in balancing relations with Tehran, Riyadh, Tel Aviv and Doha, thus entertaining strong relations with all despite regional tensions.
In spite of Iran’s importance for India’s energy needs, Saudi Arabia is a much more important trade partner to India, accounting for 20% of its oil imports. With the UAE, whose Crown Prince of Abu Dhabi visited India two years ago, Saudi Arabia is planning to build multiple refineries on India’s west coast, replicating its Gwadar strategy by linking its own energy sector to India’s. It is believed that Aramco and Abu Dhabi’s ADNOC are planning to invest as much as $44 billion in refinery and petrochemicals plants across the country. Being the world’s fastest growing energy market as well as the world’s third-biggest oil consumer, India is set to be a prime client of Saudi Arabian energy for the foreseeable future.
In 2010, the two countries signed the “Riyadh Declaration” elevating the bilateral relation to a strategic one. Saudi Arabia is now India’s fourth biggest trade partner with around $28 billion of annual bilateral trade. India is also in dire need of foreign capital if it hopes to build the required infrastructure for its future. Cognisant of this need, the Saudi authorities have announced they might invest in India’s National Investment Infrastructure Fund to help accelerate the construction of ports, highways and airports across the subcontinent. Overall, there is a $100 billion investment opportunity from the Saudi side in India.
China as Saudi Arabia’s largest trade partner:
In 2017, King Salman visited China, reached deals worth $65 billion and accelerated the work of the China-Saudi Arabia High Level Joint Committee, established in January 2016. This exact Committee has also met during the recent visit (21-22nd February) by the Crown Prince whilst China’s ambassador to the Kingdom reiterated his country’s willingness to bind its Belt and Road Initiative (BRI) with Vision 2030. Indeed, there are many interlinks between the two projects. As we have seen, the Saudis are interested in investing in Chinese projects such as the Gwadar port. Ultimately, Saudi oil could even been transported by truck through the Karakoram highway. Additionally, the BRI Maritime Route is set to heavily depend on Red Sea pathways, a region that Riyadh and Abu Dhabi are seeking to pacify and develop. China could also gradually replace the US as Saudi Arabia’s primary weapons supplier.
Saudi Aramco also has shown great interest in the Chinese market as it has signed a $10 billion Memorandum of Understanding with the defence conglomerate Norinco to build a refinery in the northeast province of Liaoning, capable of refining 300,000 bpd whilst having a facility for 1 million tons of Ethylene per year, thus transforming the region into a building block for Chinese petrochemicals by 2024, the year of its start. The Saudi energy giant also announced its willingness to acquire 9% of Zhejiang Petroleum’s refinery in Zhoushan, with a capacity of 400,000 bpd. Bilateral trade between the two countries already amounts to $63 billion per year and China is Saudi Arabia’s largest trade partner ($48 billion of which are Saudi exports, principally oil). Whilst Beijing sees Saudi Arabia as a promising export market for advanced armament, telecommunications and construction, Saudi Arabia sees China as an exciting growth market in which the Public Investment Fund can make great returns.
There are however some concerns as to how Saudi-Chinese cooperation in developing Asian infrastructure will evolve. Having invested as much as $62 billion in CPEC, China might be wary of growing Saudi infrastructure investment in Pakistan as it could be seen as a challenge to China’s economic stronghold in Pakistan. This is why the Crown Prince’s visit was important as it will enable both countries to increase cooperation and sync Vision 2030 with BRI. Crown Prince Mohammed bin Salman’s visit to China ended with 35 Memoranda of Understanding in energy, mining, transportation, e-commerce ad technology for a total of $28 billion. It also signalled to Beijing that the Kingdom was more interested in doing business and developing a seamless relation, as the Crown Prince declared he would not interfere in the internal affairs of China, thus referring to the Communist government’s treatment of the Uighurs.
Travel Diplomacy to Counter Iranian Influence:
Mohammed bin Salman’s visit to Islamabad followed a terrorist attack on a military convoy in Iran’s Sistan and Balouchistan province, killing 27. Although the attack was commanded by Jaish al Adl, a Balouch separatist movement, the IRGC has criticised Pakistan for not tackling the terrorist group. As a result, the Pakistani authorities have announced they would seek to build a border wall with Iran. Weakening relations between Islamabad and Tehran are a good opportunity for Saudi Arabia to reinforce the strength of its bilateral relation with Pakistan. Although the Pakistani Foreign Minister announced that Saudi investments came with “no strings attached”, it is clear that Pakistan is ready to take a greater role in the Islamic Military Counter Terrorism Coalition (IMCTC) as General Raheel Sharif is now in command. However, it is unlikely that Pakistan will take part in the Yemen war or the Qatar Blockade. In spite of tight-knit relations with Riyadh, Pakistan keeps good relations with Doha and the Qatari ambassador to the country lately stating that his country was welcoming an increasing amount of Pakistani workers, set to be as much as 100,000, principally for construction work related to the 2022 World Cup.
Despite the high regional tensions, the Iranian ambassador to Pakistan, Mehdi Honardoost, allegedly said that Iran welcomed the visit of the Saudi Crown Prince to Islamabad since the fiscal assistance entailed in this visit was a positive development for the “brotherly” nation of Pakistan. The ambassador added that Iran was actively seeking unity among Muslim countries and that his country would bring bilateral relations with Pakistan to new heights once US sanctions will be removed. These statements are surprising considering that the IRGC has lately strongly criticised Islamabad for its alleged support to terrorism and its growing ties with Riyadh.
On the 19th February, Iran’s Foreign Minister visited Beijing and the Chinese Foreign Minister who said he admired his counterpart’s fight for Iran’s right and also stated that Iran was “playing an even more constructive role in regional affairs”, probably referring to Iran’s support for the Stockholm peace process in Yemen. In spite of China’s wish to increase “strategic trust” with Tehran, Mohammad Javad Zarif’s visit to China before the Saudi Crown Prince’s arrival signals deep concerns in Tehran. Having been China’s fourth provider of oil in 2018, Iran is now fearful that it is falling victim to Beijing’s conundrum with Washington. Indeed, compared to the previous round of sanctions, the Chinese are far less enthusiastic about circumventing American sanctions to access the Iranian market. Yet, during the Saudi Crown Prince Foreign Minister Wang Yi said that China did not have enemies in the Middle East and can cooperate with all countries, thus signalling it would not sideline Iran for the sake of Saudi Arabia.
Arab News, 16 February 2019, “Mohammed bin Salman: Architect of a new Saudi-Pakistani bond”
South China Morning Post, 16 February 2019, “Saudi Crown Prince Mohammed bin Salman suddenly postpones Malaysia and Indonesia visits:
South China Morning Post, 21 February 2019, “Saudi Aramco to sign China refinery deal during Mohammed bin Salman visit”
The Daily Arab, 23 February 2019, “MBS strikes $10 billion China deal, talks de-radicalisation with Xi”
The News, 12 February 2019, Muhammed Saled Zafir, “Iran welcomes Saudi aid, MBS visit to Pakistan”
The Wire, 19 February 2019, Kabir Taneja, “Why it was wrong to expect the Saudi Prince to take India’s cue on Pakistan”
The Time, 19 February 2019, “Saudi Arabia is investing $20 billion in Pakistan. Here is what it is getting in return”
Image © House of Saud