Oil Remains Pivotal On Saudi Arabia's Agenda Despite Slew of Diversification Announcements 2

Why the interest in Asia

Saudi King Salman’s month long tour of Asia, spanning Malaysia, Indonesia, Brunei, Japan and China was aimed at scouting for oil buyers, apart from inviting them to do business in Saudi Arabia. Asia is a vital market for the country’s oil as 70% of all crude oil exports are shipped to the continent.

Visit to China, Japan

During the Saudi King’s visit, his delegation signed deals worth $65 billion with China including a joint venture between Saudi Basic Industries Corp. (SABIC) and Sinopec (SHI), as reported by some media outlets.

China’s Deputy Foreign Minister Zhang Ming was quoted as saying “Practical cooperation between China and Saudi Arabia has already made major achievements and has huge potential.”

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As far as Japan is concerned, talks of cooperation between the two countries had been initiated before the King’s visit. Saudi’s Deputy Crown Prince Mohammad bin Salman had visited Japan in September 2016 to hold initial talks for is Vision 2030.

During King Salman’s visit, he and Japan’s Prime Minister Shinzo Abe talked about chalking up a combined vision 2030 as well as creating a special economic zone in Saudi Arabia which will provide tax breaks to companies functioning from there. Japanese companies like Toyota Motor (TM), Sumitomo Mitsui Banking Corp., and Mizuho Bank, among others, signed agreements with Saudi companies during the visit.

Life beyond oil? Not yet

For a country which has 18% of the world’s proven petroleum reserves and is the largest exporter of petroleum, diversifying away from oil is a herculean task. According to Organization of the Petroleum Exporting Countries (OPEC) data, the oil and gas sector forms 50% of the country’s GDP (gross domestic product) and 85% of its export earnings.

Being home to two of the world’s top three economies, China and Japan, two of the four BRIC nations and two of the fastest growing economies of the world (India, China) makes Asia a compelling destination. Given the number of fast growing emerging markets, it also becomes a large potential crude oil market for Saudi Arabia.

While visiting Malaysia and Indonesia, the Saudi contingent signed agreements with local firms there to provide financial support for building or expanding refineries there. This could be helpful to Saudi Arabia as these two nations may buy oil from there to use in these refineries.

Hence, though diversification from oil revenues can be considered to be a more medium-to-long-term goal, for now, oil is quite high on the agenda for Saudi Arabia.

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