Yet as restrictions ease and economies pick up pace, the sense of normality that many hope for is one of the few luxuries energy producers cannot afford. In the race to comply with mounting political pressure to reduce carbon emissions while simultaneously securing their energy futures, the Sino-Gulf alliance may become the new center of gravity for global energy markets.

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The pandemic has undoubtedly cast a dark shadow on energy. The International Energy Agency (IEA) recently that energy demand will not return to pre-pandemic levels until 2023 in its most optimistic outlook or 2025 in the case of a delayed economic recovery. However, a return to pre-COVID demand does not necessitate a return to pre-crisis growth. Predicted growth in demand between 2019 and 2030 is estimated at 4% in the delayed recovery case, compared to 12% in a COVID-free world.

Nevertheless, the pandemic has also highlighted the importance of a reliable and accessible electricity supply. The IEA that the electricity sector, whose demand outpaces other fuels, will support economic recovery and account for 21% of global final energy consumption by 2030. This push for electricity is widely driven by the various global emission reduction targets, increased use of electric vehicles and heat sources in advanced economies, and greater consumption from emerging markets.

Leader of the Pack

Of the countries driving this growth, China is leading the pack and is predicted to be the main driver of energy demand over the next decade. Following his for an “energy ���𱹴DZ��ܳپ��Dz�,” President Xi Jinping has sought to reposition China as a key player in global energy markets. While the Chinese are currently the world’s consumers and producers of coal-fired electricity, Xi’s to make China carbon neutral by 2060 means that energy demands are increasingly being met via renewables.

China is predicted to account for of global renewable expansion, leading in the realm of nuclear power, biofuel production and will account for almost half of globally distributed photovoltaic power. In addition to this, Chinese demand is also predicted to account for 40% of global electricity sector growth by 2030, up from 28%. It was as a consequence of East Asia’s growing appetite for clean energy that, in 2016, global electricity investment outpaced that of oil and gas for the first time in history.

However, as with everything, there will be winners and losers. While electricity is on the up, sluggish global oil demand has led to falling oil prices. With demand predicted to in the 2030s, there is a growing urgency for Gulf Arab states to diversify as oil becomes more of a burden than a blessing. Yet, in their hurry to claim their stake in the new energy world order, Gulf countries may begin to look east rather than west for a friend to rely on.

China and the Gulf

Sino-Gulf relations are not a new occurrence. As the world’s importer of oil and natural gas, these two commodities dominate Chinese trade relations and have been the basis of the Saudi-led Gulf alliance. The Gulf Cooperation Council supplies over of China’s oil imports, with Saudi Arabia topping the list, accounting for of the oil import total. Nevertheless, in a world that is increasingly turning its back on oil, GCC states and China may increasingly look to each other to secure their respective energy futures.

From the establishment of the China–Arab States Cooperation Forum (CASCF) in 2004 to the China–GCC Strategic Dialogue in 2010, Sino-Gulf relations have grown from strength to strength. As such, it was hardly surprising when China gave the GCC a starring role in its Belt and Road Initiative. Announced in 2013, this global infrastructure project that seeks to boost physical connectivity, financial integration, trade and economic growth has become the core pillar of China’s increasingly active foreign policy approach under Xi.

During the Sixth Ministerial Conference of the CASCF in 2014, Xi about the Gulf Arab states as “natural cooperative partners in jointly building” the BRI. This set the stage for a of multi-billion-dollar investments and agreements between China and the Gulf states, advancing the Belt and Road Initiative in the Arabian Peninsula and deepening economic ties.

Chinese investment activity in the Gulf has followed the “” Sino-Arab cooperation framework. This features energy cooperation as its central axis, investment and infrastructure, and accelerating breakthroughs in three high-tech sectors, namely aviation satellite, nuclear energy and new energy. However, there is no doubt that the BRI aims primarily to strengthen this central pillar of energy cooperation. Aptly described as “oil roads,” the initiative will enable China to establish the necessary infrastructure, transport and refinery facilities needed to secure its energy future and keep GCC coffers full.

These ambitious plans will be of greater significance in the years to come. Despite the economic and energy market turmoil triggered by the pandemic, Sino-Gulf relations show no signs of . Rather, the pandemic may have made way for a greater mutual dependence between China and the Gulf states. This is particularly true for the GCC, whose economic wellbeing depends heavily on the revival of global oil markets. China may prove to be the answer to Gulf ministers’ prayers, stimulating growth by providing a guaranteed revenue stream for the region’s main export, no doubt stabilizing GCC economies.

Beyond the energy sector, however, the two regions offer a wealth of investment opportunities that will likely deepen relations, particularly as the GCC economies realize their various diversification plans. The synergies between the GCC’s “v�������Dz�” and China’s BRI are extensive, thus acting as a major point of collaboration. The two are already in the final stages of the long-awaited China–GCC free trade agreement, a move that would no doubt propel economic cooperation and open the doors to a vast array of trading opportunities. Saudi Arabia has already taken active steps to consolidate this BRI-vision cooperation by various agreements and memorandums of understanding with China. Riyadh has since the BRI to be “one of the main pillars of the Saudi Vision 2030,” consequently making China “among the Kingdom’s biggest economic partners.” 

Closer Partners

It is thus clear that, willingly or unwillingly, recent global events have further pushed China and GCC into each other’s arms. Sino-Gulf relations can be expected to gain serious traction in the next few years, especially in the realm of energy cooperation, which is likely to continue to spearhead this strategic alliance as a sector of great mutual importance. Meanwhile, as China seeks to entrench itself in the Gulf, it may find itself caught in the middle of the regional power struggles that threaten stability, namely the Iran-Saudi rivalry. President Xi, however, shows no intent of mixing business with politics, as seen in his recent regional , which saw him visit both Saudi Arabia and Iran among others.

Nevertheless, if China wishes to grow its presence in the Gulf, ensuring regional peace will undoubtedly become a priority for Beijing. Chinese neutrality may be exactly what is needed to defuse regional tensions and maintain a level of accord that keeps the feud below boiling point. Yet despite Sino-Gulf relations taking center stage in the near future, China will not be replacing the United States as the dominant foreign power in the Middle East any time soon. Beijing’s focus on economic rather than political matters makes China, to use the of Prince Turki bin Faisal Al Saud, “not necessarily a better friend, but a less complicated friend.”

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The views expressed in this article are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

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The Line: Mohammed bin Salman’s Green Blockbuster

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The disruption ensued by the COVID-19 pandemic wreaked havoc on economies and markets worldwide, but none saw the eye-watering lows experienced by the oil industry. This was exacerbated by Saudi Arabia and Russia going head-to-head in a that brought about further carnage. Despite production cuts being eventually agreed upon, the global downturn and persistent oversupply of oil reached its crescendo with US oil dropping spectacularly into for the first time in history.

Progress Overview

As the dust began to settle, a sense of urgency set in among leaders as they were faced with the aftermath of the crisis. Not only did COVID-19 highlight the risk of oil dependency, but it has oil-exporting economies to fiscal vulnerabilities. With growth across the MENA region, the current price of oil is the break-even level required to balance the budgets. With the exception of the UAE, oil of GCC budgets, highlighting the urgency to diversify in order to pay off the fiscal bill. While the impact of COVID-19 on Vision 2030 is unclear, an analysis of existing achievements and overall aims can paint a clearer picture of how Saudi Arabia should reassess its grand plan in light of the pandemic.

Only a year after the announcement, it seemed that Vision 2030 was not enough to satiate the Saudi appetite for grandiose ideas. So, in 2017, Crown Prince Mohammed bin Salman announced the construction of a $500-billion smart city of . Aside from of a fake moon and flying cars, the Saudis managed to hit a more palpable note with investors with the city’s . By 2025, the facility will supposedly produce 650 tons of hydrogen daily and 1.2 million tons of green ammonia for export.

Despite the hydrogen fuel presents, this project offers Saudi Arabia an unparalleled opportunity to pioneer a market gaining “unprecedented political and business momentum,” rding to the International Energy Agency. Beyond this, while there is little publicly available information on the kingdom’s key performance indictor achievements, visible progress has been made in the one thing it does best — state-managed tasks. Notable regulatory reforms in 2018-19 earned Saudi Arabia a spot in the ’s top 10 global business-climate improvers.

Strong development has also been observed in capital markets and the banking system, whereby the of Tadawul, the Saudi stock exchange, has been the standout achievement. Such praiseworthy steps have also been accompanied by progress in the realm of digitization and social reforms. Yet this is not enough.

While the kingdom is certainly achieving its goal of being an ambitious nation, less can be said for its key pillar — a thriving economy. Job creation, foreign direct investment (FDI), entrepreneurship and private sector growth are all core areas where Saudi Arabia has fallen short. A recent string of PR disasters, like the murder of Washington Post journalist Jamal Khashoggi in 2018 and the 2017 that included the arrest of 11 senior princes, have further tainted the kingdom’s image, harming investor confidence. At mere of GDP, current FDI levels are simply not enough to fund the diversification plan.

Needless to say, the economic challenges spurred by the pandemic will require a of the Saudi purse strings to rein in the growing budget deficit. Such fiscal prudence will inevitably impact the ever-more necessary reform agenda, indicating that a stringent revaluation of the Vision 2030 objectives will be needed to deliver on its promises.

The To-Do List

To lay the foundations of their revised plan, the kingdom must first reprioritize spending and maximize income from existing revenue streams while attracting and retaining investor funding. This will require boosting FDI through greater transparency, accountability and generally better self-conduct on the international stage. In the longer term, focusing on strategically sound, high-impact projects while delaying those with little real-time value will be an integral step in the agenda’s revaluation.

Much to Saudi Arabia’s dismay, this will mean moving away from the likes of NEOM to the less glamourous task of actual economic reform. Yet if NEOM were not enough, within it there is now — a linear, AI-run city free of carbon, cars and any sense of realism. Regardless of its economic benefits, the fact of the matter remains that problems are not solved through procrastination, even if it costs billions.

Arguably the hardest yet most important step for Saudi Arabia will be to cede state control to make room for a diverse, competitive and independent private sector. The kingdom’s strategy of spreading itself thin across all sectors is not only inefficient, but unattractive. A more market-based approach will stimulate entrepreneurship, competition and, most importantly, draw in foreign investment.

This ties into the second key step: optimizing the business environment. This means pushing for greater access to capital, greater ease of doing business and greater stringency and transparency in the legal system, encouraging entrepreneurship both at home and from abroad. The third and most important step is human capital development. In a country where 67% of the population is , disregarding the youth would mean neglecting Saudi’s greatest asset.

Quality of education and upskilling the youth must be prioritized alongside creating jobs suited to the existing workforce. The importance of human capital cannot be overstated: In order to create a successful economy that best serves the people, investing in its citizens must be the crux of Vision 2030.

Finally, to reinvent itself as the business hub of the Middle East, the kingdom must rein in its regional military interventions, a massive burden on both its budget and international image. In order to truly convince investors, Saudi must actively channel its efforts away from conflict and toward long-term economic reform.

On the whole, despite some notable achievements, progress is slow, and the Kingdom of Saudi Arabia has a long journey ahead. However, COVID-19 has prompted a much-needed agenda revaluation, revealing some shortcuts and pushing Saudi leaders to move with a greater sense of urgency. The itself warns that “higher than expected oil and gas revenues could reduce the pressure for [GCC] governments to reform,” exemplified in Vision 2030 itself being the result of such a price shock. However, with the eye-watering oil price drops of 2020, COVID-19 may have been the rude awakening Saudi leaders needed.

The challenge now lies in both pioneering change while stimulating an economy in a world experiencing the since the Second World War. This, of course, is no easy feat, but the key to success will lie in focusing on projects that truly add value. This will mean ceding control to facilitate private sector growth, optimizing the business environment and committing to its citizens by investing in the youth. Only then can Saudi Arabia unlock its and become, as it envisions, the “epicenter of trade and the gateway to the world.”

*[51�Թ� is a  partner of .]

The views expressed in this article are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

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