Saudi Arabia's Look-East Diplomacy: Ten Years On

Since January 2015, the new Saudi government led by King Salman bin Abdulaziz has continued to practice the kingdom's traditional foreign policy strategy, which Gerd Nonneman once referred to as "managed multi-dependence" (MMD). MMD is the strategy of seeking diverse diplomatic relations with major powers in order to increase a state's level of autonomy vis-à-vis the hegemon (the United States).¹ In June, Deputy Crown Prince/Defense Minister Mohammed bin Salman, a son of the king, visited Moscow to sign multiple bilateral cooperation agreements on subjects ranging from oil and the military to nuclear power and space exploration.² In the same month, Mohammed also paid a visit to Paris to strengthen Saudi-French defense ties.³

Today, the kingdom's major diplomatic partners exist not only in the West, but in the East as well. In February and March 2014, Salman (then-crown prince and defense minister) visited Japan, India and China.⁴ The combined wealth of these three countries amounts to $17.04 trillion (2014), almost on a par with that of the United States ($17.41 trillion).⁵ These three countries also absorb 39 percent of total Saudi oil exports (2013), almost double the figure for the United States (19 percent).⁶

Saudi Arabia's Look-East diplomacy came to the fore during the time of the previous king, Abdullah (2005—15). In January 2006, Abdullah chose Beijing and New Delhi as his first two destinations outside the Middle East region after his accession to the throne the previous summer.⁷ Since then, Saudi Arabia's growing ties with Asian states have been the subject of extensive scholarly inquiry.⁸ As the prediction that this will be an "Asian century" sounds increasingly plausible, Saudi Arabia's "pivot to Asia" should not be considered surprising.⁹ While Saudi-Asian relations were still seen as a novelty at the time of Abdullah's Asian tour a decade ago, they are a norm today.

It is widely believed that Saudi-Asian relations have evolved mainly in the domain of low politics (economic affairs) rather than high security, although the distinction derives from a minimalist interpretation of the notion of security. In Saudi Arabia, where regime security is as integral to its decision making as state security, economic affairs should also be considered indispensably intertwined with its politics.¹⁰ Indeed, as this article will show, the export of oil, the development of renewable energy, and economic diversification are all closely related to the security of the Al Saud. The pursuit of the latter two goals by Saudi policy makers has significantly accelerated in the past decade. They realize that the country's oil-centered economy is unsustainable and that Saudi Arabia needs to adapt to changing socioeconomic circumstances, in light of the persistence of violent Islamism and the eruption of the Arab Spring. These dynamics have driven the development of Saudi-Asian relations in the fields of renewable energy and economic diversification. Furthermore, within Saudi-Asian relations there have been some signs of growing bilateral defense ties. These may be only marginal today, but they appear to be forward-looking.

OIL EXPORTS

Just as energy security is integral to the national security of oil-importing states, for Saudi Arabia safeguarding demand for its oil ("demand security") is integral to its national and, more specifically, regime security.¹¹ With 89 percent of its state revenues coming from the oil sector (2013), the maintenance of reciprocal and interdependent relationships with major oil-importing states has been one of the most important objectives of Saudi Arabia's foreign policy.

In the previous century, major markets for Saudi oil existed in the West. However, the West-East balance in Saudi Arabia's oil exports tipped toward the latter in the early 2000s due to European states' successful diversification of their sources of oil imports in the final quarter of the previous century — away from the Gulf to other regions such as the North Sea, the former Soviet Union and North Africa — and the simultaneous increase in the demand for oil in the growing Asian economies.¹² In 2013, 68 percent of 7.7 million barrels per day (bpd) of Saudi Arabia's oil exports were destined for Asia; Europe's share had declined to only 10 percent.¹³

Although in 2013, the United States remained the largest importer of Saudi oil at 1.5 million bpd (19 percent of the total), four major Asian economies combined imported 4.0 million bpd (51 percent): Japan, 1.2 million bpd (15 percent); China, 1.1 million bpd (14 percent); South Korea, 0.9 million bpd (11 percent); and India, 0.8 million bpd (10 percent). China and India will drive the growth in global demand for oil in the coming years. Their demand growth is expected to continue at least until sometime around 2040, according to the International Energy Agency.¹⁴ As increasing shale production will make the United States more self-reliant, China and India are likely to become the largest and second-largest importers of Saudi oil in the coming years.

In addition, Saudi Arabia's strategic importance to these Asian states has substantially increased due to the Western sanctions imposed on Tehran; all four Asian states complied and reduced their Iranian oil imports. Iran's exports to these four Asian countries originally stood at around 2.5 million bpd in 2011, but have dipped to around one million bpd since the implementation of the tougher sanctions in 2012.¹⁵ Washington's announcement of these sanctions at the end of 2011 was immediately followed by the visits of Asian leaders to Riyadh in early 2012: Japanese Foreign Minister Koichiro Genba (January), Chinese Prime Minister Wen Jiabao (January), and Korean President Lee Myung-bak (February). Indian Prime Minister Manmohan Singh received Saudi Arabia's minister of commerce and industry, Tawfiq Al-Rabiah, in New Delhi in January. These visits primarily aimed to confirm the strategic ties in energy security between the kingdom and the Asian states.¹⁶ Capitalizing on these opportunities, India and Korea initiated talks on bilateral defense cooperation (examined in the following section).

Japan

Oil accounts for 44 percent of Japan's energy mix, and almost all of the country's oil consumption is covered by imports. Japan's dependence on the Gulf for oil is extremely high, partly due to the fact that its economic growth occurred earlier than that of other Asian countries. This created its "first-mover advantage" in the Gulf upstream oil markets. In 2014, 84 percent of Japan's oil imports came from the Gulf. The top five suppliers were Saudi Arabia (34 percent), the United Arab Emirates (24 percent), Qatar (11 percent), Russia (8 percent) and Kuwait (7 percent). Since 2004, Saudi Aramco, the state-owned oil company, has invested in the Japanese downstream sector through its 15 percent stake in Showa Shell, one of Japan's largest refiners.¹⁷ In addition, Saudi Aramco and Japan Oil Gas and Metals National Corporation entered into a strategic stockpiles deal in 2011. Under its terms, Saudi Aramco began operating an oil-storage tank in Okinawa, to which Japan has a priority claim in case of emergency. The current capacity of the storage tanks is 6.3 million barrels.¹⁸

Although Japan is currently the largest Asian importer of Saudi oil, it is unlikely that its imports will increase substantially in the coming years. Due to a declining population and enhanced energy-efficiency, Japan's oil consumption peaked in the late 1990s and has steadily declined since then. Even the Fukushima nuclear crisis, which took place in the immediate aftermath of the devastating earthquakes and tsunami of March 2011, did not result in a substantial rise in oil imports from Saudi Arabia — in spite of Tokyo's decision to halt the operation of the country's 50 reactors in May 2012.¹⁹ The resultant loss of around one-third of the country's power was compensated for mainly by increased imports of liquefied natural gas (LNG) — cheaper than oil at that time — from Qatar, Australia, Malaysia and Russia.²⁰

China

China's dependence on Saudi oil is not as high as Japan's. Coal still accounts for over two-thirds of the country's energy mix. In addition, the domestic production of oil covers around 40 percent of total consumption. Nevertheless, its huge population and growing economy made China the world's largest net importer of oil in 2015, surpassing the United States.²¹ Because China became a net importer of oil relatively recently (in 1994), the sources of its oil imports have inevitably been more diversified than those of Japan. In 2014, the Gulf supplied 52 percent of China's oil imports, while 22 percent came from Sub-Saharan Africa, 13 percent from the former Soviet Union, and 11 percent from Latin America. The top five suppliers of oil to China in 2015 were Saudi Arabia (16 percent), Angola (13 percent), Russia (11 percent), Oman (10 percent), Iraq (9 percent) and Iran (9 percent).²² As China's hypergrowth, led by investment and sustained by cheap labor, has come to an end, the increase in its oil demand may slow in the coming years. Nevertheless, with its GDP predicted to surpass that of the United States in the early 2020s,²³ China is likely to soon become the largest buyer of Saudi oil.

As has been the case with Japan, Saudi Aramco has established close cooperation with Chinese oil firms — in particular with the state-owned China Petroleum and Chemical Corporation (Sinopec). The two firms have been in partnership since 2004, when they formed a joint venture, Sino Saudi Gas (80 percent owned by Sinopec, 20 percent by Saudi Aramco), to explore gas fields in the Rub al-Khali (Empty Quarter) desert. Although this project has so far failed to discover any commercially viable gas field,²⁴ the inter-firm cooperation proceeded to its next stage in the late 2000s: Saudi Aramco's investment in Sinopec's petrochemical project in China (discussed below). A further joint venture was agreed in January 2012 when Chinese Prime Minister Wen made his visit to Riyadh. The two firms created a refinery project, Yanbu Aramco Sinopec Refining (YASREF), 62.5 percent owned by Saudi Aramco and 37.5 percent by Sinopec.²⁵ The refinery in Yanbu came on-stream in January 2015 and has the capacity to process 400,000 bpd of crude oil. YASREF is China's first overseas refinery project.²⁶

India

Another country whose imports of Saudi oil are expected to rise in the coming years is India. Although India also remains a coal-based economy (44 percent of the country's energy mix, in comparison with 22 percent from oil), the country is already the world's fourth-largest net importer of oil after China, the United States and Japan. In 2013, 62 percent of India's oil imports came from the Gulf, 19 percent from Latin America, and 16 percent from Sub-Saharan Africa. The top five suppliers of oil to India in 2013 were Saudi Arabia (20 percent), Iraq (14 percent), Venezuela (12 percent), Nigeria (8 percent) and Iran (6 percent).²⁷ Although Saudi-Indian downstream cooperation similar to that with Japan and China has not taken place yet, it might in the future.

South Korea

Korea has an energy profile similar to Japan's. Oil accounts for 41 percent of Korea's energy mix (2012) and the country relies almost entirely on imports. Korea's dependence on the Gulf for oil is extremely high: 87 percent in 2013. That year, the top-five suppliers were Saudi Arabia (34 percent), Kuwait (16 percent), the UAE (12 percent), Iraq (10 percent) and Qatar (9 percent). Korea is currently the third-largest Asian buyer of Saudi oil after Japan and China, but as in the case of Japan, the country's oil consumption has been more or less flat in the past 15 years.²⁸ Since 1991, Saudi Aramco has invested in S-Oil, a Korean refining firm; its current stake stands at 35 percent. In July 2014, Saudi Aramco reportedly agreed to buy an additional 28.4 percent stake from Korea's Hanjin Group, for a total share of 63.5 percent.²⁹

While Saudi Arabia is highly likely to remain an indispensable supplier of oil for these four major Asian economies, tougher competition from other oil-exporting countries can be expected as the global oil market enters a glut phase once again, part of its cycle of long-term shifts.³⁰ The rise of shale production in the United States has been a game-changer. The higher U.S. self-reliance in oil makes competition more difficult for Saudi Aramco, not only in the American market but in Asian markets as well; the oil that used to be exported to the United States will flow to Asian markets.

A clear example is Nigeria. The United States used to be the largest importer of Nigerian oil, but U.S. imports have been reduced to almost nil in the past few years. As a result, Nigerian oil has begun to flow into Asian markets; India is its largest buyer today.³¹ In May 2015, Nigeria overtook Saudi Arabia for the first time as the largest supplier of oil to India.³² In coming years, Latin American oil may follow suit. For instance, U.S. imports from Venezuela have already been cut by half in the past decade, from 1.55 million bpd in 2004 to 0.78 million bpd in 2014.³³ Venezuela was the fourth-largest supplier of oil to India in May 2015.

Furthermore, the resurgence of Iraq's oil production and the return of Iranian oil to the global market following the nuclear pact of July 2015 will add more oil to Asian markets. A dozen years after the onset of the Iraq War, Iraq's oil production has finally recovered, hitting a record high of 3.2 million bpd in June 2015.³⁴ On the other hand, Tehran aims to double its oil exports to two million bpd within a half year once sanctions are lifted (perhaps in late 2015 or early 2016).³⁵ The expected competition means that Saudi policy makers need to remain cautiously optimistic about the future of demand security in Asia.

RENEWABLE ENERGY

While the oil trade is likely to remain the backbone of Saudi-Asian economic relations, the development of renewable energy has begun to emerge as a new pillar of bilateral energy cooperation in the past decade. The Saudis used to consider renewable-energy industries their arch-nemesis, because of their potential impact on the energy mix of oil-importing countries — a potential long-term threat to Saudi Arabia's demand security. Today, however, Saudi policy makers are proactively seeking Asian investments for the development of renewable energy in the kingdom.

The major driver of this new phenomenon is Saudi policy makers' awareness of the need to preserve the country's oil-exporting capacity in the wake of rapidly increasing domestic consumption. Population increase and the rise of industrial activities have driven domestic consumption to 2.9 million bpd, almost a quarter of total oil production in 2013.³⁶ In their 2011 report, Glada Lahn and Paul Stevens at Chatham House estimated that, at the current pace of domestic consumptions, the kingdom will be a net importer of oil by 2038.³⁷

This heavy oil consumption is due to a combination of low energy efficiency, subsidized prices of electricity and oil products, and underdeveloped public transportation.³⁸ Regarding electricity, 46 gigawatts (GW) are currently consumed at peak time, for which 1.2 million bpd of oil are burned at power plants.³⁹ Air-conditioning of buildings accounts for over half of this demand, not only because of the hot climate itself, but because of insufficient insulation systems.⁴⁰ According to Abdullah Al-Shehri, the governor of the Electricity and Cogeneration Regulatory Authority in Saudi Arabia, peak-time electricity demand in the kingdom will triple to over 120 GW by 2032 at its current rate.

Thus, in order to preserve the country's capacity to export oil, Saudi policy makers have begun to develop renewable energy to meet a part of domestic demands. For this purpose, the King Abdullah City for Atomic and Renewable Energy (KACARE) was created in April 2010. KACARE, in line with the country's National Energy Plan, initially announced a target of generating half of the country's power demand through renewable energy by 2032, combining 41 GW from solar, 18 GW from nuclear and 9 GW from wind.⁴¹ In January 2015, following a series of feasibility assessments, the target year was revised to 2040.⁴²

KACARE's projects are currently in the initial phase of attracting foreign investment. Although KACARE aims to operate a renewable-energy industry independently in the future, this initial phase is necessary because of the kingdom's lack of expertise and experience in this sector. Through foreign investments, the required knowledge, skills and technologies are expected to be transferred to Saudi workers. Foreign investors will be given two-decade-long contracts to sell power in the kingdom on the condition that they contribute to the development of the Saudi renewable energy sector through (1) the fulfillment of minimum local-content requirements, (2) the employment of Saudi workers, and (3) cooperation in the development of research and development (R&D) programs.⁴³ Both Western and Asian investors have been targeted by KACARE.

Of the different types of renewables, nuclear energy has drawn the most attention primarily because of its strategic, dual-use nature. In June 2011, the kingdom disclosed an ambitious plan to build 16 nuclear reactors by 2030, the first two by 2022 with another two added every year.⁴⁴ According to this plan, construction will begin in 2017. As in the case of the kingdom's previous industrial projects, such as petrochemicals, the construction and operation of these 16 reactors are likely to be allocated to firms and consortiums from multiple countries. Saudi Arabia has been in talks with many states regarding bilateral cooperation in this field, including the United States, the UK, France, Russia, Finland, Hungary and Argentina, as well as China, Japan and South Korea.⁴⁵

South Korea

Of the three Asian states with which talks on bilateral cooperation in the nuclear field have taken place, South Korea has already established a bridgehead in the Gulf. It signed an agreement with Abu Dhabi in December 2009 that a consortium led by Korea's partly state-owned Electric Power Corporation (KEPCO) will build and operate four nuclear reactors in Barakah in Abu Dhabi in cooperation with the UAE's state-owned Emirate Nuclear Energy Corporation (ENEC). The first reactor, with a planned capacity of 1.4 GW, is currently under construction and will come on-stream in 2017. Once completed, these four reactors will cover a quarter of the country's power needs.⁴⁶ This will be Korea's first nuclear-reactor export project, making it the sixth member of the nuclear reactor-exporting club, joining the United States, Canada, France, Russia and Japan.

Behind Seoul's breakthrough was the active diplomacy toward Abu Dhabi of President Lee Myung-bak (2008-13). Lee was a former chairman of Hyundai Construction, an affiliate of one of the Korean chaebol conglomerates. Having led the company's construction projects in the Gulf during the first oil boom, Lee was proud of his company's contribution to rejuvenating the Korean economy, hit hard by the oil crises. Based on this achievement, Lee, from the time of his presidential candidacy, had called for bringing to the country a "second Middle East boom" by practicing active economic diplomacy in the Gulf.⁴⁷ Lee politically supported the nuclear negotiations as much as possible, even promoting simultaneous bilateral military cooperation with Abu Dhabi (discussed below).

Lee responded fast to Riyadh's announcement regarding the nuclear projects. In November 2011, Seoul launched talks with Riyadh on nuclear cooperation.⁴⁸ This was followed by Lee's visit to Riyadh in February 2012, when the two states also began to negotiate a bilateral defense-cooperation agreement. The nuclear negotiations were taken over by President Park Geun-hye, who assumed office in February 2013. Park created renewed momentum in the negotiations through her visit to Riyadh in May 2015, signing a bilateral-cooperation agreement between Korea's Ministry of Science, Information and Communications Technology (ICT) and Future Planning and KACARE. The two parties agreed to conduct a three-year feasibility study regarding building reactors, as a first step in their cooperation.⁴⁹

While Korea has been a pioneer in the Gulf Cooperation Council (GCC) nuclear reactor industry, there is, nevertheless, a lingering concern about its capability. The construction of the Abu Dhabi reactor, projected to come on-stream in 2017, has already entered its final phase. According to the timetable of the project, KEPCO was to launch the operation of the project's prototype reactor in Kori, Korea, by September 2015 to demonstrate its safety to ENEC. However, the Kori reactor has not yet come on-stream, due to an April 2013 incident involving the falsification of documents relating to the cable used in the reactor and a gas leak that killed three workers in November 2014.⁵⁰

Japan

The Abu Dhabi deal heralded fierce competition between Korea and Japan in the reactor-exporting business. Japan's Toshiba had also participated in the bidding for the Abu Dhabi deal, in alliance with the U.S. giant, Westinghouse, and was surprised by KEPCO's unexpected victory. Japan's national policy of promoting the export of reactors has persisted in spite of the 2011 Fukushima disaster. After Abu Dhabi, Korean-Japanese competition recurred in Turkey. Ankara planned to build the country's second nuclear plant in Sinop on the Black Sea coast. This time Japan was successful; Tokyo signed an agreement for the project with Ankara in May 2013. Ankara's decision was reportedly made as a result of its regard for Japan's technology and its experience of having operated nuclear reactors during a number of powerful earthquakes. The Fukushima crisis was seen as an exceptional case.⁵¹ The power plant — four reactors with a combined capacity of 4.8 GW — is expected to come on-stream by 2023.⁵² A few months before this deal, in February 2013, Tokyo also entered into talks with Riyadh regarding nuclear cooperation, although an agreement has not yet been finalized.⁵³

China

Saudi Arabia is also attempting to involve China in the kingdom's nuclear development. When Prime Minister Wen Jiabao visited Riyadh in January 2012, the two states signed a bilateral-cooperation agreement in this field.⁵⁴ Based on this agreement, KACARE and the Chinese National Nuclear Corporation (CNNC), China's largest state-owned atomic energy enterprise, signed a memorandum of understanding, in August 2014, to promote cooperation.⁵⁵ Although China is not yet a member of the club of nuclear-reactor-exporting states, it has operated Western-designed nuclear reactors in the past two decades, and Chinese firms are currently involved in the construction of reactors abroad. In order to enter the reactor-export industry, Beijing is currently working on the development of its own domestic-designed reactors. In February 2015, China made its first agreement of this kind, with Argentina, to export its indigenous reactor following the successful operation of a prototype in China. The reactor, Hualong 1 ("Chinese dragon"), will be constructed in Fujian Province by CNNC, to be completed by around 2020.⁵⁶

ECONOMIC DIVERSIFICATION

Saudi Arabia's ties with Asian states in other industrial sectors have grown significantly in the past few decades. In its pursuit of industrial diversification, Saudi policy makers have attempted to attract greater Asian investment, from which they expect information, skills and technologies to be transferred to Saudi workers in order to make the transition to a "knowledge-based economy."⁵⁷ The main driver of industrial diversification is the rise in youth unemployment, currently estimated to be over 35 percent.⁵⁸ The increase in the number of jobless young citizens is not only an economic issue, but a security concern; young people with a sense of deprivation may be susceptible to political radicalization.⁵⁹ Educated citizens today are more critical and demanding than older generations.⁶⁰ Indeed, as Michael Herb has stated, the "price of support" the regime buys is not fixed but "subject to inflation."⁶¹ Educated citizens tend to demand the opportunity to pursue a career in which they feel a sense of growth and self-actualization. Whether the economy can offer such opportunities will ultimately determine long-term political stability in the kingdom.⁶²

Thus, the Saudi government under both Abdullah and Salman has prioritized job creation.⁶³ While the public sector is already bloated and only able to absorb an additional million citizens, around 10 million new school graduates will enter the job market by 2030.⁶⁴ This necessitates simultaneously creating labor-intensive industries outside the energy sector and empowering the private sector. In 2010, Saudi Arabia announced a National Industrial Strategy, which aims to double the contribution made by manufacturing sectors to the country's GDP to 20 percent by 2020.⁶⁵ In addition, in order to nationalize ("Saudize") the private-sector work force, only 14 percent of which were Saudi nationals (2012),⁶⁶ a program called the nitaqat ("zones") was implemented in 2011, imposing on private firms certain quotas for national workers.⁶⁷

Saudi policy makers have expressed high expectations regarding Asian industrial investment in the kingdom; Japan, among Asian states, has been cooperating with Saudi Arabia the longest. Saudi-Japanese industrial ties date back to the 1960s, when Japan was an "emerging economy" — it became the world's second-largest economy in 1968. Like American multinationals, Japanese zaibatsu firms invested in Saudi Arabia's petrochemical industries during the kingdom's first industrial expansion in the 1970s-80s. The Japanese have continued to be key players in the kingdom's second industrial expansion. The largest investment made in recent years was Petro Rabigh, an equally owned joint venture between Saudi Aramco and Sumitomo Chemical, to create a petrochemical complex on the Red Sea coast. Petro Rabigh was Saudi Aramco's first petrochemical project: past projects had mostly been operated by Saudi Arabian Basic Industries Corporation (SABIC); another state-owned firm. The project was agreed in August 2005 and came on-stream in November 2009. Petro Rabigh became one of the world's largest refinery-integrated petrochemical complexes with competitively priced feedstock directly supplied by Aramco.⁶⁸ Currently, an industrial district called the Rabigh PlusTech Park is under development next to the plant.

In addition to the petrochemical sector, Saudi Arabia and Japan have been working on extending production chains downstream to manufacturing industries. Following Japanese Prime Minister Shinzo Abe's first visit to Riyadh, in April 2007, Tokyo created the Japan-Saudi Arabia Industrial Cooperation Taskforce, under the Ministry of Economy, Trade and Industry. The taskforce partners with Saudi Arabia's National Industrial Clusters Development Program, jointly run by the Ministry of Commerce and Industry and the Ministry of Petroleum and Mineral Resources, to develop four targeted industrial sectors: automotive, solar, metal, and plastics. It also assists Japanese private firms to find investment opportunities in these new industrial sectors in Saudi Arabia.⁶⁹ Their cooperation has resulted in several major investments, including the opening of a truck-assembly plant in Dammam by Japan's Isuzu in December 2012. At the time of its initial operation, this plant was capable of producing 600 units of "Made in Saudi Arabia" trucks per year.⁷⁰

In addition to its ties with Japan, Saudi Arabia has also been keen on establishing stronger industrial ties with China, the world's second largest economy since 2010, surpassing Japan. The number of Chinese firms in operation in the kingdom has been on the rise and currently numbers around 150.⁷¹ The most well-known project undertaken by the Chinese is the Al-Mashaaer Al-Mugaddassah Metro in Mecca, known as "Mecca Metro." The construction and operation of this railway for transporting pilgrims in the Islamic sanctuary was granted to the state-owned China Railway Construction Corporation, during the visit of China's previous president, Hu Jintao (2003-13), to Riyadh in February 2009.⁷² The operation of the railway began in November 2010, transporting over 16 million pilgrims during five Hajj seasons, 2010-14.⁷³ Chinese investments in the kingdom have, however, been largely concentrated in the construction and infrastructure sectors, and have not yet been significantly extended to petrochemical and downstream sectors. So far, in fact, industrial investment has been in the opposite direction: Saudi Aramco and SABIC have invested in petrochemical joint ventures in China with Sinopec, in Fujian Province (50 percent owned by Sinopec and 25 percent by Saudi Aramco and ExxonMobil, respectively) and in Tianjin (equally owned by Sinopec and SABIC).⁷⁴ This suggests that China benefits Saudi industrialists mainly through its provision of a market — as is the case in the oil industry — rather than through the input of technology.

This is largely because of the transitory nature of China's economy. Although China has grown into a new global manufacturing powerhouse in the past 15 years, advanced technologies used for production are still owned by foreign investors who benefit from employing low-cost Chinese workers, while maintaining value-adding jobs in their home countries. Chinese industrialists are still in the process of absorbing foreign technology and developing their own national brand. As a result, the level of complementarity between the Saudi and Chinese industries outside the energy and construction sectors is still not high. Saudi industrialists prefer, in most cases, to partner with producers with cutting-edge technology.⁷⁵

In fact, China currently stands at the crossroads of development. As production costs keep rising, the competitiveness of China's cheap manufacturing production is about to end.⁷⁶ In order to keep growing, Chinese producers will have to implement technological upgrading in a swift manner. In May 2014, President Xi Jinping called for a "new normal" in China's economy, an acceptance of slower but high-quality growth harnessing science and technology.⁷⁷ Whether Chinese firms will be involved in the process of industrial diversification in Saudi Arabia in a more substantial manner will ultimately depend on how fast China achieves this economic transition.

A development related to this is SABIC's opening of an R&D center in Shanghai in December 2013, one of the company's 17 R&D centers across the world. The Shanghai center will develop advanced chemical materials targeting markets in China and neighboring countries through a partnership with the Dalian Institute of Chemical Physics, an affiliate of the state-run Chinese Academy of Sciences.⁷⁸ This development may hint at the direction of Saudi-Chinese knowledge cooperation in the future, with both countries attempting to make the transition to a knowledge-based economy. Another direction of cooperation may be in low-tech fields. In general, low-cost but quality-compromised "Made in China" products are not strongly favored by Saudi consumers, who are used to state-of-the-art products imported from advanced economies.⁷⁹ The exception is the "hajj economy" in Mecca and Medina, which targets foreign pilgrims. There, the local handicrafts industry suffers from the competitiveness of cheap products from China.⁸⁰ The Mecca Chamber of Commerce and Industry, which runs the "Made in Makkah" project for the local handicrafts industry, signed, in November 2013, an accord with its counterpart in Xian to transfer know-how from Chinese Muslim merchants to Meccan workers.⁸¹

The story as regards India is similar, although India's largest contribution to the Saudi economy outside the oil trade is the presence of 2.8 million Indian expatriate workers, over a quarter of the 10 million foreign workers in the country. They are employed in a variety of jobs, from construction and transportation to teaching and accounting.⁸² In recent years, there have been Saudi industrial investments in India as well. In March 2013, Zamil Industrial, a private conglomerate based in Dammam, fully acquired an Indian air-conditioner firm, Advantec Coils, and its two manufacturing plants in Nalagarh in Himachal Pradesh.⁸³ SABIC also created an R&D center in Bangalore, India's high-tech hub, in November 2013.⁸⁴ Whether Indians will be major industrial investors in the kingdom will also depend on how fast the Indian economy itself develops. Tata Motors is negotiating with the Saudi authorities to create an assembly plant for its Jaguar Land Rover (JLR) vehicles in Yanbu (Tata Motors acquired JLR in 2008). ⁸⁵ The negotiations have been taking place since 2012 although a recent report suggested that the project is now on hold because of JLR's prioritization of a project in Slovakia.⁸⁶

While China and India remain at the transition stage, South Korea — considered one of the newly industrialized economies (NIEs) in the 1980s — has become an important partner of Saudi Arabia in economic diversification in recent years. Its industrial growth in the short period after the debacle of the Korean War (1950—53) under the authoritarian leadership of Park Chung-hee, and its successful transition thereafter to a knowledge-based economy, has impressed a number of Saudi policy makers who consider Korea a model for development today.⁸⁷ Saudi-Korean industrial ties have been developing in the petrochemical sector in recent years. In July 2009, Saudi International Petrochemical (Sipchem), an affiliate of Zamil Group, set up a joint venture with Korea's Hanwha Chemical to create a petrochemical plant in Jubail. The plant came on-stream in March 2015.⁸⁸ In July 2015, SABIC purchased a chemical plant in Ulsan, operated by SK Global Chemical, creating an equally owned joint venture with the company. The joint venture firm, SABIC SK Nexlene Company, is headquartered in Singapore and seeks to establish additional projects globally.⁸⁹ Moreover, since March 2014, SABIC has been running an R&D center at Sungkyunkwan University, one of the top-rated academic institutions in Korea. The center focuses on the development of electronics and electrical and lighting technologies.⁹⁰

The Saudis expect there to be extensive Korean investments in the emerging manufacturing sectors. In December 2010, Digm Automotive Technology agreed with Riyadh Techno-Valley of King Saud University to set up a joint venture to create an auto plant at the Valley, following the assembling of the first car made in Saudi Arabia, Ghazal-1, by a team from the university in June that year.⁹¹ Although this project has not witnessed significant progress since then, Saudi policy makers have kept their eyes on Korean investors. In May 2015, Korea's Daewoo International, a previous affiliate of the chaebol conglomerate Daewoo and now a part of the steel firm POSCO, was reportedly working with the Saudi National Automobile Manufacturing Company and Saudi Arabia's Public Investment Fund (PIF) to create an auto plant in Sudair Industrial City, located between Riyadh and Qassim.⁹²

Currently, the major constraint facing Saudi industrial development is the insufficiency of human resources qualified for industrial activities, due to the mismatch of skills taught in schools and those required in the labor market. Thus, the enhancement of the employability of Saudi nationals in the private industrial sector through education reforms is an urgent task for policy makers. The Saudi government has maintained a high level of education expenditures in the past 15 years, nearly a quarter of its annual budget.

An increasing number of Saudis are studying at universities in Asia on the Custodian of the Two Holy Mosques Scholarship Program (formerly the King Abdullah Scholarship Program) although their number is still dwarfed by those attending Western universities. Chinese universities currently host around 1,200 Saudi students; Japanese universities, over 600; Korean universities, 444; and Indian universities, 165.⁹³ These graduates have been an invaluable asset for Asian firms investing in the kingdom, which now have to satisfy the specified national labor quotas required by the nitaqat program. Such firms, in order to maintain their competitiveness, have looked to these young Saudi workers, who comprehend both the language and culture of Saudi Arabia and the Asian country in which they have studied, and are equipped with solid knowledge and skills.

DEFENSE COOPERATION

Finally, Saudi Arabia and Asian states have shown a greater willingness to establish and strengthen bilateral defense ties in the past decade. On the part of Saudi Arabia, this has been due to a desire to create a higher degree of diversity in its security-cooperation nexus, under the umbrella of the American naval presence in the Gulf and with its established ties with European states, rather than in order to explore an alternative to the United States as its major security ally.⁹⁴

The Asian states prefer an "economy-first" mercantilist approach to their foreign policy in the Gulf. Bearing the burden of security-related issues in the region, they calculate, does not present any immediate tangible gain or serve their national interest.⁹⁵ The ultimate objective of Asian states' Gulf policy remains energy security. As long as oil and gas supplies are uninterrupted, it is in their best interest to rely on the established regional security architecture rather than underwriting the costs of changing it.

However, this does not eliminate a policy of strengthening bilateral military cooperation through personnel exchanges, information sharing and learning. For instance, squadrons of Japan's Self-Defense Force visited a port in Dammam in November 2014 and conducted a three-day joint mine-sweeping exercise with the Saudi Navy.⁹⁶ Likewise, a Chinese warship, Qingdao, made a four-day port call in Jeddah in May 2012 for rest and replenishment.⁹⁷ In April 2013, the former Saudi deputy defense minister, Prince Khalid bin Sultan, visited Beijing and met the Chinese president to pledge stronger military-to-military cooperation.⁹⁸

Asian states can also expect that they will benefit from a spillover effect, where military cooperation contributes to the development of their comprehensive, multilayered bilateral ties with the Gulf states and helps them secure favorable deals in the field of energy. For example, South Korea's agreement with Abu Dhabi on defense cooperation in December 2009 took place simultaneously with the signing of the nuclear-reactor deal.⁹⁹ Accordingly, a special unit from the Korean army, codenamed the Akh ("brother" in Arabic) Unit, has been deployed Al-Ain since January 2011 to train its counterpart in Abu Dhabi in counterterrorism and special operations.¹⁰⁰

Likewise, Asian defense industries have benefited from the export of military hardware to the Gulf arms market, long dominated by American and European companies. China capitalized on Gulf insecurity in the 1980s, extensively exporting arms to both Iran and Iraq to acquire foreign currency.¹⁰¹ It also transferred Dongfeng 3 missiles — an intermediate-range ballistic missile — to Saudi Arabia, in a deal that paved the way for the normalization of bilateral ties in July 1990.¹⁰² Later, there was speculation that Riyadh was interested in further purchases of more advanced versions of Dongfeng missiles.¹⁰³ In January 2014, based on the information leaked from "a well-placed intelligence source," Newsweek revealed that Saudi Arabia had made clandestine purchases of Dongfeng 21 missiles in 2007 with "Washington's quiet approval — on the condition that CIA technical experts could verify they were not designed to carry nuclear warheads."¹⁰⁴

While the deal certainly represented a deeper penetration by the Chinese defense industry into the Saudi military market, it is not correct to conclude that the Chinese are winning the hearts and minds of the Saudis in defense. China's People's Liberation Army (PLA) has been seeking stronger ties with its Iranian counterpart at the same time. Since the 1980s, China has transferred a variety of arms to Iran, including anti-ship cruise missiles and anti-aircraft missiles, some of which have been handed to militias in Lebanon and Iraq backed by Tehran.¹⁰⁵ In addition, in September 2014, two Chinese warships of the PLA Navy docked for the first time at the Iranian port of Bandar Abbas and conducted a joint four-day naval exercise with the Iranian navy.¹⁰⁶ This dual approach should not come as a surprise; Yitzhak Shichor once depicted China's strategy toward the Gulf by using the Chinese proverb zuoshan guan hudou ("to sit on top of the mountain and watch the tigers fight").¹⁰⁷ In short, Beijing is exploiting the animosity between Riyadh and Tehran to its advantage.¹⁰⁸

The Saudis have also been frustrated with Beijing's behavior at the UN Security Council (UNSC) in relation to the civil war in Syria. While Saudi Arabia has backed forces opposing the Assad regime and has also called for international action against it, China and Russia have vetoed three draft UNSC resolutions that could pave the way for military intervention in Syria.¹⁰⁹ Beijing instead sent delegations to Arab states calling for finding a local solution, a move described by some analysts as a shift "from nonintervention towards constructive intervention."¹¹⁰ In May 2012, Beijing emphasized that its disagreement with Riyadh over the Syrian crisis would not negatively affect the bilateral relationship: "There might be a different perception on certain issues, but, overall, our relations remain intact and excellent."¹¹¹

Nevertheless, Riyadh was not satisfied with this approach. Saudi Arabia and other GCC states showed their dissatisfaction with China's policy in November 2012, when they unilaterally postponed the third annual China-GCC Strategic Dialogue, scheduled to take place in Beijing, urging the Chinese leadership to "reconsider its position on Syria."¹¹² The dialogue eventually resumed in January 2014, a few days before the Geneva II Conference on Syria, which could be read as a tactical move on the part of the GCC to influence Beijing's approach to the conference.¹¹³ The dialogue was followed by then-Crown Prince Salman's visit to Beijing in March. Beijing, however, was the third destination in Salman's series of visits to major Asian capitals, after Tokyo and New Delhi in the previous month; it had been the first destination of Abdullah's 2006 tour — illustrating the persistent distance in Saudi-Chinese bilateral relations.

Furthermore, the fact that a number of American policy makers today see China as its potential chief global rival means that Riyadh must be sensitive and strike a balance in its respective relationships with Washington and Beijing. On the other hand, Riyadh does not need to take into consideration similar constraints in its development of defense cooperation ties with other major Asian states, whose projection of power into the Gulf would not alarm Washington. In particular, Saudi Arabia's defense cooperation ties with India and South Korea have been deepening in recent years.

Saudi Arabia and India entered into negotiations for defense cooperation in February 2012, agreeing to set up a joint committee to prepare a roadmap for the cooperation.¹¹⁴ The negotiations led to the signing of a bilateral defense-cooperation pact in February 2014 during then-Defense Minister Crown Prince Salman's visit to New Delhi. The two states agreed to develop "shared use and exchange of defense-related information, military training and education, and cooperation in areas varying from hydrography and security to logistics."¹¹⁵

Although Pakistan has already established close military cooperation with Saudi Arabia, Riyadh is now attempting to enhance cooperation with both South Asian powers. Indeed, upon the launch of Operation Decisive Storm by Saudi forces in Yemen in March 2015, King Salman called Indian Prime Minister Neranda Modi to assure him that Saudi-Pakistani cooperation should not be read as a dilution of Saudi-Indian strategic ties.¹¹⁶ In August 2015, Saudi-Indian defense ties reached a new high. A mission comprising over 100 Indian Air Force officers and soldiers landed at the King Fahd Air Base in Taif on their way back from the UK, where they had participated in a multinational exercise. This marked the first time Indian fighter aircraft landed in Saudi Arabia.¹¹⁷

Likewise, Saudi Arabia launched talks with South Korea for defense cooperation in February 2012, when President Lee visited Riyadh.¹¹⁸ A bilateral-cooperation agreement was signed in February 2013. The two states agreed to mutually appoint military attachés to their respective embassies in Seoul and Riyadh.¹¹⁹ Other details of the agreement, however, still remain under discussion.¹²⁰

CONCLUSIONS

As Asia has grown into an industrial powerhouse, Saudi Arabia's diplomatic diversification strategy has naturally come to target Asian states in addition to European countries.¹²¹ In the field of oil exports, demand security has been the major concern of the Saudi decision makers because of the nature of Saudi Arabia being a rentier state. Asia is home to the majority of demand for Saudi oil today, and the demand keeps growing. This inevitably makes Asia an indispensable region for Saudi Arabia. The degree of Asian states' dependence on Saudi Arabia has also been high, but the current global oil glut means that the future of Asian demand for Saudi oil is less certain than it has been in the past. Saudi Arabia has begun to face growing competition in Asian markets from other oil-exporting countries such as Iraq, Nigeria, Russia, and Venezuela, to which Iran will soon be added following the lifting of the sanctions imposed on the country.

Another major concern for Saudi policy makers is the rapid rise of domestic consumption of oil, which already eats up around a quarter of the oil it produces. In order to preserve the country's export capacity, the Saudi government has been investing since 2011 in the development of renewable energy to meet domestic power demand. Saudi Arabia plans to build 16 nuclear reactors by 2030, with the first two to come on-stream by 2022. Saudi Arabia and Asian states (South Korea, Japan and China) have already entered into negotiations for bilateral cooperation in this field. How such cooperation will unfold in the coming years, however, still remains to be seen.

While the oil sector still accounts for the lion's share of the Saudi economy, Saudi decision makers see that the country's oil-centered economy will not be sustainable in the future, in particular in the wake of rising youth unemployment. Thus, in order to create job opportunities, the Saudi government has accelerated industrial diversification in order to extend production chains to labor-intensive manufacturing sectors. With the goal of achieving a transition to a knowledge-based economy Saudi decision makers have been keen on inviting Asian investments in these emerging industries in the kingdom, from which they expect knowledge, skills and technologies will be transferred to Saudi workers.

Finally, Saudi Arabia has also been attempting to deepen its defense cooperation ties with Asian states. Although Asian states have generally adopted a mercantilist approach to their foreign policy in the Gulf, avoiding security-related burdens, this has not prevented them, and Saudi Arabia, from developing greater military-to-military cooperation, which may have a spillover effect on their economic cooperation as well. In addition, Asian arms industries benefit from the export of military hardware to capital-rich Gulf markets. While China's closer cooperation with Saudi Arabia in this field has been a growing concern for Washington, the simultaneous development of Iranian-Chinese military ties and Riyadh's disagreement with Beijing as regards the Syrian civil war suggest that Zhongnanhai has yet to win the hearts and minds of the Saudis.