Looking east

A red sun rises in the Middle East: the prospect of Asian surpassing American commerce and investment, writes Ibrahim Nafie

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China seems to be a major source of alarm for decision-makers at the White House and Capitol Hill these days. The Asian state is doing things differently on the world scene. Since 2004, China has become the world's largest consumer of oil after the US. Considering that the Chinese economy is growing at a hopping 10 per cent annually, with industrial growth of 15 per cent, its demand for oil is likely to increase. Experts believe that China may need 15 million barrels a day by 2020; four times its domestic output. This is why China is trying to get a foothold for its companies in oil-producing nations, especially small-sized countries that major companies have either overlooked or judged unsafe for investment. Sudan and other African countries are among those.

A few days ago, China and Kenya signed an agreement by which a Chinese company would prospect for oil in 12 locations. China would assume full losses if oil is not found. But should the company find oil in viable quantities, the two countries would sign a production agreement. A few days ago, China offered Nigeria $4 billion for the rights to explore for oil on its territories. And, over the past few months, China has forged close links with Saudi Arabia. China is also targeting countries in which Western and US companies are not investing because of political considerations: Venezuela and Iran are among those.

When it comes to oil, the Chinese and Saudis have a lot to discuss. After all, we're talking the world's largest oil producer and second largest oil consumer. In January, King Abdullah was the first Saudi head of state to visit Beijing. Last week, the Chinese president reciprocated with a visit to Riyadh. In economic terms, China and Saudi Arabia have grown quite close. Saudi Arabia is the largest trading partner of China in the Middle East. Saudi-Chinese trade totalled $16 billion in 2005, 56 per cent up from the previous year. Saudi Arabia is the largest exporter of oil to China. In 2005, China got 17.5 per cent of its oil imports from Saudi Arabia -- an average of 450,000 barrels a day. During King Abdullah's visit to China, the two countries signed five economic agreements. In Riyadh, the two leaders reviewed a plan to build up a strategic reserve of oil in China, one to be replenished by Saudi Arabia.

Cooperation between Chinese and Saudi companies is taking place at an unprecedented level. Last year, Saudi ARAMCO signed a $3.5 billion deal with a US company and SINOPEC to enlarge a refinery in Fujian. Talks are currently underway between the Saudi Basic Industries Corporation (SABIC) and a Chinese company to build an oil refinery and an ethylene plant in northeast China at a cost of $5.2 billion. Chinese companies are already prospecting for natural gas in Saudi Arabia.

What makes Chinese-Saudi relations even more crucial is that China is a major recipient of foreign investment, and Saudi Arabia needs a new place to invest -- now that the US is slapping various restrictions on Arab investment. The Saudis must have been listening carefully when, in his State of the Union speech in February, President George Bush called for decreasing US reliance on Middle East oil by 75 per cent by 2015. A bill, recently passed by the Senate Legal Committee, recommends legal action against OPEC should the latter attempt to reduce output or hike prices.

No wonder, the Saudis are looking east.