The Saudi King kicked off a month-long tour of Asia this week, as the oil kingdom looks to bolster ties in the east as it loses confidence in the U.S. as a stable ally.
The trip began in Malaysia where King Salman inked a $7 billion deal, promising to invest in a Malaysian petrochemical complex run by state-owned oil company Petronas. From there, he will tour Indonesia, Brunei, Japan, China and the Maldives.
The objectives of the trip are multiple. First, Saudi Arabia wants to keep and expand its market share in Asia. China is the largest crude oil importer in the world, and Saudi Arabia is China’s top oil supplier. However, competition is stiff and growing amid an oversupplied market. Russia and Saudi Arabia have battled for several years over the Chinese market, with Russia fast gaining ground. While Saudi Arabia has a slight edge in terms of market share in China, the two exporters are roughly on par.
Moreover, the lifting of international sanctions on Iran last year added another oil exporter to the mix. “There’s a market-share battle going on mainly among the Middle East producers and Russia,” Olivier Jakob, managing director of Petromatrix, told Bloomberg in an August 2016 interview. “Rivals are making a big push into China.” Aramco has often invested in refineries abroad to ensure steady demand for its crude oil.
Perhaps more important than the level of oil exports to China is the preparations for the IPO of Saudi Aramco. Saudi officials are trying to raise investors’ interest in the public offering, slated for 2018, which will see about 5 percent of the company. The government has said Aramco could be worth $2 trillion, although some analysts believe it would only be a fraction of that amount.
Relatedly, another reason the Saudi monarch is visiting Asia is to grow non-oil economic ties with Asia. The Saudi government is at the beginning of what it views is a long-term effort to diversify the economy. Early reports suggest that the Asian trip could yield some results. Saudi Arabia has agreed to put up to $45 billion in a technology fund led by Japan’s SoftBank Group. Saudi Arabia and China also signed more than a dozen preliminary economic agreements last year that they’d like to push forward.
Full article: Saudi King Goes East In Search Of Friends And Cash (OilPrice)