China’s energy supply security : the case of Saudi Arabia

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China’s Energy Supply Security: the Case of Saudi Arabia

Student: Aldert Bergstra Student number: 10106359 Bachelor: Political Science

BA-Research Project: Energy and Geopolitics in China and the European Union Supervisor: Dr. M.P. Amineh

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Abstract

This thesis is about the energy supply security of China in Saudi Arabia. In the past few years, there has been much attention for the energy situation in China. Not only the domestic implications of the scarcity of oil in China are interesting but also the geopolitical aspects of the issue are worth

studying. This study provides an overview of the energy relations and other relations between China and Saudi Arabia. Then there are the geopolitical aspects concerning the tensions between Iran and Saudi Arabia, and the changing role of the US in the Middle East. All these different factors are challenges in securing China’s energy supply security. There are geopolitical and domestic risks when it comes to the energy relations of Saudi Arabia and China. The geopolitical risks under study are: 1) the deteriorating relations with the US 2) The rising tensions with Iran 3) The war in Syria and the uproar in Bahrain. The domestic risks are: 1) the high youth unemployment, that could lead to unrest, 2) The lack of democracy, 3) Terrorist threat, 4) Domestic use of oil. Of these threats, the domestic use of oil and the tensions between Saudi Arabia are the greatest risks to the Sino-Saudi energy relations.

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Acknowledgement

I would like to thank Dr. Mehdi Amineh for the all the time he invested in the guidance and support during the writing process. His expertise and help were of great value and without it I would never have been able to write my thesis about the interesting but complex subject of energy relations.

I also would like to thank the second reader, whose name is not yet known to me. I thank Paul Aarts for taking time to answer questions about the research. And, last but not least, my mother, Ineke Loots, for providing mental support, she’s the best!

Aldert Bergstra Amsterdam, 21-1-2014

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List of Acronyms

Bpd: barrels per day (oil)

ARAMCO: Arabian American Oil Company, Later Saudi Aramco

EIA: Energy Information Administration

IMF: International Monetary Fund

NIC Newly Industrialized Country NOC National Oil Company

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List of Figures

Figure 2.2: China’s GDP until 2000 15

Figure 2.2.3 Chinese and US oil consumption 16

Figure 3.2.1: Sources of the Chinese energy Supply, 2012 19 Figure 3.2.2: Saudi Oil Export by Destination (2012) 20 Figure 4.3.4: Domestic Use of Oil in Saudi Arabia 2005-2045 31

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1. Introduction

1.1 Introduction

Over the past decade, there has been much attention for China’s energy supply security, and, in a broader sense, for the growth of China’s economy and the changing role the country plays in world politics. What happens in China is of significant interest to almost every other country in a globalized world. If China’s economy continues to grow it will surpass the US economy, which has been the biggest economy for the past decade. The hegemony of the US is under pressure. This means that for resource-rich countries, it might become more interesting to ‘look east’. Studies about China’s energy supply security do exist, but few research has been done on the role of Saudi Arabia. This thesis can contribute to the body of knowledge about China’s energy supply security and about the influence of Saudi Arabia on the energy market and world economy. The Sino-Saudi energy relations are subject to threats, both from within Saudi Arabia and from geopolitical developments in the region.

1.2 Research Objectives

In this research, we study Chinese-Saudi-Arabian energy relations. In the past ten years the government of China has become an increasingly important actor in the geopolitics of energy. As of today, China is--after the United States-- the second biggest importer of energy. China’s economy and population are predicted to grow in the coming decades. To make sure future generations in China will have enough energy, China has implemented a ‘going out’ strategy. In other words, China needs resource rich countries to secure its energy supply. China is now active in almost every part of the world. Saudi Arabia overtook Angola as largest source of oil to China in 2005 (Tamimi 2013: 12). For Saudi Arabia, on the other hand, China becomes increasingly important. 54 percent of its crude oil is now exported to the Far East, whereas only 15 percent is exported to the US. Considering that Saudi Arabia possesses about one fifth of the world’s proven oil reserves, this is an interesting shift (EIA 2013). China needs Saudi Arabia, Saudi Arabia needs China, one could argue. There are, however, challenges to be faced. This research aims to improve the understanding of the relation between political and geopolitical risks and energy supply disruptions by studying the threats to the oil supply from Saudi Arabia to China, both domestically and geopolitically.

The main question of this research is: What are challenges in Chinese- Saudi Arabian energy relations? Three sub-questions have been formulated

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1. What are the ways in which China uses policy tools to secure the Sino-Saudi energy relations?

2. How do the tensions between Saudi Arabia and Iran, and the changing role of the US in the Gulf region influence the energy supply to China?

3. What are domestic challenges in Saudi Arabia with regard to the energy supply to China?

The scope of this research is limited to the case of China in Saudi Arabia. Because 2005 was, due to Saudi Arabia becoming the largest oil exporter to China, a turning point in Sino-Saudi energy relations, this is chosen as the starting point. To provide context, however, some data and facts go back further in history.

1.3 Problem statement, operationalization and hypotheses

In order to answer the research question, the dependent variable and the independent variables have to be determined. The dependent variable is China’s energy supply security, as its value is expected to be determined by independent variables: 1) The extent China uses policy tools to strengthen the energy relations with Saudi Arabia, 2) the external, geopolitical risks for the stability of Saudi Arabia, and 3) The domestic political risks within Saudi Arabia.

Political risk is generally defined as a type of risk that governments, investors and companies face when they try to do business in a foreign country (Busse & Hefeker 2007: 400). The stability of a regime is an indicator of political risk, but also geopolitical tensions may cause a treat to, in this case, oil supplies. Bremmer (2007) argues that, although it might be logical to consider an authoritarian regime to be a political risk, this is not always the case. Some of the most authoritarian regimes also belong to the more stable countries. It is, therefore, important to study the factors that might contribute to a (violent) uprising (Bremmer 2007: 101). To measure geopolitical risks, we should study the role of other countries, and in which way the opposite interests of these countries endanger the stability of the Saudi Arabia. Two hypotheses have been formulated:

Hypothesis 1: The energy supply security of China in Saudi Arabia will be impeded by the autocratic regime in Saudi Arabia, the domestic use of oil in Saudi Arabia and the high dependence of the Saudi government on the oil market.

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Hypothesis 2: The Sino-Saudi energy relations will also be challenged by the changing role of the US in the region and the ongoing tensions with Iran, these geopolitical factors influence the energy supply to China in a negative way.

1.4 Data gathering methods

This paragraph is about the method applied to gather the data for this thesis. The central question and the associated sub questions will be answered using a combination of qualitative and

quantitative methods. However, the main part of the research will be done through the analyses of a wide variety of literature, ranging from scientific literature and working papers, online local and international media sources, so the qualitative part will be more important. Different sources of data will be used.

The first type of secondary qualitative sources, is books about Saudi Arabia as well as books about the relations between China, the US and Saudi Arabia. The most important books are Cooper (2011), The Oil Kings: How the US, Iran and Saudi Arabia Changed the Balance of Power in the

Middle East, Aarts & Roelants (2013), Saoedi-Arabie. De revolutie die nog moet komen, Kemp

(2010), The East Moves West: India, China, and Asia’s growing Presence in the Middle East and Tamimi (2013) China-Saudi Arabia relations: Marriage of Convenience or Strategic Alliance?

The second qualitative source is an interview with Paul Aarts, who works at the University of Amsterdam and is an expert on the Middle East in general and Saudi Arabia in particular. In the text, the references to this interview will be as follows: (Aarts 2014).

Many articles from scientific journals concerning Energy Relations, China, and the Middle East are being used.

In order to give an indication of the size of the energy relations and the use of oil, quantitative sources are consulted, of which the International Energy Agency (EIA) database is the most important one.

1.5 Theoretical framework

In this thesis several theories are being used to get a better understanding of the issues that are studied. Each of these theoretical concepts will shortly be elaborated on, where after their relevance of these theories for the thesis is explained. The different theories help explain different questions.

1.5.1 Critical Geopolitics

The notion that geography (where a country is located, how many resources there are) shapes world politics is crucial to understand this issues in this thesis. Within geopolitics, there is the ‘radical’ or

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‘critical’ approach, which entails that geographical expansion of capitalism is the primary driving force between policy choices- this is also the third approach of geo-economics (Mercille 2008: 578). In this approach, the quest for resources and the differences between countries shape geopolitics. Countries that have an urgent energy demand will try to secure energy supplies. This cannot be done without politics, as companies will have to have access to resource rich countries, and energy is sometimes traded for security.

Mercille (2008: 35) argues that the attacks of 9/11 could also be seen in the light of a changing hegemony. He states that it could be just as useful to look at the creation of US military bases in Saudi Arabia a few years earlier, as to look at some purely political issues. In this research, the changing of the hegemonic power is crucial. Now that China is about to become the hegemonic power, the geographical places where large quantities of oil and other resources are to be found, are becoming of greater interest.

The theoretical framework of geopolitics, and more specifically critical geopolitics will help to understand why different actors in the Middle East make the choices they make. It can help to understand why the US is still so visible in the region. The US has, in the last century, been the strongest power in the world. Therefore, they also had the strongest grip on oil reserves and other natural resources in the Middle East. After all, a hegemonic power has to make sure it will keep its energy supply secure. Energy security has everything to do with real security (Agnew & Corbridge 1995: 51; Dodds 2000: 43). It will help to understand which balance of powers in the Middle East leads to which outcome when it comes to energy supplies. If China has the power over the Middle East, it will have global implications on the global energy relations. It also helps to explain why it is so important for both Iran and Saudi Arabia to gain power in the region. Each country in this study has policy tools to shape the geopolitics of the world to their best financial interests (Dodds 2007: 22).

1.5.2 Scarcity

The energy scarcity model of Amineh and Houweling (2007: 373) contributes to the understanding of the policies of China, and to some degree, the policies of Saudi Arabia, as Saudi Arabia’s economy is built on the fact that energy (oil) is scarce. The model distinguishes three patterns that induce resource scarcity: demand-induced scarcity, supply-induced scarcity, and structural scarcity. Demand induced scarcity arises as a result of three factors: population growth in consumer countries, rising per capita income, size of gross domestic product (GDP) and an increasing use of technology, now occurring in Newly Industrializing Countries (NICs). It is only because energy is scarce that there are difficulties in providing enough energy for the population in the future. China’s foreign policies are mainly driven by the hunt for energy. With a strongly growing global oil

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demand and consumption, against a stagnating or even decreasing global oil supply, the world is increasingly concerned with resource scarcity and demand-induced scarcity (Amineh & Houweling 2007: 375).

The scarcity model helps to understand how the excessive growth of China’s economy causes a great deal of demand-induced scarcity, and what the implications are. Because the need for oil in China becomes so great, the country is forced to implement a ‘going out’-strategy. The Chinese economy should be able grow more and more, so the energy supply should be constant and secure, the scarcity model partly explains why there is so much at stake for China- and also for Saudi Arabia.

1.6 The structure of the thesis

In chapter 2, an oversight of the energy situation of China is given. It deals with the question why China has become dependent on foreign oil.

Chapter 3 will concisely address the energy relations between Saudi Arabia and China. It deal with the question why Saudi Arabia is so important to China, and what the Chinese

government does to strengthen the ties beyond energy, in order to make the energy relations sustainable.

In chapter 4 the geopolitical threats to the Sino-Saudi oil relations are discussed. In this risk analysis two geopolitical factors and four domestic risks are taken into consideration.

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2. China’s energy situation

In this chapter, we address the question why China has become dependent on foreign energy, and, more specifically, foreign oil. All different factors at play like the growing production and the growing income of the Chinese people will be examined. Thereafter, the Chinese energy strategy will be discussed.

2.2 China’s dependence on foreign energy

An important reason for the dependency of China on foreign energy, is the fact China is a fast-industrializing country, also known as newly industrialized country (NIC). Most NIC’s began as development countries, in which most people were employed in agriculture. In the 1990s, the GDP per capita began to rise sharply, as we can see in figure 2.2, which led to a larger demand for energy.

Fig. 2.2: China’s per capita GDP until 2005

Source: Fareed Zakaria, the post American world

In 1985, China imported less than 800,000 tons of oil and oil products. In 1993, the country became a net importer of oil (Bengston e.a. 2007: 340). In 1999, oil and oil product imports had increased to 43.81 million tons (Amineh & Houweling 2010: 253). In the graph above, one can see the increasing GDP until 2000. From 2000 until now, the development continued, and in 2007 the

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GDP was as much as 14.2 % (NBS 2013). Although since the crisis of 2008 the GDP growth has decreased slightly, the growth is still significant. The rising GDP per capita stimulates consumption. The car market in China has increased sharply, so has the transport sector (Leung 2011). In 2006, there were 23 million cars in the country, in 2030, this will be 130 million (Leverett & Baker 2005). In this study, oil is most important, coal is still the main source of energy in China. However, oil is not the main energy source. In 2009, coal amounted for 70 percent of the entire energy consumption in the country (EIA). The demand for coal continues to grow, just like the demand for oil. The Chinese government is aware that these energy supplies are essential for China to maintain its large economic growth on the long term.

In 2000, China’s oil demand amounted to 4,6 bpd. In 2009, this was bpd, and in 2012 it had risen to 9.66 bpd (EIA). As we can see in figure 2.2.3., China’s demand for oil will increase and it will surpass that of the United States in a few years.

Fig. 2.2.3: Chinese and US oil consumption

Source: BP Spreadsheet, EIA

Domestic oil production in China has also increased, because new oil fields were found, both offshore and in the western provinces, and oil was drilled in more efficient ways. This increase will, however, not be enough to meet the demand. In 1992, China produced exactly the amount of oil that was needed to meet the oil demand within the country. As of today, there is a shortage of more than 5 million bpd. This means oil from resource- rich countries is needed to secure the energy supply in China. In China, there is now a situation of import dependency. It is predicted that the

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gap between oil production and oil consumption will continue to grow, so the import of oil also has to increase (IEA). Within China, it is an interesting question what the oil is mainly used for. In industrialized China oil is used in many different sectors, like business, civil society and government (Bambawale 2011: 1950). In 2030, the predicted percentage of imported oil will be 80 percent (Leverett & Baker 2005: 190).

According to the US Energy Information Agency, China’s tons of oil equivalent per capita has doubled from 2000-2009. Therefore, it is estimated that the total demand will go up by some 4.8 million barrels between 2011 and 2015. During that same period, China is expected to double its current strategic oil reserves (103 million barrels) to 270 million by 2012-13, with the eventual goal of reaching a 500 million barrel strategic milestone in 2016. In 2020, China is predicted to require about 13-14 million bpd (in 2010, China consumed 9.2 million bpd,) which would mean tripling its current imports as the overall size of the economy continues to grow and domestic sources of oil production are depleted.10 The Middle East already supplies 47 percent of China’s total net imports, but the outlined short-term trend suggests that this percentage share will likely increase to 70 percent in 2015 (EIA 2013; Leverett & Baker 2005: 195).

The scarcity model of Amineh and Houweling can be applied to the energy situation of China in the following way. The scarcity of energy, and more specifically of oil, can be described as a demand-induced type of energy scarcity (Amineh & Houweling 2007: 374). The supply of energy within China increases, as we could see, but the demand increases even more. This makes China import dependent.

2.3 China’s energy strategy

For a long time, China has considered itself a Third World Country that pursued an independent foreign policy of peace. With this statement is meant that China was, regardless of its enormous economic development, still a developing country, and- more importantly- not part of the world powers like the US or the powerful former Soviet Union. Whereas these countries interfered in domestic affairs of countries they had interests in, China would stick to a non-interference policy. The goal of China has been to keep a peaceful relationship with other countries in order to be able to focus on development.

In 1954, the Communist Party implemented the Five Principles of Peaceful Coexistence:

Mutual respect for sovereignty and territorial integrity, mutual non-aggression, non-interference in each other's internal affairs, equality and mutual benefit and peaceful coexistence (Bengston e.a. 2007: 111).

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However, times have changed. Although these principles are still used to describe China’s international policies, the principle of non-interference is losing ground (Wu 2009: 39). The energy interests of China in especially the Middle East are now so big, the stability of the Gulf region and Saudi Arabia become highly important for China, just like it is to the US. The military involvement of China with the Gulf region is expected to increase. When Hu Jintao became the general secretary of the Communist Party in 2002, the ‘zou chu qu’, the ‘going out’ strategy was adopted. This meant in practice that China would use its three national oil companies (NOC’s) to secure oil supplies in different parts of the world, buy owning shares in foreign markets, by drilling overseas, building pipelines and constructing refineries. The Persian Gulf is the most important region when it comes to this strategy, because options closer to home (like Russia and Central Asia) where eventually ruled out. The government has implemented a diversification strategy. This means many different governments and companies are involved to help secure China’s energy supply (Cooper 2011: 45). In the next chapter, the policy tools that are used by China to secure the energy supplies from Saudi Arabia are discussed.

2.4 Conclusion

This chapter provided an overview of the energy situation in China, as well as its energy strategy. Due to the late industrialization, the growth of the population, and the GDP per capita increase, the demand for oil has risen. Industry and transportation rely to a large extent on oil. Although the production of oil within China’s borders has also increased, the demand is not met by domestic production. China is confronted with demand-induced scarcity. Since 1993, china is a net importer of oil. In order to secure the oil supply, China’s NOC’s have searched for oil supplies all over the world. The energy strategy is pragmatic: it is based on the five principles of peaceful coexistence. This strategy, based mainly on the principle of non-interference is now under pressure, as China is forced to import oil from unstable regions, like the Middle East, and has an interest in a stable situation. The current ‘going out’ strategy also implies that China has a geopolitical role to play in the Gulf Region and beyond.

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3. Sino-Saudi Arabian relations

This chapter is the first part of the case study on the energy relations between China and Saudi Arabia. Saudi Arabia is of great interest to China. In order to understand why this is the case, we look at data about energy supply and energy demand. Energy relations are the core of the Sino-Saudi Arabia relations, but China and Sino-Saudi Arabia have also developed diplomatic, economic and military ties, to make the energy relations between the two countries sustainable. These efforts, aimed at strengthening the ties, are discussed in paragraph 3.3.

3.2 Saudi Arabia’s importance to China

In the past 30 years, China’s role in the Middle East has evolved from that of an ‘on-looker’, to a creator of diplomatic ties and trade relations, in ‘labor, finished goods and a small number of arms in the 1980s and the early 1990s’ (Wu 2009: 34). This development was evidently activated by energy. But why is Saudi Arabia that important to China?

Fig. 3.2.1: Sources of the Chinese energy Supply, 2012

Source: EIA

The first reason is the geographic position of China, that is less practical than that of the US. In the vicinity of China, there is only 3 percent of the world’s proven oil reserves to be found. In the region of the US, 23 percent of the reserves are situated. This means that while other countries are

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able to ‘stay closer to home’ for their energy supply, China is forced to move to the Middle East, and more specifically Saudi Arabia, the biggest oil supplier of the Middle East and the world. Although pipelines from Russia and Central Asia are being built, the supply from these regions will not be sufficient for China’s ever growing oil demand (Wu 2009 35). Figure 3.2.1 shows that Saudi Arabia is by far the largest source for oil to China, and the countries closer by, like Russia and Kazakhstan, make up a smaller part.

The second reason Saudi Arabia is important to China, is that Saudi Arabia is the largest export country of oil in the world. It is the quantity of proven oil reserves that made the Chinese government decide to build trade relations with Saudi Arabia. As the demand from China continues to grow, the largest possible supply of oil is needed (Leverett & Bader 2005: 193). In figure 3.2.1 we can see that the Far East is also the most important region for Saudi Arabia to export to, with China as largest importer.

Fig. 3.2.2: Saudi Oil Export by Destination (2012)

Source: Energy Information Agency

3.3 China’s economic involvement with Saudi Arabia

As we can see, the interests of China in Saudi Arabia are high. China needs the oil from Saudi Arabia, and imports more oil from the Kingdom than any other country in the world. To keep the energy relations secure, and make these relations endure, China is involved in many projects, on different levels. China also allows Saudi Arabia access to the Chinese production chain. By making the two countries even more intertwined, the government of China hopes to keep Saudi Arabia as a strong partner in its energy supply security. In this paragraph different projects are described.

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Saudi Aramco in China

During the trip of former president Jiang Zemin in 1999, that was mentioned earlier, China and Saudi Arabia signed an agreement that would change their energy relations (and with that, their economic ties) forever. This so-called ‘Strategic oil Partnership’ would have grave implications on both the Chinese and the Saudi market. Saudi Arabia would open up its domestic gas market, so not the oil market, for upstream exploration and production. China, on the other hand, offered to open its downstream sector, refining the oil products from crude oil to end products, to Aramco, the Saudi national oil company (Wu 2009: 32). China increased the imports of oil and Saudi Arabia helped by sending lighter crude oils to China so that they were able to refine it. China is actively trying to attract investments from the Gulf Cooperation Countries (GCC) in the four provinces in the 'triangle', not just to develop these backward areas, but also to bring about bonding between Chinese Hui Muslims and those in the resource-rich countries (Kumar 2011). It is even said Aramco helped China to use the fields that are available within China. China not only imports petrochemical products for the energy market, but also for the very lucrative textile sector. Saudi Arbia is now the biggest supply country for textile manufacturers in China. In 2004, China was even allowed to help gas production in Saudi Arabia. This shows China gets something in return for its ’favor’ to ARAMCO (opening up its downstream production process) (Kumar 2011; Aarts 2014).

Nuclear energy

In January 2012, China and Saudi Arabia agreed on cooperating in a major project concerning the construction of 16 nuclear power plants in Saudi Arabia. Wen Jiabao signed a mutual cooperation deal with King Abdullah for 16 plants in 2030. Technical details were not disclosed, but it is clear the two countries work on a strategic alliance in the case of nuclear energy. When Saudi Arabia is able to produce more energy for its own population, more oil will be left to export to China. Nuclear energy is used to generate electricity, which is needed in Saudi Arabia, as the Saudi people are among the greatest per capita users of electricity in the world. China has already built many power plants in China, so for the Chinese government it is a useful opportunity to help with their expertise and capital (Tamimi 2013: 74; Aarts 2014).

Education

In order to help the Saudi economy grow, the King has implemented a program in which students from Saudi Arabia are allowed to leave the country to study elsewhere. The idea behind this program is that people will learn from their experiences abroad, and will come back with a ‘new,

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more open’ attitude. The government spends billions on education, and a considerable part goes to scholarships for this program. There are no official figures about the number of students participating, but it is estimated between 150- and 250.000 people are now in the program. Thousands of them are studying in China. A professor from Saudi Arabia said ‘Saudi Arabia would become the largest Chinese-speaking country after China.’ (Aarts & Roelants 2012: 77).

Military

With their long-standing military aid, the US has since just after WWII until today, tried to secure stability in the region in order to secure their oil supply. However, the US have not always met the needs of the Saudi government. The trade was: energy security for military security, but Saudi Arabia has been willing to ‘look east’ when it was necessary. When the United States refused to sell Saudi Arabia long-range fuel tanks for Saudi F-15 fighters, Saudi Arabia made a deal with China in 1988 to get between fifty ‘nuclear-payload-capable CSS-2 intermediate-range ballistic missiles.’ (Kemp 2010: 120). Unfortunately, the weapons China sold to Saudi Arabia were of very low quality(Pant 2006: 51). However, there is speculation that Sino-Saudi strategic military cooperation has continued to grow. China offered Saudi Arabia the chance to buy new missiles. China is one of the few countries supplying this type of technology and as such is capable of demanding a cash transaction. (Kemp 2010: 123)Now the relations between the US and Saudi Arabia have weakened, China takes advantage of it (Pant 2006: 47).

It is, however, important to stress that China is not (yet) ready to overtake the role of the US as ‘police force’ for stability in the region (Tamimi 2013: 175).In the past three years, many meetings have been held and many cooperation treaties have been signed, but with no exact specifications. It is, however, widely predicted that the military support to Saudi Arabia from China will increase in the years to come. (Wu 2009: 37; Aarts 2014)

3.4 Conclusion

In the past decades, China has built relations with Saudi Arabia .The fact that Saudi Arabia is important to China has several reasons. As was earlier mentioned, China has been forced to look abroad for oil. Russia and the countries in Central Asia were not able to supply enough to satisfy the ever increasing demand of the Chinese energy market, so the Middle East was the second best option. Saudi Arabia, being the largest exporter of oil in the region, has also the largest share of the oil exports to China. This study has shown that China uses many policy tools to strengthen the relations with Saudi Arabia, in order to secure the energy supply. China has opened its own oil market up for Saudi Aramco, the Saudi NOC. By allowing Saudi Aramco to do something China is

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not allowed to do in Saudi Arabia, China hopes the relation becomes stronger. China and Saudi Arabia have also signed an agreement to build 16 new nuclear power plants in Saudi Arabia. By doing this, China becomes a player on the Saudi energy market. The third way is to participate in academic exchanges. Thousands of young Saudis get the chance to study in China each year. The final aspect of these beyond-oil relations is military aid. In the last few years, treaties have been signed to enhance military cooperation. We can conclude that there are many different activities that show how important Saudi Arabia is to China, but also the other way around.

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4.

Geopolitical and domestic threats to the Sino-Saudi energy relations

In this chapter, we study the way geopolitical risks and domestic risks influence the oil supply security of Saudi Arabia to China. Saudi Arabia has, as we could see, many ties to different countries both in the region and further away, but in this chapter only the most important geopolitical issues are discussed.

In paragraph 4.2.1 we will study the way the US influences the Sino-Saudi energy relations. The advantages and the drawbacks of the presence of US bases in the region will be discussed, as well as the interests of the US and the interests of China, and the extent to which these overlap.

Paragraph 4.2.2 focuses on the threat of Iran towards the Sino-Saudi energy relations. Because China has an interest in Iran as well, the focus lies on the developments that could end the stability in the Gulf region, and in that way, put the Sino-Saudi oil relations at risk. First, the battle for hegemony in the Gulf region between Saudi Arabia and Iran will be discussed. The role is this battle of Iraq, Syria and Bahrain will shortly be discussed, as sometimes the word ‘proxy war’ between Saudi Arabia and Iran is coined in these cases. Then the ongoing nuclear issue will be discussed, and the way in which this affects the Sino-Saudi oil relations.

In paragraph 4.3 the main domestic risks in Saudi Arabia are articulated. These factors could end the stability in Saudi Arabia. The lack of democracy and the domestic use of oil by Saudi Arabia are also linked to China, because they not only threaten the stability of Saudi Arabia, but also directly influence the Sino-Saudi relations.

4.2 Geopolitical risks

4.2.1. The United States

The case of the United States is an interesting one, because the US could be a threat as well as an enabler to the energy relations between Saudi Arabia and China. On the one hand, Washington is doing everything within its powers to secure the oil supply from the Gulf region, which makes the US interest the opposite of that of China. On the other hand, by deploying troops in the region and spending around 50 billion dollars per year on military bases to secure the free flow from the Persian Gulf to the world economy, the US is also making sure China will be able to do business with Saudi Arabia (Wu 2009: 35).

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It was near the end of WOII that Saudi Arabia and the US made an alliance that was built to last. The US-president and the King of Saudi Arabia came together, for the first time in history, in 1945. In essence, the relations between the US and Saudi Arabia were, like in the current case of China, purely about energy security. The greatest oil reserves were yet to be discovered, but it was already clear the US would need Saudi Arabia in the future to secure their quickly rising energy demand. As early as the 1930s, the US were exploring the possibilities to import oil from Saudi Arabia, or to even drill for oil. These activities were carried out in a joint venture between the Saudi government and Standard Oil of California. Forces were joint to found Aramco, the Arabian-American Oil company, in 1944 (Tamimi 2013: 10).

From the 1950s on, Saudi Arabia was trying to get a larger share of the oil revenues and within a few years Aramco was called Saudi Aramco. Now, the US did not own a share of the company anymore. In the decades that followed the bond between Saudi Arabia and the US grew stronger. However, in 1973 a crisis emerged, as the US supported Israel in the Yom Kippur War (Cooper 2011: 23). After that, the relations gained strength again. After the attacks of 9-11-2001, the situation between Saudi Arabia and the US has changed. Although the government of Saudi Arabia wants to have nothing to do with Al-Qaeda, the fact that 15 of the 19 hijackers of this attack were Saudi Arabian led by some to the impression that Saudi Arabia was not doing enough against, or was even supporting, terrorism (Cooper 2011: 44). The US-Saudi relations are still strong, as the US is still interested in keeping the political situation in the region stable, but ‘the special US Saudi relations are no longer special as before’(WU 2009: 35). Saudi Arabia is still to a high degree protected by the US, but has also gotten disappointed in recent years. One of the issues at play is the war in Syria. Saudi Arabia had wished for the US to intervene and take on Assad. This did not happen. This is disappointing for the Saudi leadership as Saudi Arabia and the US do have goals in common in the Middle East. Both place emphasis on the regional stability, the containment of Iran, the battle against Al-Qaeda, the peaceful solution of the Israeli-Arab conflict and the reliable supply of oil at a steady price. It is now the question whether China will take over the role the US used to have in the Gulf region, or whether the situation remains roughly unchanged. Until now, China has been able to profit from the security that is provided by the US. If the US Government would decide, at any moment, to end the military presence in the region, it is China that should worry about the US (Tamimi 2013: 25). This is however, considering the US interest in the region, not a likely scenario.

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4.2.2. Iran

The Islamic Republic of Iran has a difficult relationship with the West, and also with one of the most important allies of the US in the Middle East: Saudi Arabia. For decades the Sino-Iranian relations have been tensed. It is even said, that there is now a ‘cold war’ between the countries, as both strive for hegemonic power in the region and the countries are fighting each other in ‘proxy wars’, like in Syria (Aarts 2014). What makes the question ‘how Iran threatens the Sino-Saudi energy relations’ a complex one, is the fact that China and Iran also have increasingly strong energy relations. A decade ago, in 2002, the exports of Iran to China accounted for 77,6 million barrels, and the exports of Saudi Arabia 83,15. The difference was quite small. As of today, the imports from Iran account for 555 million barrels, which is about half of the exports from Saudi Arabia, but it shows that the interests of China in Iran are significant (EIA 2013). Especially when the potential for China is taken into account, Iran becomes interesting. Contrary to Saudi Arabia, Iran allows China into the upstream process of oil production (Leveritt and Bader: 191).

First, quest for hegemonic power by the countries is studied. The issue of religion plays an important role when it comes to the troubled Saudi-Iran relations. When one divides Muslims into Shi’ites and Sunnis, Sunnis account for between 80 and 90 percent. Iran, however, has a large Shi’ite population, in Iran it is exactly the other way around: 90 percent is Shi’ite (Aarts 2014). The problems that derive from this difference in religion are many. According to Saudi Arabia, Iran has been trying to build a proxy in the Arab Gulf of Shi’ites to secure their power. As was discussed, both Iran and Saudi Arabia are seeking for a powerful position within the Islamic world, both are seeking for the hegemony in the Gulf region, for economic and geopolitical reasons. Also in Iraq, it was said the two countries had been in a proxy competition, as in Iraq, the percentage of Shi’ites is 65 percent, and the percentage of Sunnis 35 percent (Leveritt & Bader 2005: 188). When The US left Iraq, Saudi Arabia threatened to increase its involvement in Iraq. This did not happen to the extent that was predicted, but it shows the degree to which Saudi Arabia aspires to have influence in the region.

There are a few places in which Iran and Saudi Arabia have opposite interests: Syria, Bahrain and Iraq. These places of conflict or unrest make the relations between Iran and Saudi Arabia deteriorate even further.

In Syria, the Civil War started in 2011 has cost around 120.000 lives (Aarts 2014). There are not only national actors in Syria, but also many foreign parties involved. Iran is in this conflict a strong supporter of president Bashir al-Assad. Saudi Arabia, on the other hand, is supporting the rebels of the opposition with both large financial injections and ‘troops’. It is estimated, that half of the foreign combatants are from Saudi Arabia (Aarts 2014). Meanwhile, Iran supports Assad with

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weapons and money. It is unclear what the influence of the conflict on the region will be, but if Assad wins it could mean that Iran has more power, which is negative for Saudi Arabia.

The same goes for Bahrain, where in 2011 a part of the Shia majority of people walked the streets to protest the Sunni government. Iran, with its Shia majority, supported the uprisings, but Saudi Arabia quickly helped the government of Bahrain. There existed some fear that Iran would use Bahrain to come closer to Saudi Arabia. In the last place, Iran could also use its power to close the Strait of Hormuz, the Strait though which the largest part of the oil production is transported to the rest of the world (Cooper 2011: 43; Aarts 2014).

All these issues have not yet influenced the Sino-Saudi energy relations, but might influence the relations in the near future. The risk of war in the region is imminent, and these factors enhance the risk of war or diplomatic conflicts.

The other issue going on for some years now is the nuclear issue. For many years, people in the region and overseas, were convinced Iran was working on a nuclear program in order to produce an atomic bomb. According to the Iranian government, the nuclear program was for nothing else than to produce energy. This however, is not believed by the US government, by Israel, and Saudi Arabia (Cooper 2011: 34). Many countries have put crippling sanctions in place, so that Iran would stop working on its nuclear program. China did not participate in putting the sanctions in place. Instead, Beijing went on to strengthen the ties with Iran, it even invested in a subway system in Tehran. For a long time, Saudi Arabia, Israel, the EU and the United States were persistent in executing the sanctions to Iran. In the autumn of 2013 however, things changed. The US decided there were other, more effective ways to solve the problem with Iran’s nuclear program. Other countries did not seem to have much influence on the program, and without a military intervention, Iran was not going to give up on the project (Kemp 2013: 80). The new president of the Islamic Republic, Rohani, showed willingness to cooperate. This meant a nuclear treaty was signed. Now it was not the case that the international community would end the program, but it would contain it. Two countries in the region strongly disagree with this approach: Israel and Saudi Arabia. Israel is still convinced Iran will try to attack. Israeli leader Netanyahu called the treaty, signed by the five permanent members of the Security Council and Germany, an ‘historic mistake’. Saudi Arabia, on the other hand, is not willing to show its opposition, because its aim is to keep relations with the West as they used to be (Aarts 2014). In a statement, the Saudi Government said they welcomed the deal, but quickly it became clear not everyone in Saudi Arabia is pleased by it. There is fear that Iran less isolated because of signing the deal, gets geographically ahead of Saudi Arabia. The Saudi government is afraid the trends in the Middle East are against Saudi Arabia, which would have disastrous effects on their position in the world economy, but would also have effect on the

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domestic affairs. When Iran would get a better geopolitical position than Saudi Arabia, this could have an effect on the oil price, because Iran has access to more clients around the world. Iran, that has a large population of about 70 million, and is still suffering from the effects of the sanctions implemented by Western countries, could use as much oil money as it could possibly earn in current conditions (Aarts 2014). This is against the Saudi interest, as Saudi Arabia, as a swing producer, aims at high prices, but not prices that are too high to be able to sell oil on the long run (Leveritt and Bader: 191).

4.3 Domestic risks

In this part, the internal threats to the stability of Saudi Arabia will be discussed. In the end, if Saudi Arabia wants to remain a steady exports country, what happens within its borders is of great interest. The most important issues that play a role will be discussed here.

4.3.1 Lack of democracy

Saudi Arabia is an autocratic regime. The country is a kingdom, which is not common in the Middle East. It is currently lead by King Abdullah. The royal family, the al-Sauds, consists of thousands of people, under which thousands of princes. Each province in the country is governed by a different prince, but in the end, it is the king who makes the mayor decisions. Although King Abdullah is sometimes referred to as a ‘reformer’, the changes are modest. The Kingdom of Saudi Arabia is still regarded as one of the most undemocratic regimes (Aarts & Roelants 2013: 152)

In history, it has occurred that disputes about who would be king made the country less stable. The current king Abdullah is fairly popular (Aarts & Roelants 2013: 156). He is a reformer and seems not to be corrupt. The contentment about his reign leads to a stable political situation, but no one knows what will happen next (Aarts & Roelants 2013: 100) The political situation in Saudi Arabia is important to the security of the energy supply because governments control either the actual energy supply or the conditions under which other parties develop this (Kruyt e.a. 2009). But in the case of Saudi Arabia, there is no transparency and no democracy, so these conditions are also vague and hard to predict.

Then there is the Sunni-Shi issue with Saudi Arabia. Because there is no representational government, minorities can be oppressed. Shi’ites are often treated badly, because some people believe their loyalty is towards Iran, and not towards the Saudi government (Aarts & Roelants 112). This could lead to unrest, and there have already been protests in the eastern part of the country. The Shi’ite population of Saudi Arabia, which consists out of 10 percent of the population, lives in the region where both the largest oil refinery installation of the world is situated, and also the

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world’s largest export terminal. Massive unrest as a result of oppression could risk the oil

production in this region, although the troops deployed to guard the oil installations are loyal to the government (Aarts 2014).

The issue of democracy can be a problem in international relations. The Saudi ruling elite did not welcome the campaign for democracy, led by the US, in the Middle East. Nor did it applaud the developments during the Arab Spring. Saudi Arabia has never been a democratic state, and the regime is clearly not planning on making any radical changes, except for the fact there are now city council elections, but these councils do not have much power. The pressure from the international community has never been a real issue for the Saudi elite, as many countries, including the US, were happy to ignore the violations of human rights in Saudi Arabia because the interest were too big to protest. It is said, however, that the worsened relations with the US have to do with the lack of democracy. China, on the other hand, is more pragmatic. One factor that might explain China’s mild attitude towards the Saudi regime, is the lack of democracy in China itself. Another reason is the principle of non-intervention (Wu 2009: 36-38).

4.3.2 Domestic use of oil

The greatest domestic challenge is how Saudi Arabia will cope with the ever increasing domestic use of energy. As of today, a quarter of the oil is for domestic use. The reason for this is that oil is almost free in the Kingdom. One liter of Diesel now costs 5 cents. People drive big cars and there is almost no public transport. Some scholars have predicted Saudi Arabia would use more oil for domestic use than for exports as soon as 2017. This will eventually mean the state will go bankrupt, as no politician will take responsibility for rising prices on oil. This problem is even more substantial when one realizes the Saudi economy is not diversified. Currently, 92 percent of Saudi Arabia’s GDP comes from oil and petrochemicals exports. All other businesses are highly underdeveloped (Aarts & Roelants 2013; Aarts 2014).

In this category, it is also necessary to study the oil reserves. Because the government of Saudi Arabia is so undemocratic and therefore suffers from a lack of transparency, it is never possible to know for sure how many oil reserves are still available. As of today, drilling takes place in only 8 reserves. This is a very low amount, and it would have been safer if Saudi Arabia would have had a more diverse infrastructure of oil reserves. In the long run, this could lead to supply induced scarcity (Amineh & Houweling 2007).

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Fig. 4.3.4: Domestic Use of Oil in Saudi Arabia 2005-2045

Source: Chatham House research 2010

Figure 4.3.4 clearly shows that there will be a moment when Saudi Arabia exports less than its own population uses, possible as soon as 2025, and what is even more worrying, there will be a moment when Saudi Arabia has no oil left for exportation, possibly as soon as 2040. This would end the Sino-Saudi energy relations immediately, and would therefore be the greatest risk.

4.3.3.(Youth) unemployment

The population of Saudi Arabia is very young, and the (undemocratic) leadership very old. This is also the case in countries like Syria, Egypt and Tunisia, and in these countries there is now a lot of unrest, related to the Arabic Spring. This Arabic Spring seems to have ‘skipped’ Saudi Arabia. It’s young generation has trouble finding a job, part of this could be caused by the fact that Saudi Arabia lacks a diversified economy. It is hard to find real data about unemployment in Saudi Arabia, as there is a great deal of hidden unemployment. People are on a payroll but are encouraged to not show up for work. Instead, Saudi employers prefer a foreign workforce (Aarts & Roelants 2013). Although there is now a policy in place of ‘Saudization’ in companies, which means a large part of the foreign (mainly Asian) workforce will be deported, it is hard to say whether this will make the unemployment less of a problem. Some Saudi citizens are now being paid to stay away from work, because employers rather have foreign laborers than Saudis. A large group of young, angry people is always a threat to an autocratic regime, it is a ticking timebomb (Aarts & Roelants 2013: 50).

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4.3.4.Terrorist threat

As is the case of many countries in the Middle East, the threat of terrorist attacks is substantial. Al Qaeda, for instance, is an important threat. An attempted suicide attack on the Saudi petroleum pipeline and export network was prevented in February 2006 by Saudi security. The Abqaiq petroleum processing facility, that was the target here, would almost have been destroyed. after the leaders of Al-Qeada called for new attacks against the country's economic backbone. Because of this threat, the Saudi government has deployed as many as 20,000 guards, on top of the 5000 guards Aramco (the Arabian American oil company) had already deployed. In addition to direct security, Saudi Arabia is known to ensure export security by maintaining "redundancy" (i.e., multiple options for transportation and export) in its oil system, in part as a form of indirect security against any one facility being disabled.) (EIA 2013).

In the years following the war in Afghanistan (1978-1988), where many combatants from Saudi Arabia were involved, a number of terrorist attacks was carried out in Saudi Arabia. The jihadi fighters, who were sent to Afghanistan, were completely radicalized when they arrived back home in Saudi Arabia. As was discussed before, Saudi Arabia is now involved in the war in Syria, this time, it is estimated that thousands of young men are fighting. There have even been reports of death row inmates that were released to fight in Syria. Changes are that a backdrop like the one that followed the war in Afghanistan, will also occur this time.

4.4. Conclusion

There are many threats to the energy relations between Saudi Arabia and China. In this chapter, geopolitical and domestic political risks have been divided. Iran and the US are the most important actors in the Gulf region, apart from Saudi Arabia. First, the role of the US is examined. The influence of the US on Sino-Saudi energy relations has two sides. On the one hand, the US has the same interest in the region as Saudi Arabia and China, when it comes to securing a free flow of oil from the Gulf region and a stable oil market. China uses the security the US has provided by stationing troops in the region. In this regard, the US is not a threat but an enabler of good Sino-Saudi energy relations. However, the US also has its own interest, as Sino-Saudi Arabia is after Canada still the largest supplier of oil. These opposite interests may cause problems in the future, when energy will become even more scarce.

Iran is a risk to Sino-Saudi relations and regional stability in many ways. First, there is the rivalry over who will be the hegemonic power in the region; Saudi Arabia or Iran. The countries do not fight each are directly, but are involved in proxy-conflicts. In Syria, Iran supports Assad and

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Saudi Arabia supports the opposition. In Bahrain, a neighbor to Saudi Arabia, Saudi Arabia supports the authoritarian Sunni regime, and Iran supports the uprisings. Then there is the ongoing dispute over Iran’s nuclear program. All these tensions could eventually lead to a conflict between Saudi Arabia and Iran, in which case Iran could close off the Strait of Hormuz, the most important waterway for Saudi oil exports. Exports to China would, it that scenario, become impossible.

Secondly, we discussed the domestic political risks that potentially threaten the Sino-Saudi energy relations. The first risk is the lack of democracy in Saudi Arabia. Although China has not confronted Saudi Arabia with this, the authoritarian rule could put the stability of the country at risk.

The domestic use of oil in Saudi Arabia is the second domestic risk. The per capita use of oil in Saudi Arabia is among the highest in the world, and rising. This could mean that in 2025 Saudi Arabia would need as much oil as it exports, and a possible end of exports in 2040. This would end Sino-Saudi energy relations. The third risk is the high unemployment and dissatisfaction among the youth, in many countries in the Arab world a group of young people started a revolution that led to the Arab Spring. An Arab Spring in Saudi Arabia would lead to oil supply disruptions. The last domestic factor is the thread of a terrorist attack. The largest opposition of Saudi Arabia is very conservative and not interested in oil revenues.

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5. Conclusion

The process of writing this thesis began with the observation that there was much attention for China’s energy security. China’s fast growth in oil consumption in recent years has domestically and internationally raised questions about how to secure reliable supplies of energy in China. The Chinese leadership knows that to ensure future growth, the energy supply security must be taken care of. China is not able to produce enough energy to keep the energy and transport sector going, and ever since 1993 the country is dependent on foreign oil. To make up for the demand-induced scarcity, China has to go overseas in the hunt for oil.

This study set out to determine what would be the risks for Sino-Saudi energy relations. The choice for Saudi Arabia was easily made. Saudi Arabia is the largest oil supplier of the world, and is also the largest supplier of oil to China. China, on the other hand, has become one of the most important trading partner for Saudi Arabia. To secure the oil supplies from Saudi Arabia, China has invested in the Saudi economy in different ways: by supporting the Saudi nuclear program, by engaging in student exchange programs, by offering military aid and selling arms and by allowing a company like Saudi Aramco to take part in upstream oil production in China. In turn, China is allowed to participate in the gas production in Saudi Arabia. The intention of both actors is clear: they are working on longstanding, sustainable energy relations. But is this possible?

In this mixed methods research, quantitative data have been used to show the Chinese demand for oil and the Saudi supply, as well as the development of the GDP in China and the domestic use of oil in Saudi Arabia. One of the more significant findings to emerge from this study is that if Saudi Arabia would continue the excessive domestic use of oil, in less than 30 years there would be no oil left for exports to China. The qualitative data, however, were more important.

The threats to Sino-Saudi energy relations were divided in two categories, domestic risks and geopolitical risks. First, the geopolitical risks will be presented. This research has shown that both the US and Iran play a large, complex role with respect to Saudi Arabia. The US-Saudi relations are complicated because for decades, the Americans and the Saudis traded oil for security. Now that China has taken over the role of largest importer of Saudi oil, it is unclear how the situation in the Gulf region will unfold. China uses the security that is provided by the US to secure a stable flow of oil from Saudi Arabia. In that respect, the US lowers the risks for the Sino-Saudi oil relations. On the other hand, it is unclear what the US will decide to do in the region, already the US has disappointed the Saudi leadership by not acting in Syria, and the relations are ‘not as special’ as they were before 9/11.

Iran plays an interesting role because it is the region rival of Saudi Arabia. The Shia Republic of Iran and the Sunni Kingdom of Saudi Arabia both aim to have the hegemony in the

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region. They are not fighting each other directly, but stand face to face in Syria, where Iran supports Assad and Saudi Arabia supports the opposition. The nuclear program of Iran also leads to tensions between Saudi Arabia and Iran. Ultimately, these conflicts could lead to a closure of the Strait of Hormuz (making exports to China impossible), of worse: attacks on Saudi oil terminals.

Then there are four domestic political risks to take notice of. . The first risk is the lack of democracy in Saudi Arabia. Although China has not confronted Saudi Arabia with this, the authoritarian rule could put the stability of the country at risk. The domestic use of oil in Saudi Arabia is the second domestic risk, as was already mentioned. This is probably the greatest risk for Sino-Saudi oil relations. The third risk is the high unemployment in general and among young people, in many countries in the Arab world a group of young people started a revolution that led to the Arab Spring. An Arab Spring in Saudi Arabia could lead to oil supply disruptions, because it could lead to armed conflict. The treat of a terrorist attack should be taken seriously as well. As a blowback from the war in Syria, in which it is estimated that thousands of Saudi combatants participate, is not imaginary. After the Afghan war in the 1980s terrorist attacks were committed in Saudi Arabia. The conservative forces in Saudi Arabia are not interested in oil, so actions by extremists could be a risk to Sino-Saudi oil relations.

As the access to Saudi information sources is very limited, further research has to be conducted in order to know more about the domestic situation in Saudi Arabia. Only then it will be possible to understand the real scope of the risks the country faces with regards to energy supplies. With the current lack of transparency, it is hard to make predictions.

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Appendix:

Interview with Paul Aarts, Saudi Arabia-expert and writer of several books about Saudi Arabia and other Middle Eastern Countries- 10-01-2014

How do the tensions between Iran and Saudi Arabia affect the oil supply?

Iran has a big population, much bigger than that of Saudi Arabia, and the situation in Iran is a lot different, for instance when it comes to politics or international trade. Due to all the sanctions and tensions, Iran tries to earn as much money as quickly as possible. Therefore, Iran has an interest in a high oil price. Iran is not a swing producer, it just produces anything. Iran just wants to survive.

Saudi Arabia has an obsession with what is sometimes referred to as Shi’ite Iranian expansionism. The government of SA is afraid Iran tries to take over the whole region. Of course, this is very unlikely, as the US is still very much present in the Gulf area. But, if there would be a war between Iran and Saudi Arabia, the oil supply of Saudi Arabia to every country, including China, would be severely at risk and would probably stop. A war like this is not likely, but Saudi Arabia is quite angry when it comes to the nuclear treaty between Iran and the US, and a few European countries. Saudi Arabia feels betrayed by the US, just like they felt betrayed in the case of Mubarak, in Egypt, and in Libya. SA is still looking for a way to relate to the US in the post 9-11 world.

The struggle between SA and Iran is essentially a battle for hegemony in the region. But Saudi Arabia will always have Mecca and Medina, the most important places for the Islam. On the other hand, Iran has a lot of power of Iraq. Now that the new president Rohani takes a different course than the last president, things are getting interesting. Israeli leader Netanyahu called the treaty, signed by the five permanent members of the Security Council and Germany, an ‘historic mistake’

If Iran gets into a war with surrounding countries, it would only be because they themselves have been attacked. The risk is simply too big.

What are other geopolitical issues in the region for Saudi Arabia to take into account?

It is said, but it is just a rumor that I personally do not believe in, that Israel has placed troops and weapons in Saudi Arabia in case they would like to attack Iranian nuclear installations. Other countries do find that SA is doing two different things: on the one hand, it is an ally of Israel and the United States, on the other hand it tries to be strict in following Islam and remaining an

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important power in the Middle East. ‘On the streets’, however, the issue between Palestine and Israel plays an important role.

The war in Syria is now an interesting issue, that has cost over 120 000 lives. Only this week it came out, via a New York Times correspondent, that Saudi Arabia, that was already sponsoring the Syrian opposition, is now supporting the most extreme party in the conflict, the ISIS. It is not entirely clear who exactly supports this opposition, whether it is the government or other groups, like Al-Qaeda, but there are clear indications that Saudi Arabia in one way or the other is involved. But, we have to be careful of the blowback effect that was seen in the Soviet-Afghan war, when many people from Saudi Arabia went to fight. Later, they came back and were completely extremist, terrorist attacks were committed. In the case of Syria, this could happen as well.

The real ‘Angstgegner’ of Saudi Arabia is, however, Iraq. Iraq probably has more oil reserves than SA. This could be a real problem for SA.

How do you see the future of energy relations between China and SA?

I am reading about two different scenario’s. One is that nothing will change, effectively. In this scenario, the US will always be the most important actor and ally in the region, and SA will only buy oil, and that’s that. In the other scenario, however, is that China takes over America’s role. In that case they would even be the boss, security wise. In any case, the bond between the two countries is getting stronger, no matter what. America has become less of a popular ally. SA is disappointed over the western handling of- as was mentioned before- Iran, is disappointed about Obama not bombing Syria.

China is, in a way opportunistic and pragmatic, and they conduct some sort of realpolitik. In that sense, their connection is not quickly endangered by geopolitical tensions.

Sinopec, a Chinese NOC, has- as we know- no access to the upstream oil production, but it has signed joined venture licenses and technical sharing agreements.

As was discussed, SA is a swing supplier. What does that mean for the oil relations?

The oil price is now going up and down constantly, due to all kinds of developments, both domestically and geopolitically, like the Arab Spring. Together with the UAE, they influence the oil price, by not producing all they have. If they now produce 10 million barrels per day, that could be 12, but they are holding back to be flexible, if- for instance- somewhere else a war breaks out or something else disrupts oil supplies.

In the US they have now discovered Shale Gas, this is an interesting development. But imagine the oil price would drop below 50 dollars, Shale would not be profitable. So therefore, the

China’s energy supply security : the case of Saudi Arabia