Chinese President Xi Jinping recently made a historic visit to Saudi Arabia. The visit was full of pageantry, with much more showmanship than President Biden’s trip, and highlighted the growing ties between China and Saudi Arabia. Xi was welcomed warmly with a full handshake (Biden received a fist bump), a military procession, and the national anthems of China and Saudi Arabia played by a military band.
Xi and Saudi Arabia's Crown Prince Mohammed bin Salman signed a number of agreements, including a joint statement on the establishment of a “comprehensive strategic partnership,” and several economic deals. The agreements encompass a broad range of areas, but the most important include 5G technology and the possible purchase of oil in the Chinese yuan.
The visit also highlighted the increasing alignment between China and Saudi Arabia on regional and international issues. Both countries have adopted similar stances on the conflicts in Syria, Yemen, and Libya. Saudi Arabia has also voiced support for the Chinese-led Belt and Road Initiative.
The implications of Xi's visit to Saudi Arabia are far-reaching. It marks a significant shift in the balance of power in the Middle East and highlights China's growing influence in the region. It also signals a shift in the regional dynamics, with China now playing an increasingly assertive role in the area.
Over the last three decades, the United States has been the key power broker in the Middle East. However, the U.S. is facing increased competition from China for influence in the region, and Washington has sought to counter China's growing influence by strengthening ties with its regional allies, including Saudi Arabia.
A key deal made during Xi’s trip to Riyadh was the signing of a memorandum of understanding with China's Huawei Technologies on cloud computing and building high-tech complexes in Saudi cities. This deal expands the tech giant’s footprint in the region further as they seek to grow their 5G networks and compete against American telecom giants and Finnish Nokia. Huawei has participated in building 5G networks in many Gulf states despite the U.S.’ concerns.
The U.S. has consistently challenged Huawei’s research and development, and expansion into new regions. This started with former President Trump’s sanctioning of Huawei in a bid to win the 5G development war. Since then, the U.S.’ concerns with Huawei have grown beyond international competition.
The largest issue is the close relationship that Huawei has with the Chinese Communist Party (CCP), which is on par with the state-owned enterprise COSCO which has been a pseudo-intelligence network for the CCP. The possibility that networks set up by Huawei would be used to spy on local governments, businesses, and citizens is of grave concern to the U.S.
Washington has long suspected Huawei’s ability to spy on and disrupt local networks if coerced by Beijing, though Huawei has consistently denied these claims. However, the U.S. has been gathering intelligence to prove this. National security adviser Robert O’Brien stated, “We have evidence that Huawei has the capability secretly to access sensitive and personal information in systems it maintains and sells around the world.”
The ability of Huawei and Beijing to spy on and potentially disrupt the highly sensitive and critical oil fields of Saudi Arabia could be disastrous on a global scale. It could also be potentially used to prevent Saudi Arabia from ever ceasing oil export to China, who is not able to produce enough energy domestically to fulfill demand. Additionally, it could also be used to coerce Saudi Arabia into finally selling oil in the Renminbi.
Paying for Oil in Yuan
One of Xi Jinping’s highest priorities for traveling to Saudi Arabia was to begin the purchase of oil in Renminbi (Yuan) instead of the U.S. dollar (USD). However, Xi Jinping left without a deal that encompasses this wish. Saudi Arabia stated that they would be interested in receiving Yuan for oil on a small scale but are unwilling to completely accept the currency yet. The main reason being currency exchange risk, but it is also likely that Saudi Arabia does not want to overtly antagonize the U.S.
After the U.S. left the gold standard in 1971, the USD has been reliant on the Petrodollar to maintain its value as a reserve currency. The Petrodollar is an agreement with Saudi Arabia to sell crude oil in the USD. This is one of the reasons that the USD is a global reserve currency today, making it a key focus point for the U.S. to maintain the Petrodollar.
Should Saudi Arabia ever allow China to solely exchange Yuan for oil then the USD could be destabilized as a global reserve currency and allow for the Yuan to compete against the USD. Following through with China’s desire to make the Yuan a global reserve currency itself. However, this would greatly anger the U.S. and endanger its relationship with Saudi Arabia.
However, should Saudi Arabia ever accept Yuan for oil exchange, then the U.S. would likely retaliate against the Gulf State. The largest detriment for Saudi Arabia would be the loss of U.S. military protection from Iranian aggression.
While the comprehensive strategic partnership and other agreements between China and Saudi Arabia have the U.S. concerned over China’s growing influence in the region it is unlikely that the U.S. will overreact to this. The most distressing agreement for the U.S. was the memorandum with Huawei, which already has an entrenched presence in the region.
The U.S. is already under significant pressure to review its relationship with Saudi Arabia following this energy crisis, Saudi Arabia’s rumored support of Al-Qaeda, and human rights abuses in the killing of a U.S. based journalist. Members of the U.S. Congress have also proposed a ban on arms sales to Saudi Arabia to address these issues. Ultimately, Xi Jinping’s visit will put more pressure on the U.S. to change this relationship.