By Supporting China, Saudi Arabia Risks Secondary Sanctions

Chinese leader Xi Jinping shakes hands with Saudi Arabia's King Salman bin Abdulaziz Al Saud during a signing ceremony at the Great Hall of the People in Beijing on March 16, 2017. Lintao Zhang/Pool/Getty Images

Commentary

Saudi Arabia was China’s biggest oil supplier in April, according to the latest data released on May 20. China’s oil imports from the kingdom rose 2.9 percent year-to-date.

Saudi oil imported into China in April totaled 8.46 million tons (2.06 million barrels per day). This exceeded the 7.12 million tons imported from Russia and 4.72 million tons from Iraq.

In exchange for its oil, the Saudis are increasing arms imports from China. While the United States has been Saudi Arabia’s biggest source for military materiel in the past, that supply is tenuous because of continued Saudi human rights abuse, unreasonable restriction of Saudi oil supply last year during an energy-fueled rise in inflation, and Riyadh’s reorientation of oil exports to China.

As the kingdom worries about the risk of Western sanctions or retaliation for the above, it seeks other energy importers. Beijing, as another authoritarian state accused of human rights abuse, is a natural match.

Late last year, Riyadh reportedly purchased $4 billion worth of arms from China, more than any prior arms deal with Beijing.

The Saudis are currently negotiating with Beijing about additional imports of armed drones and air defense systems, according to a report this month. One concession by Riyadh is likely to be a denomination of the arms deal in yuan rather than dollars, a key demand of the Chinese Communist Party (CCP) as it seeks to degrade the dominance of the U.S. dollar in the international trading system.

Unlike Washington, Beijing reportedly does not take into account Riyadh’s human rights abuse when selling weapons to the kingdom. Indeed, the CCP has provided diplomatic cover to various countries with horrific human rights practices and a record of stealing territory or political power from neighboring populations.

Their abuses trigger Western sanctions and reorient economies like Russia, North Korea, Iran, Venezuela, and Burma (Myanmar) away from Western trading networks and toward those of China. Beijing can exploit their desperation by importing their goods more cheaply and exporting to them at higher than market rates.

Sanctions against these countries may be necessary, but they also provide Beijing with captive import and export markets, improving China’s trade balance on both accounts. The approach perfectly fits the CCP’s goal to become a global hegemon, including through economic domination of world trading systems.

Now, Beijing is trying to add Saudi Arabia to its stable of rogue nations, which could cut off the kingdom’s other options for the sale of energy to Europe and North America. The result will be lower energy prices for Saudi Arabia, as experienced by Russia and Burma, both of which are forced to sell to China because of international sanctions and exclusion from other markets.

A Chinese-made Wing Loong II drone on display during the 2017 Dubai Airshow on Nov. 14, 2017. Karim Sahib/AFP via Getty Images

According to a former People’s Liberation Army (PLA) instructor quoted by the South China Morning Post, “China is willing to sell hi-tech weapons equipment to friendly nations without political terms, which I think is the main appeal to the Middle East.”

However, the CCP’s political terms do exist. They are just different. Beijing has used trade restrictions as a political weapon against countries like Lithuania, Australia, New Zealand, and the Philippines. China prefers to do business with countries that mirror the interests of the CCP, whether to derecognize Taiwan, relinquish rights to the South China Sea, or stay silent about the CCP’s responsibility for the COVID-19 pandemic.

Engagement with countries in the BRICS network (Brazil, Russia, India, China, and South Africa) is favored by China, which is attempting to pull Saudi Arabia in as a member of some of its institutions.

Saudi Arabia is in talks to join the BRICS Bank, also known as the New Development Bank, according to a May 27 report. The BRICS Bank, headquartered in Shanghai, is part of a CCP attempt to eclipse the Western-led Bretton Woods system established after World War II. These Western international financial institutions include the World Bank and the International Monetary Fund, both headquartered in Washington. They tend to support human rights and transparency, and provide development funding at better rates for loan recipients, than those offered by Beijing in its opaque agreements.

Given Moscow’s invasion of Ukraine and Russian funding of the BRICS Bank as a founding member with a 19 percent stake, engagement with the organization could lead to secondary sanctions on its membership, including Saudi Arabia should it choose to join. Saudi Arabia’s increasing ties to China and Iran could also lead to secondary sanctions on the kingdom.

All of these countries are notorious human rights abusers, and their increasing association with Riyadh will only hurt Saudi Arabia’s image abroad and good reputation as a Western ally.

Iran is seeking a nuclear weapon, and China wants to take Taiwan with force if necessary. Either eventuality could lead to war, secondary sanctions on Saudi Arabia, and a permanent decrease in oil revenues and market share for Saudi producers, including Saudi Aramco.

Investors are increasingly wary of China, and Russia is now a pariah state. If the Saudis join this band of thieves, they will be treated accordingly. Investments in Saudi Arabia would be at risk.

Even the Saudi government is considering selling off billions of dollars more of Aramco stock, according to a May 22 report. Naive international investors should complete their due diligence with the utmost care. Money talks and Saudi consideration of share sales of a key Saudi company do not project confidence.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.