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Economic Partnership Between Saudi Arabia and China Challenges American Hegemony and Changes the Geopolitical Landscape in the Middle East. Understand How the Agreement Disappointed the US and Reconfigured Global Relations.
Recently, relations between Saudi Arabia, China, and the United States have undergone a phase of transformation. The US, which for decades maintained a strategic partnership with Saudi Arabia, is now facing a troubling situation. The strengthening of ties between Saudi Arabia and China, exemplified by new economic and trade agreements, has left the US disappointed and concerned about the geopolitical implications of this shift. Continue reading to learn more about the agreement between Saudi Arabia and China and why the US is disappointed.
The New Agreement Between Saudi Arabia and China
Saudi Arabia and China have intensified their cooperation on various fronts, from signing memorandums of understanding worth 50 billion dollars to implementing trade pacts. These new agreements are part of a broader strategy by Saudi Arabia to diversify its economic partnerships, in line with the Vision 2030 initiative, which aims to reduce oil dependence and expand the country’s economy into other areas. For the US, this shift towards China is seen as a direct threat to its economic and geopolitical interests.
The recent agreements between Saudi Arabia and China, especially in the energy sector, have significant potential to reshape the global economic landscape. Saudi Aramco, the Saudi oil giant, has expanded its investments in China, establishing itself as a key supplier of crude oil to the Asian country. The partnership has deepened with the goal of promoting oil trade in Yuan, a move that challenges the dominance of the US dollar in global oil markets.
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Additionally, the volume of trade between China and Saudi Arabia continues to grow rapidly. In 2023, bilateral trade reached approximately 24.3 billion dollars in the first quarter alone, including 13.7 billion in Saudi exports, primarily crude oil. This flow of capital underscores the robustness of the economic relationship between the two countries, and the trend is expected to continue in 2024, with considerable growth in exports and imports between the nations.
US Is Disappointed With the Change in Course
The US has expressed its disappointment with Saudi Arabia due to the strengthening of the country’s relations with China. American concerns are twofold: on one hand, they fear the transfer of critical technologies and infrastructure to China; on the other, there is worry that the growing interdependence between Saudi Arabia and China will weaken US influence in the Middle East.
Despite Secretary of State Anthony Blinken’s assertion that Washington is not demanding Saudi Arabia choose between the US and China, Saudi actions suggest a clear preference for deepening ties with the Asian giant. This pragmatic approach by Saudi Arabia reflects its quest for new economic opportunities without feeling constrained by traditional alliances.
Currency Swap Agreement and Dedollarization
One of the most significant steps in this new alliance was the currency swap agreement between China and Saudi Arabia, valued at 7 billion dollars. This alliance allows the two countries to settle trade transactions using their local currencies, the Chinese Yuan and the Saudi Riyal, without the need for conversion to US dollars. This is a strategic move within the so-called “dedollarization”, an initiative aimed at reducing reliance on the US dollar in international trade.
This agreement is particularly symbolic, given Saudi Arabia’s status as the world’s largest oil exporter and China’s position as the largest energy consumer. Dedollarization could have profound implications for the global economy, challenging the supremacy of the dollar as the world’s reserve currency and potentially leading to increased inflation and interest rates in the US.
The End of the Petrodollar Agreement: A Blow to the US
In addition to the new agreement with China, the Saudis have also unsettled the US by ending the historic petrodollar agreement, which had been in place since 1974. This agreement required Saudi Arabia to sell its oil exclusively in US dollars in exchange for military and economic support from the US. With the termination of this agreement in June 2024, the country can now sell oil in multiple currencies, including Yuan, euros, yen, and even digital currencies.
This change is significant because it could further weaken the dollar’s dominance in global energy markets. The decline in global demand for the dollar could have economic repercussions for the US, including the possibility of rising inflation and interest rates, along with a weaker bond market.
Geopolitical Implications and the Future of the Sino-Saudi Partnership
The strengthening of the agreement between Saudi Arabia and China has implications that go beyond the economy. The Asian country has increased its influence in the Middle East, not only through economic investments but also by taking on a mediating role in regional politics, as demonstrated by the facilitation of the diplomatic rapprochement between Saudi Arabia and Iran in 2023.
Meanwhile, the US faces the challenge of reevaluating its position and strategy in the Middle East, a region that has always been considered crucial to its geopolitical interests. The new global landscape, where emerging economies like China gain more prominence, demands a strategic response from the US to maintain its influence.
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