Investments and business alliances from the Gulf are moving to the East faster than expected, which is a shrewd reaction to global economic and geopolitical changes. The Asian economies, particularly China and India, are increasingly dependent on Gulf Arab oil and petrochemicals products.
China, for example, imports 25 per cent of its total petrochemical needs from the Gulf, and the country’s exports to the GCC are rapidly heading to the top of the list of top 10 exporters.
The Gulf interest in Asia is nothing new and dates back to the 1970s, but recent alliances have taken on a completely different path. Gulf investments used to be relatively modest and country-specific.
In the second half of this decade, there have been strategic Gulf approaches with longer term prospects. The GCC measures taken in this regard were much needed and responsive to geopolitical changes.
We can refer to some of these measures and which will have huge consequences on the Gulf and Asian regions. Last June, Adnoc and Saudi Aramco signed an agreement with India to build a petrochemical complex and oil refinery on the west coast of India at $44 billion. The two Gulf entities will have 50 per cent stake in the refinery while the remaining will be held by Indian companies. In addition, Aramco launched a new company under the name of Aramco-Asia.
In China, the Kuwait Petroleum Corporation (KPC) is implementing a $9 billion petrochemical complex and a $9 billion oil refinery in the Guangdong region. KPC also cooperates with the UK headquartered BP to carry out major energy projects in China.
Oil and gas companies in Asian countries are seeking to invest in the Gulf’s energy industry. In July last, China’s CNPC signed an agreement with Adnoc to explore oil and gas prospects in the UAE.
In addition, there are huge reciprocal investments in infrastructure, financial services and manufacturing in these three Gulf States, in addition to Bahrain and Oman. Such developments are likely to create a new economic and geopolitical reality, and one that requires both regions to be inter-dependent.
This means a possible cooperation in other areas as well. It will even enhance the position of Gulf states in China’s “Belt and Road Initiative”, a 21st century version of the original Silk Route.
Such strategic partnerships will help transform Gulf states into one of the most important players of this huge Chinese project, expected to have an allocation of $2 trillion in the long run.
As a result of changes going on across global energy markets, these partnerships will provide guaranteed markets for Gulf oil exports. Large refineries in China and India, as well as other Asian countries, will mainly depend on Gulf crude. The planned petrochemical plants will also have wide market access by virtue of the dependence of Asian agricultural sector on products from these factories, including fertilisers and other petrochemical products.
This comes at a convenient time following changes taking place in the energy markets across Europe and North America. Western Europe largely depends on Russian energy sources, especially gas, which provides about 40 per cent of their needs. This is in addition to the significant rise in oil shale and shale gas production in the US.
With these transformations, Gulf partnerships with the West will continue to thrive and in strategically vital sectors such as trade, technology and financial services.
It will also cover the manufacturing sector in all its forms, including defence, which means striking a balance in the GCC’s relations with key global powercentres, and giving them more flexibility to promote their interests worldwide.
Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.