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Saudi Arabia and Pakistan

March 4, 2019

Saudi Arabia and Pakistan

Recent Investment Agreements between Pakistan and Saudi Arabia

 

The bilateral ties between Pakistan and Saudi Arabia have been very strong over the decades with very few disruptions. Historically, the presence of around 2 million Pakistani expatriates living and working in Saudi Arabia, sending remittances back home, has been an important dimension of indirect economic relations between both nations. These ties have recently received a significant boost after the visit of the Saudi Crown prince, Muhammad Bin Salman (MBS), to Pakistan.

This high-level diplomatic visit is set to pave the way for significant Saudi investment in Pakistan. Prior to visiting Pakistan, MBS had already announced that he would invest more than $20 billion in Pakistan in various projects such as petrochemicals, power generation, and mining. The package also includes $3 billion in immediate balance of payments support. The Saudis have also signed a pact with Pakistan to provide the latter with crude oil and other petroleum products on delayed payments to meet its energy needs. Moreover, in what seems to be an attempt to win the hearts and minds of Pakistani people, MBS also announced that more than 2000 Pakistani prisoners incarcerated in Saudi Arabia would soon be released.

 

Scope and Importance of Saudi Investment in Pakistan

The timing of the Saudi investment in Pakistan is momentous. The country has been in the throes of acute economic problems. Pakistan’s already low official foreign exchange reserves have fallen to 7.7 billion dollars, deepening the economic crisis in the country. Ever since he took office, Imran Khan has applied an austerity program while pleading for financial support from friendly nations. Pakistan’s deteriorating economy has recently been downgraded by S & P from B to a B-.

The Saudi investment in Pakistan targets the country’s key emerging sectors. Riyadh says it wants to set up a $10 billion oil refinery in Pakistan’s deep-water port of Gwadar with the help of China. The Saudi Energy Minister, Khalid al-Falih, had told a group of reporters earlier in January that Saudi Arabia wanted to make Pakistan’s economic development stable by establishing an oil refinery and partnership with Pakistan in the China-Pakistan Economic Corridor. A potential pipeline from Gwadar to China is likely to cut the oil supply time from the current 40 days to merely 7 days. Beijing has already pledged to channel $62 billion into Pakistan-China economic corridor as part of its “Belt and Road Initiative”. Saudi Arabia has been investing in projects related to refinery development and petrochemicals across the globe in order to secure and sustain long-term buyers.

 

Geopolitical Implications

After tense relations with the West and Middle Eastern countries such as Iran, Turkey and Qatar, the Saudi crown prince has been calculating his steps as he launches his investment drive to the East, engaging  with Pakistan, India, and China. The investment promises in Pakistan comes at a time of heightened tensions between New Delhi and Islamabad. Although Riyadh and Islamabad enjoy deep ties, MBS has chosen to hedge his bilateral relations with India as well. In fact, Saudi Arabia also has also signed major strategic energy deals with New Delhi, where demand for oil is growing fast. In April, the Saudis signed a $44 billion deal to build a huge refinery and petrochemicals complex in India. Moreover, despite the perennial Saudi-Iran rivalry in the Middle East, Saudi Arabia has not reacted to India’s major investments in Iran’s Chabahar port, which is set to be a key supply route between Afghanistan and India, bypassing Pakistan.

Strategic hedging define Saudi investment expansion to the East.

 

Vahid Yucesoy for iStrategic