M.E Times - 26/4/2006
China's quest to set up a strategic oil reserve fed by Saudi Arabia is a logical extension of growing ties based on mutual need between the two nations, analysts said on Tuesday.
The relationship between Beijing, which is looking for secure oil supplies to fuel its economic growth, and the world's top crude exporter has a mainly economic agenda and should not be overly politicized, they said.
"Saudi Arabia's position on the Chinese proposal to set up the oil stockpile has been that it does not oppose it in principle, but it has to make economic sense, and the burden of proof of its feasibility is on the Chinese," Saudi economist Ihsan Bu Hulaiga said.
A Chinese official said that the proposal was discussed during a weekend visit by President Hu Jintao to Saudi Arabia, which came just three months after Saudi King Abdullah paid a landmark visit to Beijing.
Some 100 million barrels of oil - roughly 10 days' worth of Saudi oil output - would be stockpiled in the reserve, Bu Hulaiga said.
Although there is a "political element" in the Sino-Saudi rapprochement, "the agenda now is economic ... The two countries need each other," he said.
Beijing wants energy to carry out its "ambitious development plan, and few countries can compete with Saudi Arabia in providing continuous oil supplies", Bu Hulaiga said.
Saudi Arabia for its part seeks to upgrade its infrastructure in order to generate economic growth, which translates into mega projects.
"For that, the right address is the Chinese companies. What we see as big [projects], they see as small," Bu Hulaiga said.
China plans to fill the first of its strategic oil reserve facilities by year's end, a senior planning official said in March, adding that three other reserves would be ready in 2007-2008.
Said Al Shaikh, chief economist at the Jeddah-based National Commercial Bank, said that the benefits of setting up a Saudi oil reserve in China would "certainly be mutual".
China "is keen on securing energy resources to sustain the economic growth it has been generating for a number of years, and building an oil reserve would be a strategically important move in order not to run through shortages", he said.
The proposed reserve would also be important for Saudi Arabia, which is already Beijing's biggest oil supplier, because "it would maintain a certain level of demand" for crude, Shaikh said.
US President George W. Bush said earlier this year that he wanted to reduce US imports of Middle East oil by 75 percent by 2025, arguing that "America is addicted to oil, which is often imported from unstable parts of the world".
If the United States aims to lessen its reliance on Middle East oil while China's reliance on oil is increasing, it would make sense for Saudi Arabia to enhance its relationship with Beijing in order to help the Saudi economy to grow, Shaikh said.
"I see the [Sino-Saudi] relationship more in the economic sphere," he said.
Shaikh said that while Riyadh has traditionally had good relations with Washington and other Western countries, it has been trying to "balance" its ties by reaching out to economic powers like India and China.
The Chinese president arrived in Saudi Arabia from the United States and oversaw the signing of a series of deals with Riyadh, including one for the supply of unspecified defense systems.
"China is a military power, it can sell Saudi Arabia weapons," said Valerie Marcel, an energy security specialist at the Royal Institute for International Affairs in London.
While China "falls well short of being able to defend Saudi Arabia", Riyadh's rapprochement with Beijing "is perhaps a strategy to remind the United States that its future is not completely dependent" on Washington, she said.
Paris-based oil expert Pierre Terzian saw an "implicit" message in the timing of the talk about a strategic oil reserve, given that Washington has been saying "at the highest level that it will do everything it can to live without Saudi oil".
But he saw nothing sinister in the communist government's interest in Saudi oil. "Where [else] would China buy its oil?" he asked.