Riyadh Look to Asian Trade; a Series of Multibillion Dollar Agreements between Saudi Arabia and Pakistan, China and India, Have Given New Impetus to the Kingdom's Economic Strategy and Helped It Avoid Opening Up Its Economy to Western Domination

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THE RATE OF MULTIBILLION dollar investment by Indian and Chinese firms into the Middle East over the past two years has been impressive. Now, in an effort to improve energy security in their respective nations, state-owned oil and gas companies in each country have invested in both upstream and gas processing ventures. To date the bulk of trade has been from China to Saudi Arabia. However, there are indications that investments are beginning to flow more strongly in the opposite direction, as the kingdom seeks to build on growing ties with the rest of Asia and also to diversify its portfolio of overseas investments; a series of oil export deals with Asian countries are expected to be signed during the course of 2006.

This month, a delegation of Saudi business leaders will visit Pakistan in order to discuss a raft of investment opportunities in sectors including IT, property, telecoms and tourism, while contracts on infrastructural development are also likely to be drawn up. Pakistan's prime ministerial adviser on finance, Salman Shah, commented: "We see avenues for greater Saudi investment--worth billions of dollars--in Pakistan. This additional Saudi capital will be flowing into Pakistan as a result of strengthening political and economic relations between the two countries."

As a precursor to the planned foreign direct investment (FDI), a succession of bilateral arrangements have been agreed, including double taxation and duty deals. The fact that such arrangements, which are standard practice among trading nations, had not previously been drawn up indicates that trade between the two nations has previously been limited. At present, oil exports and the presence of over a million Pakistani workers in Saudi Arabia dominate economic ties between the two countries.

In addition to the non-oil projects under discussion, talks are expected to be held on a proposed oil refinery and improving Pakistan's gas pipeline infrastructure. As in the case of India, FDI in Pakistan is likely to be tied to bespoke oil supply deals. In order to cushion Pakistan from the high price of crude oil, a special financing arrangement (SFA) is being considered that would enable the country to import Saudi oil under a long-term deal at a slightly lower price. A long-term oil supply contract with India is also likely.

An earlier SFA was agreed between Saudi Arabia and Pakistan after most of the world's largest economies imposed sanctions on Islamabad in 1998 as a result of its nuclear testing. In an effort to build on its links with Saudi Arabia, Pakistan's minister of commerce, Humayun Akhtar Khan, hopes to conclude an FTA with all the Gulf Cooperation Council (GCC) countries. He noted: "If we sign that agreement, it will help us attract sizable investment from the Middle East."

As the world's biggest oil exporter, Saudi Arabia has also strengthened relations with the world's fastest growing oil importer. While on a visit to China in January, King Abdullah signed a wide-ranging energy sector deal with China's President Hu Jintao in Beijing. It will be up to state-owned companies in both countries to determine the details of the proposed areas of cooperation but officials revealed that the kingdom plans to develop petrochemical facilities in China, while Chinese firms will invest in Saudi gas projects. The visit was the first ever to China by a Saudi head of state and resulted in the implementation of a deal, first signed in 2004, which will allow Sinopec to explore areas of Saudi Arabia's Empty Quarter.

As with all such bilateral deals, there is a big difference between inter-government agreements and binding contracts. …