Will a Saudi Arabia-China Alliance Catalyse a Shift in the Global Petrochemical Landscape?

Saudi Aramco, the national oil behemoth of Saudi Arabia, has committed to substantial investments within the Chinese petrochemical sector. This development is not only a testament to the strengthening ties between Saudi Arabia and China but also a potential game-changer in the global petrochemical market.

The announcement of these investments was made amidst the backdrop of Aramco's record-breaking profit exceeding $160 billion in 2022. Moreover, it underscores the progression of Saudi Arabia's foreign policy as it continues to deepen relations with Beijing, a shift that is especially noteworthy given Riyadh's longstanding alliance with Washington.

A central part of Aramco's multi-billion dollar investment is a 10% stake in Rongsheng Petrochemical Co. Ltd., a deal worth around $3.6 billion. Alongside this equity investment, Aramco has committed to a long-term supply agreement with Rongsheng affiliate, Zhejiang Pettroleum and Chemical Co. Ltd. As per the agreement, Aramco will provide 480,000 barrels per day to this company, the owner and operator of China's largest refining and chemicals complex.

Aramco executive vice president, Mohammed Al Qahtani, expressed his confidence in the venture, saying, "This announcement demonstrates Aramco’s long-term commitment to China and belief in the fundamentals of the Chinese petrochemicals sector." He further added, "It also promises to secure a reliable supply of essential crude to one of China’s most important refiners.”

In addition to the Rongsheng investment, Aramco has also announced plans to develop a new refinery and petrochemical complex in northeastern China via a joint venture. With a 30% stake in the Huajin Aramco Petrochemical Company, Aramco is slated to supply 210,000 barrels per day of crude to this new facility.

These investments come at a time when Saudi Arabia is forging stronger ties with both Russia and China. Recently, Saudi Arabia and Iran reconciled their diplomatic relations, broken since 2016, in a deal facilitated by Beijing. Interestingly, this diplomatic rapprochement coincided with Riyadh's announcement of a significant contract with U.S. aircraft manufacturer Boeing for commercial planes.

The burgeoning relationship between Saudi Arabia and China, coupled with the substantial investment by Aramco in China's petrochemical industry, highlights a potential shift in the global petrochemical market. Aramco's moves not only demonstrate its intention to diversify its international partnerships but also its determination to adapt to the changing dynamics of the global energy landscape.

These investments may well serve to strengthen China's position in the petrochemical sector, making it an even more significant player on the world stage. At the same time, they offer Saudi Arabia an opportunity to expand its influence and economic reach outside its traditional alliances.

Such developments could signal the beginning of a new chapter in the global petrochemical industry. With Saudi Arabia and China further intertwining their petrochemical interests, the repercussions are likely to reverberate across the global energy markets. Only time will tell if this alliance will indeed reshape the contours of the global petrochemical landscape.