These patterns confirm the strong interdependencies that are emerging between the Middle East (especially the Gulf region) and Asia (especially China) in the oil sector. But this encompasses much more than the simple export of Middle East crude to Asia – rather, it is a process involving a considerable increase in cross-regional investments between the two regions. These investments come from both the large Gulf and Asian NOCs, as well as major privately owned conglomerates located in both areas. Through these flows of capital, there is an extensive intermeshing of all steps in the oil value chain: refining, petrochemical production, and the onward circulation of oil products to the consumer. As such, Gulf hydrocarbon interests are embedded inside Asian production networks, and vice versa. At the political level, these linkages have also been accompanied by the development of much closer ties between the two regions, represented in a raft of recent bilateral agreements, high-level governmental visits, and various other diplomatic initiatives.
To get a clearer picture of these capital flows and their implications, it is essential to look at all aspects of the hydrocarbon circuit – upstream, downstream, and activities such as transportation, drilling, storage, and the laying of pipelines. Across these oil-related activities, China made more than $76 billion in outward investments globally between 2012 and 2021.33 The first phase of these Chinese investments (2012–2016) followed the announcement of the Belt and Road Initiative (BRI), and focused mainly on North America, Western Europe and Russia/Central Asia. Following 2016, however, there was a substantial reorientation in Chinese overseas oil investment. Between 2017 and 2021, more than 30 percent of Chinese investments in oil-related activities went to the Middle East region, greater than any other world region and a five-fold increase in the Middle East’s relative share compared to the 2012–2016 period.
This investment has given Chinese firms a prominent role in oil-related industries across the Middle East. In the UAE, for example, Chinese firms are leading partners of the state-owned Abu Dhabi National Oil Company (ADNOC), and hold major stakes in onshore and offshore oil fields. In Iraq, a privately owned Chinese firm now operates one of the largest oil fields in the world, the ‘supergiant’ Majnoon oil field. And in Kuwait, a subsidiary of the Chinese oil firm Sinopec has become the largest oil drilling contractor, controlling 45 percent of drilling contracts in the country. The largest deal involving China’s participation in the Middle East oil sector was finalised in 2021: this concerns Chinese participation in a multinational joint venture (JV) that owns a 49 percent equity stake in Aramco Oil Pipelines Co., a company that will have rights to 25 years of tariff payments for oil transported through Aramco’s crude pipeline network in Saudi Arabia.
At the same time as this influx of Chinese investment into the Middle East is taking place, the Gulf states have become the primary foreign presence in the Chinese oil sector, through numerous JVs with Chinese entities. These projects aim to secure market share for the Gulf’s crude exports and include refineries, petrochemical plants, transport infrastructure, and fuel marketing networks. An important example of this is the Sino-Kuwait Integrated Refinery and Petrochemical Complex, a 50:50 JV between Sinopec and Kuwait Petroleum Corporation that is the biggest refinery JV in China, incorporating within it the country’s largest petrochemical port (completed in May 2020). Both the refinery and port are viewed as an integral component of China’s BRI, enabling China to import crude oil from the Gulf to manufacture fuels and other basic chemicals that are then exported to neighbouring Asian countries. For its part, Saudi Arabia’s significant presence in China is evident through several large JVs between Saudi Aramco and Chinese firms in the refining and petrochemical sector, as well as a network of over 1,000 service stations in Fujian province, which was the first province-level fuel retail JV in the country. These partnerships involve both Chinese NOCs, such as Sinopec, as well as leading privately owned refining companies in China (which control around 30 percent of China’s crude refining volumes). Qatar is also a prominent Gulf investor in China’s energy sector, focusing particularly on securing markets for its liquefied natural gas (LNG) exports.
This expansion of the Gulf’s hydrocarbon industry into China is part of a broader involvement by the Gulf states in the oil-related sectors of other Asian countries. Indeed, between 2012 and 2021, nearly half of all foreign investments from outside of Asia (by value) into Asian oil-related assets came from the Gulf, including the four largest deals during this period.34 Through these investments, Gulf firms have sought to expand their production of refined oil products and basic chemicals within Asia itself (utilising crude feedstocks imported from the Gulf), which are then circulated within Asia by the trading arms of Gulf firms. Key regional targets for this downstream diversification of Gulf oil firms are South Korea, Singapore, Malaysia and Japan. Across these four countries – which each possess established industrial capacity that is often closely linked to the accumulation of domestic capitalist groups – Gulf firms have fully or partially acquired leading companies, and have also undertaken other kinds of partnerships, such as JVs.
Unsurprisingly, the chief Gulf firm in this respect has been Saudi Aramco, which now has a notable presence in key Asian states. In 2015, for example, Saudi Aramco acquired control over the South Korean firm S-Oil, which is the third largest refining company in the country (with about 25 percent market share) and which operates the sixth largest refinery in the world (located in Ulsan, South Korea). This acquisition enabled S-Oil to expand its petrochemical capacity in Korea, and the firm is now a top producer of various refined fuels and basic chemicals that Saudi Aramco’s regional trading arm (Aramco Trading Singapore) then exports to other Asian countries. Also in South Korea, Saudi Aramco became the second largest shareholder of Hyundai Oilbank in 2019, following the purchase of 17 percent of the company’s shares. Hyundai Oilbank is the fourth largest refining company in Korea, and is majority owned by the Hyundai industrial conglomerate. In Malaysia, Saudi Aramco is currently building a refinery and petrochemical plant that is projected to be the largest downstream petrochemical plant in Asia upon completion; the project is a 50:50 JV with the Malaysian NOC Petronas. And in Japan, Saudi Aramco became the second largest shareholder in Idemitsu Kosan in 2019 – the firm is the number two refiner in Japan, controlling roughly one-third of the domestic oil products market through six refineries and a network of 6,400 retail service stations.