Saudi Arabia’s new energy diplomacy

There has been no shortage of news about Mohamad Bin Salman, more commonly known as MBS, the 35-year crown prince of Saudi Arabia. A controversial figure, he has been hailed as a reformer, but also criticized for corruption and human rights abuses. He came to power at a time when Saudi Arabia’s geopolitical prowess as an energy giant may be threatened by the energy transition. This year, Saudi Arabia has embarked on a massive diplomatic effort to set itself up for success in a world inching towards clean energy, but still grappling with energy security, independence and resilience issues brought on by recent conflicts like the Russian war of aggression in Ukraine. Among many of the many topics on MBS’s desk are: how will Saudi Arabia fare in a post-oil world? MBS’s diplomatic moves of the past few months may signal the future direction of MBS’s energy diplomacy. Joelle Thomas reports.

Credits: Sergio Russo | Flickr, CC BY-SA 2.0.

One of his first moves is replacing oil export with clean energy export. MBS took his first trip outside of Saudi Arabia since 2019 this summer, to visit France and Greece. During these visits, the two countries committed to enhancing their energy collaboration with Saudi Arabia through the import of clean energy and knowledge sharing. Via its recent Memorandum of Understanding (MoU) with Greece, Saudi Arabia has created a “Supreme Strategic Cooperation Council”– a new institution aiming to strengthen business ties between Greece and Saudi Arabia in economic areas, including green energies and hydrogen. In terms of green energy, the MoU states have a shared interest in exporting renewable energy from Saudi Arabia to Greece through grid connections (a very significant capital project), which would allow Greece to in turn benefit from exporting renewable electricity across Europe. Saudi Arabia also strives to build a partnership with Greece as a green and “low carbon” hydrogen anchor partner.

In France, the clean energy cooperation with Saudi Arabia is based on similar principles (renewables and hydrogen export from Saudi Arabia to France). The two countries released a joint statement expressing their interest in cooperating, but no MoU was signed. However, the meeting between Macron and MBS is still significant, especially since France already signed a strategic cooperation with the United Arab Emirates – Saudi Arabia’s neighbor with similar natural resources. This agreement—also signed in July of this year, aims to identify co-investment opportunities in France and Saudi Arabia related to hydrogen, renewable energies, nuclear (as the UAE operates the regions only nuclear power plant) as well as carbon capture and storage.

MBS’s second move is to cooperate on a research and skills transfer. This is significant for two reasons. First, “clean energy” – whether renewable electricity or green hydrogen, is much harder and more expensive to export than oil or gas at the moment (and is expected to be for the next 10 years at least). Scaling these nascent technologies will take investment and effort. Second, Saudi Arabia is aggressively aiming to diversify its economy away from oil and gas. Per its Vision 2030, it strives to grow “non-oil” sectors, including retail, manufacturing and mining. With 40% of its GDP depending on oil and oil-based products, green energy is another puzzle piece in a future, diversified economy. Aramco (Saudi Arabia’s state-owned oil company) recently announced a 1.5 billion USD sustainability fund (making it one of the largest sustainability funds globally). This fund achieves this dual purpose of bringing capital to develop new skills and building up new sectors of the economy, including carbon capture and storage, hydrogen and other net-zero fuels.

While these efforts undoubtedly steer Saudi Arabia in the right direction, there is plenty of evidence to suggest that Saudi Arabia’s position as the leading swing oil producer will remain a valuable asset in its foreign policy. In the words of Minister of Energy Abdulaziz bin Salman “We are still going to be the last man standing, and every molecule of hydrocarbon will come out.” At the COP27 conference, he added “I believe Saudi Arabia will be a producer of hydrocarbons even by the end of the 21st century. The world needs all sorts of energy.” Old habits die hard.

This positioning as the “last man standing” is MBS’s third move. It may not be a new one, but it sends a strong signal that the old guard of pumping oil and gas is not going out of fashion any time soon. Saudi Arabia’s position as one of the world’s leading oil producers has always been at the center of its foreign policy, as Saudi Arabia has aligned itself with allies that would bolster demand for Saudi’s oil. Even the origin story of Saudi Arabia’s strong relationship with the United States—the petrodollar – is based upon the US committing to purchasing Saudi oil for the long-term, in exchange for the barrel oil being sold in dollars. A more recent example is Saudi Arabi’s relationship with Russia; this past year, Saudi Arabia committed $600 million to Russia’s three oil and gas majors – Rosneft, Gazprom and Lukoil. While Russian oil faces embargoes around the world, Saudi benefited from a strategy importing Russian oil for its power plants and freeing up more of its supply for international export. This deal is at the center of Saudi Arabia’s relationship with Russia, and just the latest in a string of examples that its foreign policy is dictated by oil demand. Even the MoUs signed the summer are reminiscent of oil diplomacy. In the MoU between Saudi Arabia and Greece, the two countries agreed to boost cooperation on the trade exchange of crude oil, petroleum products, and petrochemicals.

Saudi Arabia continues to play the energy transition opportunistically – forming alliances and seeking funding for the long-term, while holding steadfast to its leadership position in the oil economy. Yet Saudi Arabia would do well to accelerate its transition. With a net-zero target set for 2060, the Kingdom is well behind other nations it considers peers. This lack of urgency could translate to missed opportunities. With peak oil looming, Saudi Arabia would do well to consolidate its competitive advantage in green energies sooner rather than later, especially as the green energy space is crowded with United Arab Emirates, Australia, Chile, and other countries already launching green energy export projects.  Its ambitious goals to grow and diversify the economy mean no time should be wasted, especially given the need of creating and training a new workforce to support this economy. Continuing to base most of its foreign policy decisions, allegiances, and even internal programs on oil and oil-based products only dampens the culture of innovation that MBS strives to bring to his country.

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Joelle Thomas is an energy transition consultant based in Paris, France. She has spent the last ten years advising governments on topics at the intersection of energy and economic development across the United States, Middle East, Europe and Africa. Views expressed are her own.

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