Saudi investments to aid cash-strapped Pakistan

A Pakistani vendor arranges his stall near vehicles covered with snow during a snowfall in Murree, some 65 km north of Islamabad, on January 5, 2019. (File/AFP)
Updated 17 February 2019

Saudi investments to aid cash-strapped Pakistan

  • At the heart of the investment is a reported $10 billion refinery and oil complex in the strategic Gwadar Port on the Arabian Sea
  • Riyadh and Islamabad, decades-old allies, have been involved for months in talks to hammer out details of the deals in time for the high-profile visit

DUBAI: A record investment package being prepared by Saudi Arabia for Pakistan will likely provide welcome relief for its cash-strapped Muslim ally, while also addressing regional geopolitical challenges, analysts say.
At the heart of the investment is a reported $10 billion refinery and oil complex in the strategic Gwadar Port on the Arabian Sea, the ultimate destination for the massive multi-billion dollar China Pakistan Economic Corridor, which lies not far from the Indo-Iranian port of Chabahar.
Two Saudi sources have confirmed to AFP that heir apparent to the Gulf kingdom’s throne, Crown Prince Mohammed bin Salman, will visit Islamabad shortly, without giving a date.
And a number of major investment deals are expected to be signed during a visit, officials from both countries have told AFP.
Riyadh and Islamabad, decades-old allies, have been involved for months in talks to hammer out details of the deals in time for the high-profile visit.
“The outcome of the talks so far has been very positive and this is going to be one of the biggest-ever Saudi investments in Pakistan,” a Pakistani senior finance ministry official told AFP.
“We hope that an agreement to this effect will be signed during the upcoming visit of the Saudi crown prince to Pakistan,” said the official, requesting anonymity.
The Wall Street Journal reported last month that both Saudi Arabia and the United Arab Emirates, Islamabad’s biggest trading partner in the Middle East, have offered Pakistani Prime Minister Imran Khan some $30 billion in investment and loans.

Riyadh investments

Riyadh investments are expected to provide a lifeline for Pakistan’s slumping economy which was downgraded in early February by S&P ratings agency from a B to a B-, Saudi economist Fadhl Al-Bouenain said.
“Saudi investment to Pakistan comes within an economic aid package aimed at relieving the stress of external debt and a shortage of foreign currency, besides boosting the sluggish economy,” Bouenain told AFP.
The OPEC heavyweight also aims to achieve strategic and commercial goals with investments in infrastructure and refinery projects, he said.
Saudi Arabia and its Gulf partner, the UAE, have already deposited $3 billion each in Pakistan’s central bank to help resolve a balance of payments crisis and shore up its declining rupee.
They have also reportedly deferred some $6 billion in oil imports payments as Islamabad has so far failed to secure fresh loans from the International Monetary Fund.
Khan has already visited Riyadh twice since taking office in July and in October attended a prestigious investment conference widely boycotted by other political and economic figures after the murder of journalist Jamal Khashoggi.
Khan also visited Saudi rivals Qatar and Turkey, as well as China seeking investments.
“One of the goals for Saudi Arabia expanding investments in refining worldwide is to secure market share and sustainable exports in the face of international competition,” Bouenain said.
Saudi Energy Minister Khalid Al-Falih visited Gwadar in January and inspected the site for the proposed oil refinery at the deep sea port, just 70 kilometers (45 miles) away from its Iranian competitor, Chabahar.
He was quoted by local media as saying the kingdom was studying plans to construct a $10 billion refinery and petrochemicals complex in Gwadar.

Petrochemicals projects

Like most oil suppliers, the world’s top crude exporter has been investing heavily in refinery and petrochemicals projects across the globe to secure long-term buyers of its oil.
A pipeline from Gwadar to China would cut the supply time from the current 40 days to just seven, experts say.
Developed as part of China’s Belt and Road Initiative with investments worth some $60 billion, Gwadar is being billed as a regional industrial hub of the future, easily accessible for Central Asia, Afghanistan, the Middle East and Africa.
“Pakistan needs a rich partner to enter as a third party besides China, capable of injecting needed cash,” Bouenain said.
But so far China has rejected other partners for the corridor that seeks to connect its western province Xinjiang with Gwadar, including Saudi Arabia and UAE, said James M. Dorsey, a senior fellow at Singapore’s S. Rajaratnam School of International Studies.
This is despite calls by Khan “for the Chinese investments to be restructured to include agriculture and job-creation sectors and not only in infrastructure,” Dorsey told AFP.
Any Saudi investment in Gwadar will also have geopolitical dimensions, Dorsey said.
Iran late last year inaugurated Chabahar which provides a key supply route to landlocked Afghanistan and allows India to bypass its historic enemy Pakistan.
India has seen Chabahar as a key way both to send supplies to Afghanistan and to step up trade with Central Asia as well as Africa.
But Riyadh is not expected to get involved in any Indo-Pakistani rivalry and the kingdom also has major strategic energy deals with New Delhi, where demand for oil is growing fast.
Indeed in April, the Saudis signed a $44 billion deal to build a huge refinery and petrochemicals complex in western India.


OPEC and its allies meet to discuss oil output cuts

Updated 06 June 2020

OPEC and its allies meet to discuss oil output cuts

  • The meeting, originally scheduled for next week, was brought forward to Saturday

VIENNA: OPEC and its allies were holding talks via video conference Saturday to assess their current deal to slash production as oil prices tentatively recover on easing coronavirus lockdowns.
The 13-member group and other oil producing nations such as Russia and Mexico are discussing an agreement reached in April to boost prices, which have plummeted over falling demand as countries around the world have imposed strict lockdowns to stop the spread of the new coronavirus.
The meeting, originally scheduled for next week, was brought forward to Saturday at the suggestion of Algerian Oil Minister Mohamed Arkab, who currently holds the rotating presidency of the Organization of Petroleum Exporting Countries.
Under the terms of the April agreement, OPEC and the so-called OPEC+ pledged to cut output by 9.7 million barrels per day (bpd) from May 1 until the end of June.
The reductions would then be gradually relaxed from July, with 7.7 million bpd taken off the market from July to December.
But at Saturday’s talks, crude producers were expected to discuss extending the 9.7 million bpd beyond June, even if agreement might prove difficult to reach.
The April deal was signed after days of wrangling between major players, whose revenues have been ravaged by the collapsing oil market this year.
“It seems very likely the May-June cuts will be extended by another month,” said Bjornar Tonhaugen, analyst at Rystad Energy.
Some market observers are expecting the cuts to be extended still further, possibly until the end of the summer or even until the end of the year.
Although more countries around the world are gradually moving out of lockdown, crude consumption has not returned to pre-confinement levels, which had already been comparatively low.
As in previous negotiations, discussions could prove particularly tense between Russia and Saudi Arabia, the deal’s two heavyweights who became involved in a short but bitter price war when previous talks broke down in March.
Mexico, which held up the April deal before it was eventually finalized, has also already ruled out any further drop in oil production with its president, Andres Manuel Lopez Obrador, saying on Friday his country “could not adjust our production further.”
Another major bone of contention could be the willingness of each country to abide by the agreed production quotas, suggested RBC analyst Al Stanton.
According to data intelligence company Kpler, OPEC+ reduced output by around 8.6 million bpd in May, a smaller cut than planned, with Iraq and Nigeria seen as the main culprits.
Nigeria’s Ministry of Petroleum Resources said in a tweet Saturday that it backed discussions to allow countries which failed to conform fully to the agreed cuts in May and June to make up for it in July, August and September
Despite the difficulties, the output cuts have helped support oil prices, which rose to around $40 per barrel at the start of June for both the US benchmark, West Texas Intermediate (WTI), and Europe’s Brent North Sea contracts.
Around April 20, both had slumped to historic lows, with Brent falling as low as $15 and WTI even entering negative territory.