ECONOMY

Obama’s presidency sees shift in US-Saudi trade ties

Saudi Arabia's Deputy Crown Prince Mohammad bin Salman seen shaking hands with U.S. President Barack Obama during the recent Washington visit. (Reuters)

President Barack Obama’s visit to Saudi Arabia this week highlights a shift in trade ties between the two allies since he took office seven years ago.

During Obama’s presidency, US annual exports to the kingdom have grown by over 80 percent, data published by the US Census Bureau shows. Meanwhile, Saudi exports to the US have roughly halved.

The dramatic shift is “largely due to the slump in oil prices and the US’s move towards domestic oil consumption,” said Yakir Gillis, an analyst at London-based business intel firm Alaco.

Despite Washington and Riyadh’s divergence over foreign policy in recent times - particularly over Iran’s nuclear deal – it is still very much business as usual.

The US’s top exports to the kingdom range from vehicles, machinery and aircraft, to agricultural products. Meanwhile, petrochemicals make up the lion’s share of Saudi exports to the US.

Infographic: In figures: US-Saudi trade ties

Relations between the two countries go back to the 1930s, with an early joint venture between US oil giants and Saudi’s government leading to the creation of Aramco, now the world’s most valuable company.

“Multiple US firms and financial institutions have long and established ties with the Saudi government, as well as with the kingdom’s most wealthy and prominent business figures,” said Gillis.

A key figure tasked with leading the kingdom’s economic future is Deputy Crown Mohammad Bin Salman, who heads the Council for Economic and Development Affairs.

Earlier this month, he told US news outlet Bloomberg that around 5 percent of Aramco would be up for grabs in an IPO set to list no later than 2018. Aramco is believed to be worth more than $2.5 trillion, multiple times more than US tech giant Apple, the world’s largest listed firm.

The partial sale will form a planned $2 trillion sovereign wealth fund that will serve to provide for Saudi Arabia’s income, rather than oil.

“Undoubtedly, it will be larger than the largest fund on earth,” the deputy crown prince told Bloomberg.

The fund to move from oil “could mean massive needs for imported technology, materials, and more,” said Paul Sullivan, a Middle East expert and academic at Georgetown University.

“It could also mean a huge increase in service exports from the US for advisers, experts, lawyers, engineers, architects, economists, and a lot more.”

Meanwhile, foreign direct investment in Saudi Arabia could “easily double or even triple” over the next decade if trade continues to increase, Sullivan added.

New approach

Analysts often cite the large numbers of young Saudis who travel from the kingdom each year to study in US universities, under a scholarship program that began in 2005.

“These graduates return to the Kingdom with professions, interests and business ideas cultivated during their years of study in America. They have been and will continue to be cultural and business ambassadors between the countries,” said Patrick Ryan, a Gulf affairs analyst whose consulting firm documents developments in Saudi-US relations.

However, the prospect of increasing trade ties between the two countries is not without obstacles.

Increases in US investments in Saudi will depend on whether Saudi authorities can demonstrate protection of foreign assets, as well as the “winds of tension” and regional conflicts, said Sullivan.

“It is vital for many reasons that Saudi Arabia and the US improve their overall relations, including trade and investment relations,” he added.

Saudi also needs to adopt a newer approach to influencing the US government, said Igor Oleynik, the chief of US-based Global Investment and Business Center trade publication.

In the past, the kingdom forged strong ties with key US political figures to further its interests. Today, this influence has faded, according to Oleynik – and a more modern, “decentralized” approach to navigating the corridors of power is now needed.

Oleynik’s approach involves Saudi focusing on business ties with individual states, particularly important swing states such as Iowa, Ohio, Florida, Virginia and Colorado.

With targeted efforts, “it would be possible to arrange that all congressional delegations of these states will be supporting pro-KSA legislation and projects,” said Oleynik, using an acronym for the Saudi kingdom.

 

This article is part of Al Arabiya English’s Special Coverage on Obama’s visit to Saudi Arabia.

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Last Update: Tuesday, 19 April 2016 KSA 21:37 - GMT 18:37
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