While the world was focusing on the climate diplomacy underway at the United Nations COP27 conference in Sharm El Sheikh, Egypt, the other side was out there, too, quietly firming up alliances.
Returning from the Group of 20 summit in Bali, Indonesia, last week, Saudi Arabia's Crown Prince Mohammed bin Salman carried out a whirlwind tour of key Asian oil importers. In South Korea, the kingdom promised to invest tens of billions of dollars and announced a $7 billion refinery expansion at Saudi Aramco-controlled S-Oil Corp. Two days later he was in Thailand, signing an agreement on energy cooperation and patching up diplomatic relations formerly broken off for three decades. Pakistan's News International newspaper reported last week that a $10.5 billion refinery investment was on the agenda for a visit (ultimately canceled, along with stops in India and Japan) during the same tour.
Such proposals are an increasingly regular element of Arab oil exporters' international relations these days. Chemicals and plastics in Asia are seen as some of the brightest spots for crude demand at a time when road transportation's fuel consumption is close to its peak. State oil companies such as Saudi Aramco and Abu Dhabi National Oil Co., historically focused entirely on upstream operations, promised to invest billions of their oil profits in downstream refineries in key consumption markets.
Annual net foreign direct investment outflows from Gulf Cooperation Council countries historically have been minimal and didn't breach $10 billion until 2005. In the decade through 2020, they averaged $35 billion, led by Saudi Arabia and the United Arab Emirates, and peaked at $44 billion in 2019.
What's happening isn't just commercial. It's also an alternative form of climate diplomacy. The hundreds of billions of dollars the rich world is promising to emerging countries for green infrastructure and climate damages is one way of swaying those nations to their side and the world to the cause of emissions reductions.
Oil exporters have their own billions, though, and want to invest them to lock in fossil-fuel consumption for decades into the future. This shadow diplomacy matters quite as much as what went on last week in the conference halls of Sharm El Sheikh.
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David Fickling is a Bloomberg Opinion columnist covering energy and commodities. Previously, he worked for Bloomberg News, the Wall Street Journal and the Financial Times. @davidfickling