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Saudi Arabia-U.S. relationship is about more than oil

To be mugged once in Washington might be seen as unlucky; twice is careless. When it happens repeatedly on Capitol Hill, you might wonder whether they are out to get you.

So must think the Saudi monarchy, which is being insulted by a long-standing ally. Senators have been criticizing the sale of 130 battle tanks to Saudi Arabia – the sort of deal that used to be nodded through the Pentagon – accusing the Kingdom of spreading religious extremism around the world and of human rights abuses in the civil war in Yemen. Another bill, enabling U.S. citizens to sue Saudi Arabia over its alleged involvement in the Sept. 11, 2001, terrorist attacks, could get through, forcing U.S. President Barack Obama to use his veto. Meanwhile, Canada is tying itself up in knots over a relatively trivial arms sale and a U.K. parliamentary committee has urged an end to weapons sales to Saudi Arabia. Then there is Donald Trump.

Related: Why Islamic State's attacks in Saudi Arabia are a big deal

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Read more: The inside story of Canada's $15-billion Saudi arms deal

The property tycoon says he is "not a big fan," reckoning that America doesn't get much out of its continuing support for the Saudi monarchy. Were he to end up in the White House in January, the relationship between America and Saudi Arabia could descend from verbal abuse to cold shoulder.

Saudi Arabia once accounted for a third of America's oil imports but it is now down to about 11 per cent, or a million barrels a day, thanks to the shale oil revolution. Some critics of the Saudi monarchy would argue that the country is about to discover what happens to a relationship based entirely on commerce, when the commercial advantage begins to fade and there is no strong cultural or other affinity.

Other countries do have a pressing need to purchase what the Saudis sell. China has emerged as a natural buyer of Saudi barrels as the trade shifts from West to East. However, the Saudis cannot presume just to replace America's once bottomless market with a new and hungry Chinese consumer. Neck and neck with Saudi Arabia in the contest to be China's biggest supplier is Russia. New Siberian pipelines have eroded the Saudis' share of the Chinese market from nearly 20 per cent of Chinese imports to half that level this year, and Russia in the past few months has begun to edge ahead.

Worse still, Russian influence is now being felt not just in oil markets but in Middle East geopolitics. The two countries are supplying combatants on opposing sides in the war in Syria. The Saudi monarchy at one time saw itself as the natural power broker in the Middle East political cauldron. Backed by U.S. weaponry, its treasury stuffed with petrodollars thanks to the world's biggest energy resource, Saudi Arabia could buy friends and, while it could not suppress all of its enemies, it could at least give them pause for thought.

Those days are over; Iran is resurgent, its oil output is rising rapidly to presanction levels and its influence is mounting in Iraq, where followers of the Shiite brand of Islam are in political control. Where the Saudi monarchy once had good reason to feel confident that their safety was guaranteed by a political and military alliance and commercial expedience, no such certainty exists. Iran is supporting insurgents in Yemen, Russia is testing boundaries in Syria, while America and Europe are becoming tired of disciplining the chaotic states and belligerent tribes of the Middle East.

Could China yet step into the breach? Saudi Arabia needs a powerful ally, not just for diplomatic games but to physically protect the Kingdom's export routes from the Gulf to the Indian Ocean and beyond. With that in mind, Deputy Crown Prince Mohammed bin Salman visited Beijing early this month. A host of agreements and commercial protocols were agreed and the Deputy Crown Prince explained Saudi Arabia's big idea, Vision 2030, an ambitious plan to wean the Kingdom off its dependency on oil by freeing up the economy, opening the door to foreign investment and the partial flotation of Saudi Aramco.

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China will gladly do the investment thing. Beijing has its own big plan, One Belt, One Road, a colossal infrastructure project to link Western China to Central Asia and the Indian Ocean. There is an obvious commonality of interest in trade routes and infrastructure, but it is not at all clear that the Middle Kingdom has chosen the Desert Kingdom as the political ally of choice.

China has already pitched its tent in Damascus, offering not just diplomatic support and propaganda bulletins (Chinese state media tends to deride the imagery of bloodied Syrian children broadcast by Western networks) but military advisers and weaponry. China supports the Assad regime and tends to side with Russia in voting against UN Security Council resolutions condemning the Syrian government.

All this may sound like old-fashioned realpolitik transported to a Middle Eastern bazaar, but for the Saudis, it would be a mistake to ignore the underlying messages. The new Deputy Crown Prince knows that the world has lost patience with Saudi Arabia's insular and arrogant culture but his recipe of set-piece economic reform and "green cards" for foreigners is probably too late to be convincing.

The key message is the question that Saudi Arabia chooses to ignore: What if it isn't about oil?

Carl Mortished is a Canadian financial journalist based in London.

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About the Author

Carl Mortished is a Canadian financial journalist and freelance consultant based in the U.K. With a career spanning investment banking, journalism and consulting for global companies, he was for many years a financial writer and columnist for The Times of London. More

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