Ever since the end of World War Two, the U.S. has come to regard Saudi Arabia as almost its exclusive oil producing enclave.
In February 1945, after the Yalta Conference with Soviet General Secretary Iosif Stalin and British Prime Minister Winston Churchill, on his way home U.S. President Franklin Delano Roosevelt and King Ibn Saud met aboard the New Orleans-class heavy cruiser U.S.S. Quincy in the Suez Canal's Great Bitter Lake. During the meeting, instigated by Roosevelt, he and Ibn Saud concluded a secret agreement in which the U.S. would provide Saudi Arabia military security, including military assistance, training and a military base at Dhahran in Saudi Arabia, in exchange for secure access to supplies of oil.
Sixty-seven years later, my, how things have changed, as China is now muscling into the Kingdom of the Two Holy Places.
On 15 January Visiting Chinese Premier Wen Jiabao and Saudi Arabian King Abdullah bin Abdul Aziz agreed to make concerted efforts to enhance bilateral relations.
The spectacle of OPEC's leading petro-state and East Asia's superpower economy making common cause has surely caused the burning of the midnight oil inside the Beltway.
While Wen said that China is willing to strengthen coordination with Saudi Arabia on all major issues by expanding cooperation in trade, investment, infrastructure, high-tech, finance, security and law enforcement, what must have surely caught the eye of Washington's mandarins was him adding that China intends to develop a cooperative partnership with Saudi Arabia in the energy sector.
And why not? Saudi Arabia is the largest supplier of oil to China and bilateral trade between the two countries soared to $58.5 billion in the period January-November 2011.
And the fruits of such bilateral proximity were on the table even before Wen made his fulsome remarks, as the state-owned Saudi Press Agency reported on 14 January that Saudi state oil giant Aramco has signed an agreement with state-owned giant China Petroleum and Chemical Corporation Ltd. (Sinopec) to build an oil refinery, named Yasref, in the Red Sea city of Yanbu, which will become operational in 2014, processing 400,000 barrels per day.
What is really going to catch Washington's and the foreign investment community's attention is how the agreement is structured - Saudi Aramco will hold a 62.5 percent stake with Sinopec holding the remainder.
In one of 2012's greatest understatements, Aramco president and CEO Khalid al-Falih said that the contract "represents a strategic partnership in the refining industry between one of the main energy producers in Saudi Arabia and one of the world's most important consumers."
Continuing his victory lap around the western shores of the Persian Gulf, Wen will also visit Qatar and the United Arab Emirates, two other stalwart U.S. allies.
And the eastern side of the Gulf?
Commenting on Iran, China's third largest source of oil imports, on 11 January Chinese Foreign Ministry spokesman Liu Weimin said at a press briefing that China will maintain its trade ties with Iran despite efforts by U.S. Treasury Secretary Timothy Geithner to convince Beijing to join a proposed embargo of Iranian oil exports.
But perhaps the most intriguing element of the Riyadh-Beijing lovefest was the announcement that on 15 January Saudi Arabia signed an agreement with China for cooperation in the development and use of atomic energy for peaceful purposes, an event of significant importance that both Abdullah and Wen attended.
No comment is really needed here, except to note that many of the questions asked about Iran's civilian nuclear power program, such as why does a leading petro-state need nuclear energy, are unlikely to be asked about this particular venture, underling that once again, reality in the Middle East is whatever your perceptions tell you in advance it is.
By. John C.K. Daly of Oilprice.com
