For all the western outrage over the death of Jamal Khashoggi, the west’s influence over the behaviour of big resource exporters such as Saudi Arabia is increasingly limited, argues Daniel Litvin, Founder and MD of Critical Resource.
There were any number of embarrassed withdrawals of leading western CEOs, investors and government figures from Saudi Arabia’s so-called ‘Davos in the Desert’, a major investment conference held recently in Riyadh. At that point, outrage over reports of the gruesome murder of journalist Jamal Khashoggi in Turkey, seemingly at the hands of agents of the Saudi state, was at its peak. The reputational risk of attending the summit had become a notch too high for many.
But, tellingly, on the sidelines of the conference, a huge potential deal with a non-western power was unveiled. The Saudi energy minister said the kingdom aims to acquire a 30% stake in a $21 billion project in the Russian Arctic, the Arctic LNG 2 project led by Novatek, a major Russian independent gas producer.
Amid the understandable outrage over Khashoggi’s murder, an important underlying reality of the new world order was being underscored here. The west’s ability to influence the behaviour of oil, gas or mineral exporting countries, whether Saudi Arabia or other such countries, is these days increasingly constrained in practice. In particular, the threat that western firms might withhold investment is a far less powerful tool of influence than it once was.
Major resource exporters have themselves long derived a degree of economic and international influence from producing commodities the world needs. But now they have greater freedom of manoeuvre geopolitically: they are less beholden to the west. One obvious reason is growth in China and other non-western economies such as India, which has driven these countries’ increasingly energetic quests to secure overseas supplies of resources. Another is the more assertive foreign policies of a number of non-western powers, including China and Russia, with growing competition between them and the west to cultivate spheres of influence, particularly among resource-exporting countries.
All this has changed the status quo for many resource exporters. They used to be closely tied, albeit in varying degrees, into selling to western markets, attracting western investment, and (if they felt they needed it) seeking western protection and legitimacy. Now, put simply, they have a greater choice: choice of customers, investors, patrons and protectors – and indeed choice of ethical worldviews.
Saudi Arabia’s interests are still intertwined with those of the west and the US in particular. A tacit quid pro quo over oil still operates to a degree. Saudi Arabia, as a leading oil supplier and swing producer, helps keep the oil price from overheating as far as possible; it also spends a significant proportion of its petrodollars on western arms and other assets. In return it receives significant western diplomatic support and an effective security guarantee from the US.
But in recent years, in addition to its growing collaboration with Russia, Saudi Arabia has also been actively courting, and courted by, China. Its search for new customers and allies has been encouraged by the threat to Saudi hydrocarbon exports from the recent rapid growth of US unconventional oil and gas production. China is now the Kingdom’s biggest trading partner. When King Salman visited Beijing last year, the two countries signed some $65 billion worth of deals including collaborations in energy and petrochemicals.
Were western firms to stay away from the investment opportunities which Saudi Arabia is now looking to present as part of its quest for economic diversification, Chinese and other non-western investors would likely fill the breach. Likewise, the proposed sale of 5% of Saudi Aramco, the state oil company, though recently postponed, also would likely attract enthusiastic non-western buyers (including potentially other countries’ state oil firms), were western investors to stay away. Moreover, such non-western investors would likely insist on fewer detailed, meddlesome requirements on issues such as governance, disclosure, and transparency compared with their western counterparts.
Russia, itself another major oil and gas exporter, has of course long operated largely outside the west’s sphere of influence. But in recent years it has actively sought to reduce its own economic dependence on supplying gas to Europe by cultivating customers and stronger political ties among countries to its east. In particular it has struck multi-billion dollar deals to supply China with gas, with major new pipelines being built to channel more of its gas exports eastwards. Meanwhile sanctions imposed by western governments in response to Moscow’s invasion of Ukraine’s Crimea peninsula so far appear to have done little to damage the domestic oil and gas industry: the country’s hydrocarbon production has continued to rise.
While the details differ from country to country, a roughly similar dynamic is being repeated across many other resource-exporting nations in Africa and Latin America of growing choice in their international political and economic alliances. Non-western firms (and above all, Chinese firms) are increasingly seeking and gaining access to their major mineral and hydrocarbon deposits. Often the Chinese firms are happy to pay higher prices than western miners and energy firms. These firms are also often supported by active lobbying of host governments by Beijing plus Chinese state-backed loans and development contributions.
Resentment over perceived Chinese ‘neo-colonialism’ is brewing in some resource-exporting countries such as Zambia. But for less principled or less democratic host governments, there is a clear upside in avoiding western-style investments: fewer detailed requirements and general do-gooding exhortations around issues such as revenue transparency, human rights, and anti-corruption. For good or bad, African and Latin American resource exporters, just like Saudi Arabia, have a wider of choice of partners and governance systems they now can turn to.
None of this is to diminish the justifiable horror over Mr Khashoggi’s death. But amid the new geopolitics of resources, boycotts and other attempts to withhold western investment risk simply leaving the field open to other players, who may be even less concerned about whether a host country targets dissidents abroad, say.
More ethical outcomes might be achieved by western nations through a twin-track approach: redoubling efforts to promote investment by western firms in resource-rich countries; but also sharpening the ethical standards to which these firms are to be held accountable in their foreign ventures. The hope should be that ultimately these standards leave a progressively positive imprint on host countries – a modest hope perhaps, but likely better than the results of disengagement.
Daniel Litvin is Managing Director of Critical Resource, which advises resource firms on political and “license-to-operate” risk, and the author of ‘Empires of Profit: Commerce, Conquest, and Corporate Responsibility’. He is a former Senior Research Fellow at Chatham House in the geopolitics of energy.