Riyadh’s Diplomacy Reimagined
“So long as the Arabs fight tribe against tribe, so long will they be a little people, a silly people.”
T.E. Lawrence’s patronizing words to Sharif Ali of Mecca reflect the orientalist trope present in the 1962 British epic historical drama Lawrence of Arabia.
The Arab world is portrayed to be irreversibly fragmented by warring clans who serve as mere pawns of Western interest. Its leaders, the inept progeny of the great caliphs who ruled during a golden age long lost in the sands of time.
The rise of extremist factions, civil unrest, and foreign intervention has done little to debunk this perception.
And yet, Saudi Arabia’s vision of an Arab bloc remains stronger than ever.
Its tactic? Electricity diplomacy.
The Kingdom of Saudi Arabia (KSA) is the 12th largest electricity consumer and the 6th largest oil consumer in the world. In 2017, 99% of KSA’s electricity was generated by fossil fuels—60% by natural gas and the rest by crude oil.
Government oil subsidies and electricity subsidies amount to 8.25% and 3% of the country’s GDP. The Saudi Electricity Company—the national electric utility—depends on the heavy oil subsidies to generate electricity. Nearly a fifth of electricity consumers benefit from subsidies.
The cheap generation and subsequent consumption of power has come with a price: oil revenues. The current international rate for oil is $45 a barrel—less than half the price KSA needs to balance its budget reports the International Monetary Fund. In the state itself, oil sells only $6 a barrel.
Today, the kingdom burns a quarter of its oil for next to nothing.
Domestic electricity consumption is expected to skyrocket in the medium term. The electricity consumption annual growth rate of 7% is nearly triple that of population growth, the majority of which is for air conditioning in residential areas.
Saudi officials believe that oil demand in 2030 will be triple that of 2016. A 2011 report by the British think tank Chatham House found that KSA’s absolute reliance on oil to power electricity could chip away at its oil exports by 2021. By 2038, the kingdom could become a net oil importer if these trends remained unchecked.
In the last 30 years, global oil demand has dropped 7%. Congruently, Saudi Arabia’s global share of oil exports has dropped from a high of 30% to a low of 12% today. This year, the pandemic and Russia-Saudi oil price war has catalyzed the decline in oil prices and demand.
Now more than ever, Riyadh needs to export all the oil it can in order to turn a minimal profit.
The solution? Renewables.
In a bid to move away from fossil fuel generated electricity, Saudi Arabia has become a leader in the “renewable energy race” as stated in the Middle East Solar Industry Association’s (MESIA) latest solar outlook report.
The Middle East currently has a renewable-energy capacity of 40 gigawatts (gw), which is projected to double in the next four years. Leadership is looking to invest $30 billion in its renewable energy sector over the next five years, indicating the kingdom's instrumental role in the region’s growing renewable energy capability.
Aside from the initial cost of production, renewable energy facilities would enable oil export revenues to be maximized and foster unprecedented measures of electricity that could easily accommodate rising demand, of which the surplus could be exported to other countries for the first time.
Renewables will power 7% of the total electricity produced in 2030, says Reve News.
Solar plants for 2/3 and 1/3 the current cost of gas and oil on average, notes The Economist.
Saudi Arabia’s awesome solar power potential comes from its notoriously arid climate and expansive available land.
As part of its vision to substantially reduce reliance on oil, the kingdom is looking to generate 60gw of electricity by 2030—40gw by solar photovoltaic plants (PV) and 2.7 by concentrated solar plants. In 2024, KSA hopes to have around half the renewable generation capacity of “Vision 2030.”
In order to meet these stringent deadlines, the kingdom has since contracted a number of Chinese PV module manufacturers.
In 2019, China’s preeminent manufacturer LONGI collaborated with the South Korean solar-grade polysilicon company OCI to build a $2 billion backsheet plant, which provides the bottom layer of solar panels.
Keeping with the trend of nearshoring, Saudi Arabia does not plan on sticking with China in the long run. Turki Al Sheri, a chief executive of the multinational electric utility company Engie stated: “the diversification of the energy mix provides the opportunity to create jobs through manufacturing… efforts are underway to localize renewable manufacturing in the Kingdom.” Leadership anticipates 40-45% of PV solar, concentrated solar, and wind energy equipment to be manufactured in-house by 2028, generating roughly 750,000 jobs.
The Business Council of the United States and Saudi Arabia predicts that in 2030, nearly 80% of total renewable-generated electricity consumed will come from solar.
The Office of Nuclear Energy cites nuclear power plants to be 1.5 to 2 times more reliable than natural gas plants and 2.5 to 3.5 times more reliable than solar plants.
In 2011, Riyadh devoted $80 billion to constructing 16 nuclear reactors in the next 25 years. The civil nuclear program is still nascent as the government is reportedly considering a mix of foreign manufacturing, electric utility, and nuclear energy companies to build the first reactor: US’ Westinghouse, France’s EDF, Russia’s Rosatom, South Korea’s KEPCO, and China’s National Nuclear Corp.
In the past two years, KSA has redoubled efforts to develop nuclear energy as tensions with Iran have come to a boiling point. A consequence of the Iran Nuclear Deal, inspectors are required to provide notice before checking any of its nuclear facilities. This has of course left suspicions of the Islamic Republic’s integrity and covert development of nuclear weapons.
In August 2020, China invested in a Saudi facility that refines uranium ore into “yellowcake.” A necessary ingredient of nuclear energy, high levels of yellowcake can be processed into enriched uranium which powers nuclear weapons. Similar to Iran, KSA has an older agreement with the International Atomic Agency which prohibits random inspections of its nuclear facilities.
Although having repeatedly affirmed its sole focus on civil nuclear energy, Crown Prince Mohammed bin Salman’s (MBS) unabashed words has kept the international community on alert: “If Iran developed a nuclear bomb, we will follow suit as soon as possible.”
The government’s desperation to create a renewable power sector efficient and strong enough to curb domestic oil consumption and perceived need for greater security may in fact make viable the kingdom’s target of civil nuclear energy constituting 15% of total electricity produced in 2032.
AN INTERCONNECTED GRID
~The Gulf Cooperation Council Interconnected Association (GCCIA)
The GCCIA is a joint-stock company that endeavors to create an electrical “super grid” across the Gulf and the Middle East at large. The Saudi Electricity Company has a 31.6% majority share while Kuwait has the second largest share at only 26%. Saudi Arabia heads a strong Middle Eastern bloc looking to monopolize the electricity markets of the “Fertile Crescent.”
In 2020, Jordan joined the GCCIA. The kingdom imports 94% of its energy and is looking for a greater mix of energy to generate its electricity. Consequently, KSA plans to export solar and wind generated electricity from its city of Qurayyat to East Amman.
Jordan also has significant uranium reserves and produces yellowcake commercially. This may point to KSA attempting a strategic partnership with the Hashemite Kingdom: they will become the country’s primary supplier of renewable powered electricity and will also have access to additional uranium reserves for its nuclear program.
The Republic of Iraq’s electricity market is the most coveted among the Fertile Crescent states.
In recent months, Iraq has dealt with unprecedented heat waves reaching as high as 120 degrees Fahrenheit; its electricity grid could only accommodate for 63% of demand. The government is looking to source additional electricity from its neighbors to satisfy the remaining 27% demand.
This has brought about the inevitable showdown between the two Middle Eastern blocs: “The Entente” and the Gulf Cooperation Council (GCC).
The Entente alliance comprises Iran, Turkey, and Qatar. Brought together by a desire to re-establish their sweeping empires of old or to fend off the Saudi bloc, these countries have quietly entrenched themselves in Iraq.
Iran supplies more than a third of the electricity consumed in Iraq. In June, Tehran signed a two-year contract on electricity exports with Iraq. In August, Turkey committed 200 megawatts (mw) worth of electricity exports to the Nineveh Governate in Northern Iraq. In 2019, Qatar laid down electricity lines that traverse through Qatar, Saudi Arabia, Iraq, and Syria.
However, the GCC has the support of the Western bloc and the Kurds—one of the most powerful factions within Iraq. In 2019, Iraq renewed its agreement of “plugging into” the GCCIA, who will export 500mw over; 80% of the transmission line on the Iraqi side has already completed.
The United States is also pressuring Iraq to move away from Iran in the medium term. Although Baghdad has paid half of its outstanding debts to Iran, the government is still fearful of Islamic Republic cutting off electricity exports in the face of outstanding debt as it has done in the past.
Additionally, Saudi Arabia has a strong affinity with the semi-autonomous Kurds. They are sworn enemies of Iran and Turkey and may very well have the economic capability and at least have a substantial voice in the federal government’s agenda. The Kurdish oil and gas company KAR has already supplied 450 mw to central Iraq.
As renewable energy comes to the fore, Gulf states will ideally be able to supply far more electricity at a much-reduced cost in comparison to the Entente states, who will likely continue to heavily rely on petroleum generated electricity exports.
Under Saudi Arabia, the GCC has overwhelming international and domestic support and the electricity bandwidth to win the proxy war against the Entente and eventually becoming the sole electricity supplier to Iraq.
THE SMART GRID
As a result of its attention to energy diversification, Riyadh has become the chief energy generation technology market in the Middle East according to Export.gov. The surge in foreign and domestic investment in the technology market has accelerated the kingdom’s investments in AI applications, which will account for 12.4% of GDP by 2030. The government has since laid the groundwork for the first regional electrical smart grid.
In 2019, Zain Saudi Arabia—the country’s preeminent telecommunications company—developed 5G capability. The company partnered with China’s Huawei and Finland’s Nokia to achieve nationwide network coverage in June. The CEO of Zain highlighted these advancements as a necessary prerequisite to the nation’s digital transformation in accordance with Vision 2030.
Zain Saudi Arabia is affiliated with the broader Zain Group based in Kuwait, which offers 5G services in eight other Arab states and a few in Africa. This yet again illustrates how the Gulf states have formed a coalition to dominate the international 5G market.
In July, the Saudi Ministry of Energy signed an agreement with NEOM—a company that is charting out a carbon-zero future by way of smart electricity.
With critical digital infrastructure, KSA can move forward with its tender of manufacturing 10 million smart meters locally. Electric utilities would employ smart meters—which use the AI-driven internet of things—to predict supply and demand trends in real-time so as to maximize the allocation of energy.
The kingdom’s focus on a smart grid roadmap would allow renewable energy to be efficiently distributed domestically and internationally. This is the next step in ensuring the hegemony of Saudi Arabia and its allies in the electricity industry as the fourth industrial revolution intensifies.
AN INDEPENDENT ACTOR
Saudi Arabia has skillfully distinguished itself as a buffer state amid the New Cold War. The kingdom has sought out China to develop its renewables equipment manufacturing and 5G network prowess and the US to push Arab states away from Iran and in its direction.
Subtly, Riyadh has refused to pay obeisance to either power. In the interest of self-reliance and security, they plan on pushing Chinese manufacturers out and have ignored the US’ pleas to sign an updated nuclear non-proliferation agreement.
KSA’s unparalleled investments in renewable energy will ensure that the GCC remains the region’s undisputed oil and electricity exporter.
This is just the beginning for the House of Saud.
Written by Pavan Nagaraj
Edited by Alexander Fleiss, Michael Ding, Jeremy Knopp & Calvin Ma