Pakistan-Saudi Tensions: The Economic and Geopolitical Ramifications

PM Imran Khan and Crown Prince MBS
Credit: Prime Minister's Office, Pakistan

Saudi Arabia and Pakistan have historically shared close economic and strategic relations. Many analysts have for long argued that after the US and China, Saudi Arabia has maximum leverage over Pakistan. Successive political leaders and military rulers in Pakistan, have shared close ties with the Saudi Royal Family.

A strong reiteration of the proximity between both the countries, is that when Pakistan was contemplating nuclear tests in 1998 in response to India’s, which were conducted in May 1998,  Saudi Arabia promised Pakistan 50,000 barrels of oil per day in case sanctions were imposed. This assurance played an important role in influencing Pakistan’s ultimate decision of going for the nuclear tests.

Pakistan on its part has provided military aid and expertise to Saudi Arabia. Pakistan helped the Royal Saudi Air Force to build and pilot its first jet fighters in the 1960s. In the 1970s and 1980s up Pakistani troops were stationed in the kingdom, some in a brigade combat force near the Israeli-Jordanian-Saudi border. Former Pakistan Army Chief General Raheel Sharif had been appointed as head of the 41-nation Islamic Military Alliance to Fight Terrorism (IMAFT) (often referred to as Arab NATO) in 2017. This was an important assignment, given the complex geopolitical situation in the Middle East.

Saudi Arabia’s influence on Pakistan’s domestic politics, and its rapport with political figures is highlighted by the example of Former PM Nawaz Sharif. When Sharif was ousted by General Pervez Musharraf in 1999, during his second term, he left the country along with his family in 2000. Sharif was in Saudi Arabia in exile till 2007. Saudi Arabia played an important role in brokering an informal agreement between Musharraf and Sharif. Sharif who was jailed for life was pardoned and allowed to fly out to Saudi Arabia, on the condition that he would undertake no political activity while in the Middle Eastern Kingdom.

Another important layer of the Saudi-Pakistan bilateral relationship is remittances from Saudi to Pakistan (over 1 million Pakistanis work in Saudi Arabia). In 2019-2020 remittances from Saudi were $4.4 billion, which represented a 5.5 percent more than the last year. With these facilities from Saudi, Pakistan’s foreign reserve exchange reached $18.7 billion in July 2020.

Saudi economic assistance for Pakistan

Even in recent years, whenever Islamabad’s economy has been in dire straits, it has sought Riyadh’s help. In November 2018, Saudi Arabia had announced a package of $6.2 billion, out of which $3 billion was in the form of loans, and another $3.2 billion was in the form of an oil credit facility. The loan of $3 billion in the foreign reserve exchange was important for stabilizing Pakistan’s currency. This package was announced to Pakistan at the interest rate of 3 percent. The MoU related to this package was signed between both countries in February 2019 when Crown Prince Salman visited Pakistan. In January 2019, Saudi Arabia also committed to investing $10 billion in an oil refinery in Gwadar (it had made a total pledge of investments to the tune of $20 billion), which is a crucial component of the China Pakistan Economic Corridor (CPEC).

Tensions between Islamabad and Riyadh

In recent weeks there have been tensions between Islamabad and Riyadh. On Aug. 6, 2020, Pakistan Foreign Minister Shah Mehmood Qureshi, while commenting on the Kashmir issue asked OIC (Organisation of Islamic Cooperation) which is led by Saudi Arabia to conduct a meeting with regard to the abrogation of article 370 by India last year. Pakistan had made a similar demand in February 2020, but recently in a media interview Qureshi repeated the same. Said the Pakistan Foreign Minister:

“I am once again respectfully telling OIC that a meeting of the Council of Foreign Ministers is our expectation. If you cannot convene it, then I’ll be compelled to ask Prime Minister Imran Khan to call a meeting of the Islamic countries that are ready to stand with us on the issue of Kashmir and support the oppressed Kashmiris.”

Riyadh took serious umbrage to Qureshi’s remarks. To send out a firm message to Pakistan, Saudi Arabia made Pakistan repay $1 billion from the loan it had extended to Pakistan earlier than the agreed date. Interestingly, the $1 billion repaid by Pakistan to Saudi was borrowed from China at an interest of 5 percent.

According to the State Bank of Pakistan, the country imported oil to the tune of $13.9 billion in financial year 2019. Saudi oil credits of $3.2 billion had also benefitted Pakistan.

Saudi-Pakistan tensions: The India factor

Tensions between Riyadh and Pakistan have been building up over a period of time. The increasing proximity between Riyadh and New Delhi, both in the economic and strategic spheres has not been taken kindly by Pakistan. As a result of Saudi Arabia’s silence on the Kashmir issue, the Pakistani PM Imran Khan has been seeking to build an alternative grouping to OIC along with Turkey and Malaysia (Pakistan, Turkey and Malaysia had even discussed the possibility of setting up an Islamic Channel).

The Saudi clout over Pakistan is evident from the fact that in December 2019, Pakistan’s PM did not attend the Kuala Lumpur summit under duress from Saudi Arabia.

In recent days, Pakistan has been trying to indulge in damage control. Pakistan Army Chief General Qamar Javed Bajwa visited Saudi Arabia, though he was given the cold shoulder. The Pakistan army chief’s request for a meeting with Crown Prince Mohammed bin Salman was declined. Bajwa met with Saudi Vice Minister of Defence Khalid bin Salman, and was received by the Saudi Chief of General Staff Maj. Gen. Fayyad bin Hammad Al-Ruwaili.

The Pakistan PM in a media interview dismissed claims about deterioration of ties between Pakistan and Saudi Arabia. Said Imran Khan: “The rumours that our relations with Saudi Arabia have soured are totally false.”

Consequences

If ties between Pakistan and Saudi Arabia go downhill, there will be a number of important ramifications. Firstly, Pakistan’s dependence  upon China will increase and would push Islamabad closer to Iran and Turkey. Second, this could impact the economic relationship between both the countries. Saudi Arabia which has been seeking to reduce the number of expat workers, may seek to reduce the number of Pakistani workers, this will have an impact on Pakistan’s economy as remittances will reduce. Third, Pakistan’s ties with other Gulf Cooperation Council (GCC) countries may also be impacted.

Increasing tensions between Riyadh and Islamabad will have economic consequences for Pakistan as well as alter the geopolitical dynamics between South Asia and the Middle East. The Imran Khan led PTI government clearly has its task cut out not just in the context of domestic challenges in the aftermath of Covid-19  but also in terms of foreign policy.

Tridivesh Singh Maini is a New Delhi based Policy Analyst associated with OP Jindal Global University, Sonipat, India. One of his areas of interest is the India-Pakistan-China triangle.

Varundeep Singh is a final year student of Panjab University, Chandigarh, India.