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Oil supply I: The Arabs look to the East

Saudi Arabia is looking for new friends and finding them - in Asia. The oil-rich kingdom feels spurned and disliked by its traditional close allies in the West; ties have never been quite as warm since Sept. 11, 2001.

Luckily for Saudi Arabia it sits on about a quarter of the world's reserves of crude oil, and Asia needs oil. A lot of oil. China is already the second-largest energy consumer after the United States, and last year it overtook Japan as the world's second-largest consumer of petroleum products.

This explains why Saudi Aramco, the kingdom's largest oil company, now does almost half of its business in Asia and has more offices there than anywhere else in the world. "We consider Asia a strategic market with growth potential, and believe it will become even more so, especially with the growing energy demands of China and India," says Ali Bakhsh, regional vice president for Saudi Aramco in Singapore.

The business is building. Recently, the Saudi government awarded a natural-gas prospecting concession to Sinopec, a major Chinese oil company. Saudi Aramco says it is currently in discussions about the expansion of an oil refinery in China's Fujian Province, and earlier this summer, a major deal was concluded with Shell to acquire an interest in Showa Shell, a large Japanese refining company.

Saudi Aramco also has an agreement with Sumitomo Corp. of Japan for a feasibility study to upgrade another refinery on the west coast of Saudi Arabia. Additionally, Saudi Aramco holds significant equity interest in Petron Corp. in the Philippines and in South Korea's S-Oil Corp.

For China of course, securing a reliable energy supply has become a key policy imperative. This explains why Beijing put its international credibility on the line in September to fend off UN sanctions against Sudan, where China hopes to secure close to 10 percent of its oil imports in the coming year. It also explains why Chinese oil executives are risking their lives to secure oil concessions in Iraq.

It's not all about oil, and not all about Saudi Arabia.

The Gulf States are also looking toward Asia because they find that the suspicion and scrutiny that greets Arabs in the Western world is increasingly an obstacle to doing business. So officials and businessmen from the Gulf have been visiting places like Singapore and Malaysia to explore opportunities.

A large Saudi bank was just awarded an Islamic banking license in Malaysia. Singapore is also seeking to plug into the lucrative Islamic banking field.

No longer feeling so welcome in their former playgrounds on the Riviera or in the United States, hordes of Arab tourists now flock to Malaysia to escape the desert heat in the summer - more than 200,000 a year. They stay at five-star hotels and shop for expensive brands; they stay for three months and order a lot of room service.

Walk the streets of Kuala Lumpur's fashionable Bukit Bintang district and the visitor can sample Arab delicacies in plush street-side restaurants that offer piped-in Arab television and water pipes.

There are of course political implications that stem from closer Asia-Middle East contacts. The first steps in this direction have been taken by Singapore, which is initiating a modest Asia-Middle East Dialogue next year. This, officials say, will help bring Asians closer to Middle Easterners, who are looking for understanding and impartiality.

Asia's historical ties with the Middle East are complex and sophisticated. While Europe sought to conquer the Arab lands, Asia was itself the target of Arab conquest, which led to the Mogul Empire and the bringing of Islam and aspects of Arab culture all the way to remote islands in the Indonesian archipelago.

As a result of Arabian-inspired missionary and trade activity, Asia is home to the world's largest Muslim population, and its earliest trade networks owe their establishment to links with the Middle East. This familiarity with the Middle East, although dormant since the rise of European power in the 18th century, could easily be nurtured back to life, using trade, culture and social interaction as the basis for a re-integration of West Asia with East Asia.

And, idealism aside, there is a large pool of petro-dollars waiting to be invested by oil-producing states who no longer trust the Western markets.

IHT Copyright © 2004 The International Herald Tribune | www.iht.com

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