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58 Dirasat

Economic Visions and the Making of an - - Triangle: Assessing ’s Role in the

Dhul Hijjah, 1441 - August 2020 - Economic Corridor

Eram Ashraf

Economic Visions and the Making of an Islamabad- Beijing-Riyadh Triangle: Assessing Saudi Arabia’s Role in the China-Pakistan Economic Corridor

Eram Ashraf © King Faisal Center for Research and Islamic Studies, 2020 King Fahd National Library Cataloging-in-Publication Data

Ashraf, Eram Economic Visions and the Making of an Islamabad- Beijing-Riyadh Triangle: Assessing Saudi Arabia’s Role in the China-Pakistan Economic Corridor . / Ashraf, Eram - Riyadh, 2020

52 p ; 23 x 16.5 cm

ISBN: 978-603-8268-58-2

1- Saudi Arabia - Economic policy I-Title 338 dc 1441/12850

L.D. no. 1441/12850 ISBN: 978-603-8268-58-2 Table of Contents

Introduction 6 1. China-Pakistan Economic Corridor 8 1.1 11 2. Saudi-Pakistani Relations and CPEC 22 3. Saudi Arabia, China, and Energy Relations 32 4. Saudi Arabia’s Regional Partner (), Competitor () and CPEC 35 4.1 India 35 4.2 Iran 40 Conclusion 45

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Introduction In 2018, the Prime Minister of the Islamic Republic of Pakistan, , invited the Kingdom of Saudi Arabia to join the China-Pakistan Economic Corridor (CPEC) as a third strategic partner.(1) The inclusion of Saudi Arabia in what was meant to be a set of bilateral trade agreements between China and Pakistan (hence the name China-Pakistan Economic Corridor) is intriguing. This report utilizes both primary and secondary open-data sources to ascertain Saudi Arabia’s role in this corridor, especially in the case of Gwadar. It argues that while investments in Gwadar by Saudi companies may be economically viable in the long run, their real benefit to the Kingdom will be in helping to strengthen relations with both China and Pakistan, for whom CPEC and in particular Gwadar’s success is pivotal. It also ensures a more active return to Pakistan for the Kingdom, following its involvement in the era of the Afghan- Soviet conflict.(2) With CPEC entering phase two, in which the focus has turned toward public and private collaboration in the industrial, agriculture, and social sectors, there is a need for investments.(3) However, following a deficit in ’s current account, Pakistan has had to borrow heavily from countries such as Saudi Arabia and the (UAE) as well as the International Monetary Fund (IMF). Pakistan’s economic situation was such that it was not in a position to increase funding for CPEC projects; hence the need for foreign investors from countries such as Saudi Arabia.(4) Saudi

(1) “Saudi Arabia Invited to Become Third Strategic Partner in CPEC: Fawad Chaudhry,” News, September 20, 2018. (2) Marvin G. Weinbaum and Abdullah B. Khurram, “Pakistan and Saudi Arabia: Deference, Dependence, and Deterrence,” Journal 68, no. 2 (2014): 211–28, 214. (3) Phase one, in comparison, was about infrastructure and energy creation; Afshan Subohi, “CPEC: The Ball is in Pakistan’s Court,” Dawn, February 10, 2020; Nowmay Opalinski, “Phase-II of the China-Pakistan Economic Corridor: Dim Prospects—Analysis,” Institute of Peace and Conflict Studies, April 15, 2020. (4) Budgeted spending for 2020 has shown a decline of 115 billion Pakistani rupees even before the crisis created by COVID-19; see Adnan Aamir, “Pakistan Slashes Annual Funding for Belt and Road Projects,” Nikkei, June 17, 2019. Also see Ansar Abbasi, “Game changer CPEC gets Rs21 bn for 2020–21,” News International, June 14, 2019. Arabia’s investments of US$21 billion in Pakistan not only helped provide the country with much-needed capital but also gave credibility to Gwadar as a site for international development. Given the global pandemic of COVID-19 and the collapse of oil prices following Saudi Arabia’s disagreement with Russia, the Saudi economy, as with the world economy in , is expected to slow down.(5) Interregional economic platforms such as CPEC, which aim to connect with China’s transregional projects within the (BRI), can help the Kingdom achieve the economic goals outlined in the plan.(6) Gwadar and its surrounding region have immense growth potential for investors, especially when access to the landlocked states of Central is achieved as envisioned and promoted by the CPEC interconnectivity projects. In addition, the physical presence of Saudi companies in Gwadar could enable the Kingdom to affirm its relevance in this geo-strategically important area. The last time Pakistan and Saudi Arabia worked together in the region with a third party was when the Soviet Union had invaded . In the , together with the United States (US), they formed what became known as the “Islamabad-Washington-Riyadh triangle.”(7) This time, the project has China on board and provides both Pakistan and Saudi Arabia with a chance to improve their local, regional, and global image as harbingers of peaceful economic development. The report is divided into four sections. The first section introduces the BRI and CPEC while highlighting the importance of Gwadar to the entire

(5) Meaghan Tobin, “Why Did Saudi Arabia Start an Oil Price War?” South China Morning Post, March 10, 2020; Marwa Rashad and Davide Barbuscia, ‘Saudi Arabia to Boost Borrowing as Oil Glut Weighs on Virus-Hit Economy,” , April 22, 2020. (6) Saudi Vision 2030 Document, Vision 2030: Kingdom of Saudi Arabia, 53, https://vision2030. gov.sa/sites/default/files/report/Saudi_Vision2030_EN_2017.pdf. (7) Guido Steinberg and Nils Woermer, “Exploring Iran and Saudi Arabia’s Interests in Afghanistan and Pakistan: Stakeholders or Spoilers—A Zero Sum Game?” Barcelona Centre for International Affairs, April 2013, 5, https://www.swp-berlin.org/fileadmin/contents/ products/fachpublikationen/Steinberg_Woermer_SaudiArabia_Interest_April2013.pdf.

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project. It helps explain why Saudi Arabian investments in Pakistan, and in Gwadar in particular, have such relevancy. The second and third sections focus on Saudi Arabia’s relations with both Pakistan and China, to understand why it was possible for the Islamabad-Beijing-Riyadh triangle to emerge. Lastly, the fourth section considers the impact of Saudi Arabia’s investments in CPEC on Pakistan’s two important neighbors. India, who is Saudi Arabia’s strategic partner, and Iran, considered the Kingdom’s rival, both of whom are engaged in another interregional connectivity project together.

1. China-Pakistan Economic Corridor In 2013, China’s president, Xi Jinping, introduced two global initiatives for development named the Silk Road Economic Belt and 21st-Century Maritime Silk Road.(8) These were subsequently merged into the BRI, an initiative that has been described as “a massive infrastructure-led economic integration plan…integrating China’s trading partners by developing their infrastructure, i.e., ports, roads, airports, railways, etc., in a way that complements Beijing’s own interests.”(9) The rationale behind the idea, as Du Julan and Zhang Yifei explain, was to diversify and create opportunities for Chinese businesses undergoing structural changes inside the country and utilize their surplus supplies through Chinese foreign direct investments in other countries. As such, they point out, China is the main source of finance for BRI projects, providing loans through banks such as the Export Import Bank of China, the Silk Road Fund, and the Asia Infrastructure Investment Bank.

(8) People’s Republic of China, National Development and Reform Commission, Vision and Actions on Jointly Building the Silk Road Economic Belt and 21st-Century Maritime Silk Road, Ministry of Foreign Affairs and the Ministry of Commerce of the People’s Republic of China, March 28, 2015, https://www.fmprc.gov.cn/mfa_eng/zxxx_662805/t1249618.shtml. (9) Julan Du and Yifei Zhang, “Does the One Belt One Road Initiative Promote Chinese Overseas Direct Investment?” China Economic Review 47 (2018): 189–205, 191. China created six economic corridors within BRI, from which CPEC was chosen as their flagship project.(10) The five other corridors are:(11) i. China--Russia Economic Corridor; ii. New Eurasian Land Bridge; iii. China-Central and West Asia Economic Corridor; iv. China-Indochina Peninsula Economic Corridor; v. -China-India- Economic Corridor. Two years after its initial announcement, CPEC was formally launched in 2015 with a US$46 billion economic package from President Xi Jinping on his first trip to Pakistan, leading some Pakistani commentators to term his visit a “defining moment” for Sino-Pakistan relations.(12) The funds were intended to support infrastructure and energy projects inside Pakistan, and in particular, the country’s ailing power structure, which was said to be affecting its annual gross domestic product (GDP).(13) CPEC is described by the Pakistani government, as being about “bilateral connectivity” with China.(14) The vision is to integrate the economies of the two countries through the development of various projects related to infrastructure including roads, railways, and ports, information technology systems, and people-to-people relations. The plan, based on four pillars, namely Gwadar, energy, transport infrastructure, and industrial cooperation, will be in effect until 2030.(15) As such, it has been divided into short-term projects that end in 2020; medium-term projects up to

(10) It was announced by Premier Li Keqiang in 2013; Filippo Boni, Sino-Pakistani Relations: Politics, Military and Regional Dynamics (Abingdon, UK: Routledge, 2019), 81. (11) Yang Ziman, “Six Economic Corridors to Better Connect Asia and Europe,” China Daily, May 29, 2015. (12) Raza Rumi, quoted in Salman Masood and Declan Walsh, “Xi Jinping Plans to Fund Pakistan,” New York Times, April 21, 2015. (13) “Electricity outages had cost the economy about 1.5 to 2 percentage points of the Gross Domestic Product (GDP)”; Ishrat Husain, “Who’s Afraid of China,” Newsline, February 2018, para. 4. (14) CPEC China Pakistan Economic Corridor, “CPEC Vision and Mission,” CPEC Authority, 2020, http://cpec.gov.pk/vision-mission/3. (15) , Ministry of Planning, Long-Term Plan for China-Pakistan Economic Corridor (2017–2030), 2, http://cpec.gov.pk/long-term-plan-cpec.

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2025; and long-term projects up to 2030. The first phase has now come to an end, ushering in the second phase, which should continue till 2025.(16) BRI projects such as CPEC are not without their controversies, such as accusations of lack of transparency and debt-laden tendencies for incumbent countries such as Pakistan.(17) Among Pakistani lawmakers there were also initial fears that CPEC might end up becoming Pakistan’s East India Company, a reference to the British company that served as the tool for British takeover of India for nearly 200 years.(18) Pakistani senators were concerned that funds for CPEC projects were being raised through borrowed finance instead of relying on investments from China, and what that debt would mean for future generations. The US government has accused China of creating a debt trap by encouraging developing-poor countries such as Pakistan to use opaque Chinese loans. (19) In doing so, it argued, China placed an unnecessary economic burden on Pakistan, especially given that Pakistan would probably be unable to repay those loans. These allegations have been strongly refuted by both Pakistan and China, with the latter arguing that it would never force Pakistan to pay if it was not in a position to do so, while the former explained that CPEC loans made up less than 7 percent of the country’s total debt.(20) Due to the economic crisis created by the global pandemic of COVID-19, both countries have had to prove their word earlier than perhaps desired, with Pakistan asking China to ease payment obligations, which China has agreed to consider.(21) Pakistan

(16) Shakeel Ahmad Ramay, “CPEC’s second phase can put Pakistan’s economy back on track” Express Tribune, September 9, 2019. (17) Sabrina Toppa, “Why Young Are Learning Chinese,” Atlantic, November 14, 2018. (18) Syed Irfan Raza, “CPEC Could Become Another East India Company,” Dawn, October 8, 2016. (19) US Department of State, “A Conversation with Ambassador Alice Wells on the China-Pakistan Economic Corridor,” Wilson Center, Washington, DC, , 2019. (20) Tribune correspondent, “China Spurns US Fears of Pakistan’s CPEC Debts.” Express Tribune, November 22, 2019. Also see Salman Siddiqui, “Asad Debunks Myth of CPEC ‘Debt Trap’,” Express Tribune, November 23, 2019. (21) Khaleeq Kayani, “Pakistan Urges China to Soften Terms for Power Deals,” Dawn, April 15, 2020. desires to bring down the markup on debt from around the London Interbank Offered Rate of + 4.5 percent to + 2 percent, and also to extend the loan period from 10 to 20 years. CPEC’s success is of extreme importance for both countries but in different ways. While for Pakistan it means development and economic growth, for China it would validate its larger project the BRI. Echoing sentiments reminiscent of the domino principle,(22) Zhao Baige, Vice Chairman of Foreign Affairs Committee of National People’s Congress, explained, “CPEC is a crucial flagship project and if it fails then other projects will also facethe same fate.” (23) For China, its performance in CPEC is tied to its much larger enterprise, the BRI, hence the stakes for them are higher than Pakistan.

1.1 Gwadar If CPEC is the flagship project of Xi Jinping’s BRI, Gwadar is its heart. Sitting by the in Southwest Pakistan it connects directly with /Kashi(24) in Western China through a network of roads (see Figure 1).(25) Described by China’s ambassador to Pakistan, Sun Weidong, as the icon of China-Pakistan friendship, (26) Gwadar, a natural deep-sea port, lies at the juncture

(22) US President Eisenhower in 1954 explained it as the first domino in a row of standing dominoes to fall would eventually lead to the last domino also falling. Peter T. Leeson and Andrea M. Dean “The Democratic Domino Theory: An Empirical Investigation,” American Journal of Political Science 53, no. 3 (2009): 533–51, 533. (23) Zhao Baige quoted in Peer Muhammed, “CPEC Media Forum: Chinese Leader Outlines Difficulties being Faced” Express Tribune, May 24, 2016. She was awarded the government of Pakistan’s second highest civilian award, the Hilal-i-, in 2019, for services to the country: Staff Reporter, “Ibne Safi, Fehmida Riaz among 116 recipients of civil awards,”Dawn , August 14, 2019. (24) In the local language it is called Kashgar but in Chinese it is referred to as Kashi; Anwar Rahman, Sinicization beyond the Great Wall: China’s Uighur Autonomous Region (Leicester, UK: Matador, 2005), 159. (25) Murtaza Haider, “Bracing for a 46 Billion Dollar Future,” Dawn, April 22, 2015. (26) He served as the Chinese ambassador in Pakistan till 2017 and in 2019 was appointed as China’s ambassador to India: “Chinese Ambassador Sun Weidong Attended The Groundbreaking Ceremony of Gwadar Free Zone” Ministry of Foreign Affairs People’s Republic of China, September 7, 2016, https://www.fmprc.gov.cn/mfa_eng/wjb_663304/zwjg_665342/zwbd_665378/ t1395417.shtml

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between South, West and and is approximately 400 kilometers from the Strait of Hormuz, through which 40 percent of the world’s oil passes.(27) , central to Gwadar’s economic opportunities, was originally built by the China Harbour Engineering Company in 2007, after which operations were handed over to the Port of Authority.(28) However, in 2013, operational control was transferred to the Chinese Overseas Ports Holding Company Ltd. (COPHC) through a 40-year lease for the establishment of a free trade zone in Gwadar.(29) In October 2019, the government of Pakistan approved an ordinance exempting Gwadar Port and businesses set up at Gwadar Free Zone from sales tax and custom duties for 23 years.(30) The move was welcomed by Zhang Baozhong, the CEO of COPHC, as a personal victory for his efforts, as he believed that by 2026 the city would become the largest contributor to Pakistan’s GDP growth. However, the said ordinance lapsed in 2020, reportedly due to government failure to get it passed through parliament and instead had to be put in front of the Senate Standing Committee on Finance for a decision, in turn raising questions regarding its constitutional legitimacy.(31) The committee renewed the ordinance within a week but their inquiry did address some important issues as to exactly who would be receiving the concessions and for how long.(32) Most importantly, it exposed the secret nature

(27) Ghulam Ali, China-Pakistan Relations: A Historical Analysis (, Pakistan: , 2017), 206. (28) Boni, Sino-Pakistani Relations, 57. (29) Boni, Sino-Pakistani Relations, 70. (30) Shahbaz Rana, “Chinese Vow to Make Gwadar More Valuable Than Karachi,” Express Tribune, October 19, 2019. (31) Shahbaz Rana, “Senate Panel Asks Govt to show Gwadar port deal” Express Tribune, June 17, 2020. (32) Ministry of Maritime Affairs Secretary Rizwan Ahmad, who had access to the original agreements, confirmed to the legislators that the tax concession was for 20 years only, not more, and that it was only for the port operators and their contractors, not their sub-contractors. The legislators had raised concerns about this issue as they believed it would reduce revenue for Pakistan. Tribune correspondent, “Senate Finance Committee Approves Tax Concessions for Gwadar Port, Free Zone,” Express Tribune, June 23, 2020. of CPEC agreements, as even legislators deciding its fate were denied access to original documents, thanks to a confidentiality clause.(33) Given initial reports of a slowdown in CPEC projects after the arrival of a new government in 2018,(34) and Chinese companies not returning to Pakistan after completion of their projects,(35) the economic setbacks from COVID-19, capped by uncertainty surrounding the Gwadar tax concessions, perhaps explains why the CEO of COPHC downgraded his original time estimations. He said: “The development of Gwadar Port will take time but . . . the port will be the new economic hub of Pakistan and contribute the most to the national GDP [gross domestic product] by 2030.”(36) His time estimates regarding the port’s development may have gone up because of delays but the speed with which the committee gave its final approval, despite raising serious concerns, reflects a recent increase in the pace of CPEC projects post-lockdown that has not gone unmentioned. As stated by the Chairman of the recently set up CPEC Authority, General (Retd) Asim Bajwa: “Not only pace of work on the projects under CPEC picked up recently, ground work of CPEC phase-II had also started recently.”(37) Renewed vigor in CPEC projects, from China’s side, could also perhaps be seen as a way of showing appreciation for Pakistan’s support during the COVID-19 lockdown in Wuhan. When nearly every country had air-lifted their citizens out of the locked down city in panic, Pakistan had resolutely decided to leave them behind in solidarity with the Chinese government’s decision, hence proving its ‘special relations’ with the country.(38)

(33) Secretary Rizwan Ahmad offered it for them to read during the meeting on condition it was returned immediately at the end. Shahbaz Rana, “Govt Sets Condition to Share Gwadar deal,” Express Tribune, June 19,2020. (34) Eram Ashraf, “Set-Back or ‘Settling Down’: New Governments and Chinese Deals,” Asia Dialogue, September 24, 2018. (35) Tom Hussein, “China’s Belt and Road: After the Gold Rush, Pakistan Sees the Downside,” South China Morning Post, February 1, 2020 (36) APP, “Gwadar to Become a Global Shipping Junction,” Express Tribune, June 14, 2020. (37) He is also Special Assistant to the Prime Minister on Information and Broadcasting: APP, “Work on CPEC Projects Recently Gains Momentum: Asim Bajwa,” of Pakistan, June 17, 2020. (38) Eram Ashraf, “Sino-Pakistan Relations Amid the Coronavirus Epidemic,” The Diplomat, February 4, 2020.

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China’s commitment to Gwadar, as explained by Nader Habibi and Hans Yue Zhu, can be seen in its conversion of two large loans into a grant and an interest-free loan.(39) In 2015, a US$230 million loan to build an international airport in Gwadar was changed to a grant, while a US$140 million loan for the development of an expressway connecting Gwadar to Pakistan’s coastal highway (see Figure 1) was made interest free. No other project in CPEC, they say, had seen so much generosity from the Chinese government. As Ishrat Hussein confirmed, while infrastructure projects in CPEC were financed through government-to-government loans at a concessional rate of around 2.4 percent and energy projects were made under an IPP mode set by the government of Pakistan, Gwadar projects were based on grants.(40) CPEC’s first phase (2015–2020), explain Habibi and Yue Zhu, addressed renovations to the northern part of the Karakorum highway, near (see Figure 1) which enabled trucks to transport goods directly from Kashgar in Western China to Gwadar in Pakistan. According to Habibi and Zhu, the second phase (2020– 2025) would see further expansion and the modernization of interconnectivity through roads, railways, and pipelines.(41) Once these were in place, they believe, transporting crude oil from the Middle East to Western China would cost less time and money compared with the longer sea route through the Malacca Straits.(42) A pre-feasibility study in 2015 had also concluded that oil transported from the Middle East to China through Pakistan would take the shortest time and would offer numerous benefits.(43)

(39) Nader Habibi and Hans Yue Zhu, “What CPEC Means for China’s Middle East Relations,” Diplomat, January 22, 2020. (40) He is currently Advisor to the Prime Minister on Institutional Reforms and Austerity with the status of Federal Minister: Ishrat Hussain, “CPEC and Pakistan’s Economy: A Way Forward,” Working Paper #020, March 5, 2018: 8. (41) For the three phases of CPEC, see Government of Pakistan, Ministry of Planning, Long- Term Plan for China-Pakistan Economic Corridor (2017–2030), 9, accessed April 7, 2020, http://cpec.gov.pk/long-term-plan-cpec (42) Plans for this pipeline have been in discussion since 2006; see Editorial, “Trans-Himalayan Pipeline,” Business Recorder, November 6, 2006, https://cpec-centre.pk/wp-content/uploads/2018/10/020.pdf. (43) Faheem Ullah Shaikh, Qiang Ji, and Ying Fan, “Prospects of the Pakistan-China Energy and Economic Corridor,” Renewable and Sustainable Energy Reviews 59 (2016): 253–63, 262. These views, however, contrast starkly with reservations articulated by certain Chinese experts as to the efficacy of Gwadar Port for China’s energy requirements. The impediments led commentators on the Global Times to conclude that “Gwadar will not become China’s main trade hub with Persian Gulf countries, not to mention serve as an alternative route to the Malacca Straits.”(44) In this same article, concerns were raised about the lack of depth of the inner port and the weight of cargo it could handle, thus identifying the port as medium sized when China’s oil imports required large ports that could accommodate bigger ships with heavy cargo. Structural costs, according to Mei Xinyu (quoted in the same article), such as those incurred in building the proposed oil pipelines from Gwadar to Kashgar, a difficult terrain prone to earthquakes and landslides, made it far more expensive than sending oil through the ship lanes. The article was used by Jeremy Garlick to highlight the contrast when obtaining practical information on CPEC projects.(45) His critical evaluation of other published studies led him to conclude that some of them could not be relied on for accurate information.(46) In another Global Times article, a senior research fellow at Renmin University, Zhou Rong, even questioned Karakorum highway route’s efficacy for Pakistan’s trade, pointing to low consumer demand from Western China.(47) Most importantly, he explained, the physical limitations of the highway, also known as the China-Pakistan Friendship highway, could seriously hinder increased trade between the two countries. Impediments included topography, which made the road vulnerable to landslides, its narrow width of 6–10 meters, meaning that increased traffic might create difficulties, added to the fact that

(44) Wu Minghua, quoted in Li Xuanmin, “Gwadar Port Benefits to China Limited,”Global Times, November 23, 2016. (45) Jeremy Garlick, “Deconstructing the China-Pakistan Economic Corridor: Pipe Dreams Versus Geopolitical Realities,” Journal of Contemporary China 27, no. 112 (2018): 519–33, 522. (46) One of the studies he considered was the pre-feasibility report by Shaikh, Ji, and Fan mentioned earlier, “Prospects of the Pakistan-China Energy and Economic Corridor.” (47) Ma Jingjing, “China-Pakistan Economic Corridor Aims to Boost Trade between Two Countries,” Global Times, February 12, 2017.

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the road is typically closed in the winter due to heavy snow. And yet a recently published comparative study, which used estimated calculations involving transport cost and time, concluded that the Kashgar to Gwadar land route would save China US$71 billion and at least 21 days in trade with the Middle East and Europe, as compared to the sea routes.(48) Completely omitted from its calculations were any of the physical limitations of the road mentioned by Zhou or the fact that , the border point between China and Pakistan (see Figure 1), closes for nearly four months in winter in accordance with the 1985 border protocol agreement.(49) It failed to acknowledge the route, whose length they measured using Google maps, sits on the Pamir Plateau at an altitude of over 4,500 meters from where it descends to Pakistan via a single road (see Figure 1) all the way to the of Islamabad before it divides to go in other directions.(50) To put so much at stake on just one road without identifying problems, apart from bad weather, reveals a lack of practical knowledge about the area.(51)

(48) Khalid Mehmood Alam, Xuemei Li, and Saranjam Baig, “Impact of Transport Cost and Travel Time on Trade under China-Pakistan Economic Corridor (CPEC),” Journal of Advanced Transportation, 2019; 14, http://downloads.hindawi.com/journals/jat/2019/7178507.pdf. (49) Staff Report, “GB delays Khunjerab Border Opening Amid Coronavirus Threat,” , January 30, 2020. (50) “Khunjerab Pass: Where China-Pakistan Meet,” China Daily.com.cn, April 21, 2015, https:// www.chinadaily.com.cn/world/2015xivisitpse/2015-04/21/content_20495632.htm. (51) Concerns regarding the single road were raised in a Pakistani newspaper: Afzal Ali Shigri, “Considering Alternative Routes,” Dawn, December 11, 2017. Figure 1. The three main routes (roads) of CPEC

Garlick’s point, regarding difficulty assessing the true cost of CPEC projects, such as those related to oil pipeline security(52) or their cost comparison with maritime shipping,(53) is relevant, in that it can hinder researchers who are trying to understand the logic behind the joint project for the two respective countries. Even amongst China’s experts and officials over the years, according

(52) Guy C. K. Leung “China’s Energy Security: Perception and Reality,” Energy Policy 39 (2011): 1330–37, 1334. (53) Andrew S. Erickson and Gabriel B. Collins, “China’s Oil Security Pipe Dream—The Reality, and Strategic Consequences, of Seaborne Imports,” Naval War College Review 63, no. 2 (2010): 104, https://digital-commons.usnwc.edu/cgi/viewcontent.cgi?article=1599&context=nwc-review.

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to Andrew Small there does not appear to be a unified position regarding the value of Gwadar Port.(54) As Garlick points out, the three 200 meters-wide berths in Gwadar Port, with an inner channel depth of 13.8 meters,(55) presently limits the size of ships that can dock there.(56) The point to be noted, however, is that officially the port makes no claim to deal with oil ships, now or in the future, explaining their plans as being to cater only for general cargo, bulk cargo container, and roll on and roll off (RORO)(57) ships.(58) Gwadar Port’s limited capability still has potential for growth as ultimately it has geography in its favor as a natural deep sea water port. Its neighboring port of Karachi, with 33 berths and an occupancy rate of 45–55 per cent,(59) has only recently built a container terminal capable of berthing the world’s largest container vessel.(60) Nevertheless, criticisms regarding land routes and energy pipelines between China and Pakistan do raise serious concerns, given the absence of the proposed oil pipelines(61) or any cross-border energy pipelines in Pakistan.(62) This has led to the belief in certain quarters that perhaps the real reason for the port was not commercial but as a future naval base.(63) However, as mentioned

(54) The debates range between its commercial significance or military utility: Andrew Small,The China-Pakistan Axis: Asia’s New Geopolitics (Haryana, India: Random House, 2015), 103–5. (55) Gwadar Port Authority (GPA), “Port Profile: Current Port Infrastructure,” Gwadar Port Authority, Government of Pakistan, http://www.gwadarport.gov.pk/portprofile.aspx. (56) By Garlick’s calculations, oil ships have at a minimum a draught level of 16 meters: Garlick, “Deconstructing the China-Pakistan Economic Corridor,” 525. (57) “RoRo or Roll on Roll off ship is a special type of vessel which is used for the transportation of automobile vehicles”: Sharda, “Different Types of Roll-On Roll-Off Ships,” Marine Insight, October 9, 2019, https://www.marineinsight.com/types-of-ships/different-types-of-roll-on-roll-off-ships/. (58) Gwadar Port Authority (GPA), “Vision and Mission,” Gwadar Port Authority, Government of Pakistan, http://www.gwadarport.gov.pk/vision.aspx. (59) Karachi Port Trust, “Port Statistics” Karachi Port Trust: Gateway to Pakistan, http://kpt.gov. pk/pages/Default.aspx?id=43#page-heading. (60) Salman Siddiqui, “Pakistan’s Only Deep-Water Port Enters Phase II of Expansion,” Express Tribune, May 7, 2019. (61) “China is getting ready to shift around 17 percent of its oil import to Gwadar-Kashgar oil pipeline”: Fawad Yousafzai, “China to Build Mega Oil Pipeline from Gwadar to Kashgar,” The Nation, July 16, 2017. (62) Fei-fei Guo, Cheng-feng Huang, and Xiao-ling Wu, “Strategic Analysis on the Construction of New Energy Corridor China-Pakistan-Iran-,” Energy Reports 5 (2019): 828–41, 830. (63) Small, The China-Pakistan Axis,102. Also see H. I. Sutton, “China’s New High-Security Compound in Pakistan May Indicate Naval Plans,” Forbes, June 2, 2020 by Habibi and Yue Zhu, plans to build the pipelines are supposedly due in the second phase of CPEC (2020–2025), so perhaps some progress may be possible. In 2016, a Pakistani engineering company, Frontier Works Organization (FWO), were tasked with building the oil pipeline from Gwadar to Kashgar, with funds coming from the Chinese government.(64) Although by 2018 there was no sign of the pipeline, the same engineering company, FWO, appeared to show an interest once more but this time in collaboration with private- sector investors.(65) The audit company PricewaterhouseCoopers (PwC) was said to have confirmed the project’s viability to enable the funds, which were estimated at around US$10 billion, to be secured. The consortium had wanted assurance from the Pakistani government (which was granted) that it would not take over the planned investment. Whether the project is still going ahead is difficult to ascertain presently as information on FWO projects is hard to come by, but from the report it seems cost issues raised in the 2016 Global Times article, such as high altitude, freezing temperatures and difficult terrain, have been considered. In 2019Pakistan’s Economic Coordination Committee had given approval for an oil pipeline but it was for white oil and to be laid within Pakistan by the Frontier Oil Company, a subsidiary of FWO.(66) Land routes created for Gwadar and CPEC are considered pivotal for the future upward trajectory of Pakistan’s economy.(67) In the words of Razak Dawood, advisor of commerce to Pakistan’s Prime Minister: “Pakistan can

(64) FWO is a construction company set up by Pakistan’s Army Corps of Engineers in 1966 to help construct the Karakorum Highway with China: Qammar Abbass Anka, “FWO: National Pride of Pakistan,” News International, June 5, 2016.; Yousafzai, “China to Build Mega Oil Pipeline from Gwadar to Kashgar.” (65) Zafar Bhutta, “From Gwadar-Kashgar: Crude Oil Pipeline Requires $10 Billion Investment,” Express Tribune, May 18, 2018. (66) Khalid Mustafa, “FWO’s White Oil Pipeline Pilots through ECC,” News International, February 13, 2019. (67) Also see Gwadar Port Authority (GPA), “Vision and Mission.”

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reach its true potential of transshipment when China, Afghanistan and other Central Asian economies are connected with Gwadar through land routes.”(68) As such, Pakistan Vision 2025,(69) which is an economic roadmap for the country envisioning its development through concrete measures, aims to utilize the interconnectivity afforded to it through CPEC projects, such as roads, railways, and ports, to not only tap into the markets of Central Asia but also attain energy security.(70) To secure energy supplies, Pakistan, with the help of the and Asian Development Bank, has engaged in several projects in the region, including the Central Asia -1000 and the ---Afghanistan-Pakistan-500 projects and also the Turkmenistan-Afghanistan-Pakistan-India pipeline.(71) In that instance, Akhter suggests that CPEC provides Pakistan the perfect opportunity to unleash its potential, alongside Pakistan’s membership of regional blocs such as the Economic Cooperation Organization and Central Asia Regional Economic Corporation.(72) On the other hand, for landlocked states of Central Asia, the Pakistani seaports (Karachi, Qasim, and Gwadar) are much closer than the ports in Russia, China, Iran, , and the Baltic countries currently in use.(73) This makes the use of Pakistani ports much more time-saving and cost-effective for them, as it provides quicker access to the Arabian sea.

(68) Razak Dawood, quoted in Mubarak Zeb Khan, “Gwadar Has Transshipment Potential: Razak,” Dawn, May 21, 2020. (69) It was the brainchild of , Minister of Planning Development and Reform during the tenure of : Raza Haidery, “Pakistan Eyeing to Become Top 25th Economy by 2025,” Samaa, August 18, 2017. (70) Planning Commission, Pakistan 2025: One Nation One Vision, Government of Pakistan, Ministry of Planning, Development and Reform, 89, https://www.pc.gov.pk/uploads/vision2025/ Pakistan-Vision-2025.pdf. (71) Rabia Akhter, “Building Regional Connectivity for Pakistan,” Friedrich-Ebert Foundation, December 2019, 33, http://library.fes.de/pdf-files/bueros/pakistan/15952.pdf. (72) “History,” Economic Cooperation Organization (ECO), http://www.eco.int/general_content/86055- History.html?t=General-content; CAREC Program, “What Is CAREC?” Central Asia Regional Economic Corporation Program, https://www.carecprogram.org/?page_id=31. (73) Ryuichi Shibasaki, Satoshi Tanabe, Hironori Kato, and Paul Tae-Woo Lee, “Could Gwadar Port in Pakistan Be a New Gateway? A Network Simulation Approach in the Context of the Belt and Road Initiative,” Sustainability 11, no. 20 (2019): 2, https://www.mdpi.com/2071-1050/11/20/5757/htm. The Quadrilateral Traffic-in-Transit Agreement (QTTA) is another example of how CPEC is enabling Pakistan to fulfil its need to expand connections with the Central Asian states through Gwadar. Signed by China, , , and Pakistan, the agreement facilitates traffic in transit using the through China, bypassing Afghanistan, all the way to the Indian Ocean through Pakistani seaports (Karachi, Qasim, and Gwadar).(74) Originally signed in Islamabad on March 9, 1995, the QTTA is now considered part of CPEC and has seen the addition of Tajikistan in 2017 and Uzbekistan in 2020.(75) According to the Deloitte report, despite being in force since 1995, actual physical progress on the project had been painfully slow, partly due to low trade volume between the countries and Pakistan and partly due to the state of the Karakorum highway up to 2014. Given that the highway was upgraded under the first phase of CPEC, and new countries have joined QTTA, further integration is possible. Part of the reason why Pakistan may have been interested in a route that bypassed Afghanistan into Central Asia, apart from security concerns inside Afghanistan itself, could have been Afghanistan’s refusal to give them access unless India was also made party to the Afghanistan-Pakistan Transit Trade Agreement (APTTA).(76) Pakistan and Afghanistan have two transit trade agreements between them, Afghan Transit Trade Agreement (ATTA), signed in 1965, and APTTA, which was signed in 2010. Only under APTTA does Afghanistan have access to the port of Gwadar in addition to Karachi and Qasim; and China through the dry port of Sost near the Pakistan-China border. They also gained an additional crossing point on the Pakistan-Afghan border near

(74) Deloitte Consulting, Analysis of Quadrilateral Traffic in Transit Agreement (QTTA), United States Agency for International Development (USAID) Trade Project, May 2014. (75) “Meeting of the Prime Minister with the President of Tajikistan,” Government of Pakistan, Ministry of Foreign Affairs 086/2017, March 1, 2017; Mubarak Zeb Khan, “Uzbekistan Looks to Pakistani Ports,” Dawn, May 8, 2020. (76) Shoaib Ahmad Rahim, “Afghanistan’s Dependence on Pakistan: Trade, Transit and the Cost of Being Landlocked,”’ Kardan Journal of Economics and Management Sciences 1, no. 4 (2018): 1–21, 14.

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Ghulam Khan. In return, Pakistan would have gained access to Iran, Uzbekistan, Tajikistan, and Turkmenistan through the Wakhan Corridor in Afghanistan.(77) But Afghanistan has made this access subject to Pakistan allowing them direct access to India, resulting in a deadlock. The system in place only allows trucks from Afghanistan access to Wagah, which sits on the Pakistan-India border, from where their goods are transferred to India through another party. The trucks are not allowed to return to Afghanistan with goods from India via the same route, resulting in losses for businesses. Lately, some progress has been reported in the talks,(78) with Gwadar also receiving a shipment of fertilizer for Afghanistan under APTTA.(79) As such, the importance of Gwadar for any future economic development in the region as envisioned by both Pakistan and China is paramount when understanding their choice of additional parties in CPEC, such as Saudi Arabia, whose inclusion also goes some way helping to deflect the argument from the commercial limitations of the port and its surrounding area.(80)

2. Saudi-Pakistani Relations and CPEC Saudi Arabia was one of the first countries in the world to recognize Pakistan after its creation in 1947.(81) For some Pakistani analysts, such as Mujtaba Razvi, Saudi-Pakistani relations go back even farther, to 1943, when the late king, Abdul Aziz Al-Saud, sent a personal donation to Mohammed

(77) “Wakhan is the shortest trade route for Pakistan to reach Central Asia and for China to enter Afghanistan”: Muhammad Munir and Muhammad Shafiq, “Geostrategic Significance of Wakhan Corridor for Afghanistan, China and Pakistan,” Margalla Papers 22 (2019): 203–15, 204. (78) Mubarak Zeb Khan, “Afghanistan, Pakistan Resume Transit Trade Talks,” Dawn, July 13, 2019. Some border points between the two countries have been closed since March 2020 due to COVID-19 restrictions. News desk, “Pakistan Reopens Wagah Border for Afghan Exports,” Express Tribune, July 13, 2020. (79) DNA, “First Cargo Ship Carrying Wheat, Urea Reaches Gwadar: Asim Bajwa,” Express Tribune, May 30, 2020. (80) In 2004 the estimated population of Gwadar District, which includes Gwadar, Pasni and Jiwani, was 215,000: GPA, “Gwadar Port,” Gwadar Port Authority, Government of Pakistan, http://www.gwadarport.gov.pk/about%20us.aspx. (81) Sib Kaifee, “Saudi-Pak Ties: ‘One of the Closest Relationships in the World’,” , February 17, 2019. Ali Jinnah’s Muslim League famine relief fund for Bengali Muslims.(82) Razvi says that Saudi-Pakistani relations entered a new chapter in the 1960s, when the construction boom inside the oil-rich Kingdom required skilled labor, which Pakistan was able to supply. Recently, in recognition of this historical bond and at the request of the Pakistani government, Saudi Arabia has given Pakistani laborers working in the Kingdom temporary respite from job cuts as a result of the ongoing global pandemic and provided further assurance of payments due to those who have already been repatriated.(83) Relations between Saudi Arabia and Pakistan, in Guido Steinberg and Nils Woermer’s opinion, are reciprocal, in that, while Saudi Arabia is financially affluent, it has only a small army to protect its small population.(84) Pakistan, on the other hand, may not be financially secure but has a large population and an equally strong army, with nuclear weapons. Feelings of admiration between the two are mutual, these authors explain: Pakistan appreciates the Kingdom’s religious significance while the Kingdom appreciates Pakistan’s military capabilities. This admiration may help explain why in 1998, following Pakistan’s test of a nuclear weapon, Saudi Arabia defied global sanctions and gave it much needed oil with deferred payments, thus helping the country. In 2018, Saudi Arabia was invited by the government of Pakistan to join various projects within the larger CPEC package, to which the Kingdom responded positively.(85) The invitation followed a trip by the Prime Minister to the Kingdom, during which Saudi Arabia had agreed to help Pakistan address

(82) Mujtaba Razvi, “Pak-Saudi Arabian Relations: An Example of Entente Cordiale,” Pakistan Horizon 34, no. 1 (1981): 81–92, 82. Although Razvi states the amount of the donation was £16,000, official papers from the time clearly stipulate a sum of Rs 10,000: Z. H. Zaidi,Quaid-i- Azam Mohammad Ali Jinnah Papers: Quest for Political Settlement in India 1 October 1943–31 July 1944, Government of Pakistan, Islamabad, 2004, 10:641. (83) APP, “COVID-19: Saudi Arabia Bars Firms from Laying Off Pakistani Workers for 3 Months,” Gulf News, April 22, 2020. (84) Steinberg and Woermer, “Exploring Iran and Saudi Arabia’s Interests in Afghanistan and Pakistan,” 9. (85) “Saudi Arabia Keen to Invest in Second Phase of CPEC—Asim Bajwa,” Arab News Pakistan, February 15, 2020.

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a deficit in its current account by providing it with US$6 billion as part of an economic bailout package.(86) Half this amount was in deferred payments for oil imports while the rest was foreign currency support to help Pakistan’s US$18 billion balance-of-payment crisis.(87) A few months later, in February 2019, seven agreements were signed between the two countries for projects worth US$21 billion when Crown Prince Muhammed Bin Salman visited the country on his first official trip.(88) They included a US$10 billion oil refinery on the southwestern coast of Gwadar in , operated by . As the prince explained: “We have been a brotherly country, a friendly country to Pakistan . . . We are going to work with Pakistan in all areas, economically, politically, and security to make sure that we create an amazing future for Saudi Arabia and Pakistan.”(89) The Crown Prince’s visit to Pakistan and his announcements during the trip received much publicity in local media, with articles and editorials in national newspapers eulogizing the two leaders and envisioning a better future for both countries.(90) In particular, his reaction to Prime Minister Imran Khan’s request to look into the matter of the 3,000 Pakistani prisoners in Saudi jails was much appreciated.(91) During the state dinner he had replied, “consider me Pakistan’s

(86) Baqir Sajjad Syed, “Saudi Arabia Pledges $6bn Package to Pakistan,” Dawn, October 24, 2018. (87) Reportedly, Pakistan has been able to utilize only US$890 million of the US$3.2 billion oil and gas credit facility Saudi Arabia offered on an annual basis on deferred payments, with officials citing a slump in crude oil prices and low demand due to COVID-19 as reasons: Shahbaz Rana, “Pakistan underutilises Saudi oil facility,” Express Tribune, June 21, 2020. (88) Wasim Iqbal, “$21 billion Investment Commitments: Saudi Arabia Assures Pakistan of Substantial Progress,” Business Recorder, September 25, 2019. (89) Crown Prince Muhammad Bin Salman, quoted in “Crown Prince, Pakistan PM Oversee Signing of Pacts Worth $20 Billion,” , February 17, 2019. ,[Imran Khan and Prince ] ”عمران خان اور شہزادہ محمد بن سلمان“ ,Hasan Nisar (90) پاک سعودی تاریخی تعلقات“ ,Daily Jang, February 20, 2019: Mohammed Abdullah Hameed Gul ,Pakistani-Saudi Historical Relations at an Important New Turn], Nidai Millat] ”ایک نۓ موڑ پر پاکستان میں سعودی عرب کی 21 عرب ڈالر کی رسمایہ کاری معاشی سفارت کاری“ ,February 21, 2019, 35: Editorial ,[Billion dollar Saudi Investment in Pakistan a New Addition in Diplomacy] میں نۓ باب کا اضافہ” ]21 ”پاک سعودیہ دوستی کے نۓ باب کا اغاز“ ,Nidai Millat, February 21, 2019; and Ameer Mohammed Khan [New Beginning in Pakistani-Saudi Friendship],” Nidai Millat, February 21, 2019, 19. Thank You, Crown] ”!شکریہ ولی عہد شہزادہ محمد بن سلمان شکریہ وزیراعظم عمران خان“ ,Ansar Abbasi (91) Prince Mohammed bin Salman and Thank You Prime Minister Imran Khan], Daily Jang, February 19, 2018. ambassador to Saudi Arabia. We cannot say no to Pakistan.”(92) The very next day, orders were given by the Crown Prince for the release of 2,107 Pakistani prisoners from Saudi jails.(93) However, it was only by January 2020 that the Pakistani government was able to confirm the release of 2,080 prisoners out of 3,284 from Saudi jails.(94) There was also news of a database being finalized with Saudi officials that would give the actual numbers of Pakistanis in Saudi jails accurately. In October 2019, the two countries created a Supreme Coordination Council to help provide an institutional mechanism through which decisions on key bilateral cooperation agreements could be tracked and their implementations monitored.(95) Saudi investments in CPEC as such have reportedly been divided into short-, medium-, and long-term projects. The short-term projects include two regasified liquefied natural gas plants worth US$4 billion and a US$2 billion investment in Pakistan’s renewable energy sector by Saudi power-generating company ACWA Power.(96) The chairman of ACWA Power, Mohammad Albunayyan, seemed particularly keen to invest in Pakistan, as he explained: “there is huge investment opportunity for production of cheap energy to fulfill the growing local demand.”(97) Food and other agricultural

(92) News Desk, “Consider Me Pak Ambassador to KSA: MBS Wins Hearts,” Global Village Space, February 18, 2019. (93) “Saudi Crown Prince Orders Release of Over 2,000 Pakistani Prisoners,” Dawn, February 18, 2019. (94) The report also quoted Pakistani officials as being hopeful for the release of remaining prisoners soon: Aamir Saeed, “Govt confirms release of 2,080 Pakistani prisoners from Saudi jails,”Arab News Pakistan, January 16, 2020. Saudi Arabia, despite the prince’s agreement, had refused to release those imprisoned under drug offences or undergoing trials, hence the delay: Waqas Ahmed, “KSA Refuses to Release Pakistani Prisoners Involved in Drug Smuggling” Express Tribune, October 29, 2019. (95) “Prime Minister Imran Khan and His Royal Highness Prince Mohammad bin Salman and the Inaugural Session of Saudi-Pak Supreme Coordination Council,” Government of Pakistan, Ministry of Foreign Affairs 53/2019, February 17, 2019. (96) Iqbal, “$21 Billion Investment Commitments”; China’s Silk Road Fund (SRF) has recently completed a 49 percent stake in ACWA Power Renew Co.: Aarti Nagraj, “China’s Silk Road Fund Acquires 49% Stake in Saudi’s ACWA Power Unit,” Gulf Business, June 23, 2019. (97) Mohammad A Abunayyan, Chairman of ACWA Power quoted in Muzaffar Rizvi, “$20 Billion Investment is Phase One: Saudi Crown Prince,” Khaleej Times, February 18, 2019.

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projects, each worth US$1 billion, fall into the category of medium-term projects, while a US$10 billion oil refinery and a US$1 billion petrochemical complex in Gwadar are considered long-term investments, as is an investment of US$2 billion in the minerals sector. Of these, the most significant are the oil refinery and the petrochemical complex, which are to be built by Saudi Aramco in Gwadar’s Oil Terminal City (see Figure 2).(98) Established by Pakistan and China on around 80,000 acres, Oil Terminal City was created so that oil from the Gulf could be imported and stored there before being transported to China.(99) Pakistani officials explained that development of the refinery would not only reduce Pakistan’s annual oil import bill of US$18 billion but would also help reduce the country’s requirement of help from the IMF.(100) Saudi investment in Gwadar Port, according to some observers, has provided legitimacy to CPEC as a secure regional investment project, thus making it attractive for other countries to join in.(101) Others described the Crown Prince’s visit as signaling that the torch of Saudi-Pakistani alliance had passed on to a younger generation, making note of the presence of younger royals among his entourage.(102) Investment in CPEC projects was hailed as representing a monumental change in Saudi policy toward Pakistan, marked for the first time by the Kingdom’s establishment of an economic footprint in the country.(103) Historically, as Umair Jamal argued, the Kingdom had only

(98) Khurshid Ahmed, “Land Allocation Underway for $10 Bln Aramco Refinery in Gwadar— GDA Chief,” Arab News, February 17, 2020. (99) This area is somewhat at a distance from main Gwadar Port, as within the constructed planning area of Gwadar only 20 percent is available for commercial and industrialization purpose while 80 percent is reserved for residential and road use: Saleem Janjua and Numra Asif, “Gwadar Smart Port City Master Planning under CPEC—Setting the Baseline,” China- Pakistan Economic Corridor CPEC Quarterly 3 (2019): 22–7, 24; Mehtab Haider, “Mega Oil City to Be Constructed in Gwadar under CPEC,” News International, January 22, 2018. (100) Khaleeq Kiyani, “Talks with Saudi Arabia on $8bn Gwadar Refinery in Final Stages,”Dawn , October 4, 2018. (101) Hussain, “CPEC and the Belt and Road Initiative,” 41. (102) Ahmed Quraishi, “The Pakistani-Saudi Agenda for the 21st Century,” Pakistan Politico, March 16, 2019. (103) Umair Jamal, “The Future of CPEC: Enter Saudi Arabia?” Diplomat, September 27, 2018. offered financial assistance to the country, such as subsidies for oil imports. Financial investments, such as those promised for CPEC, in his opinion, reflected the Kingdom’s position that it was no longer interested in providing unconditional financial aid to Pakistan if it did not bolster the Kingdom’s position inside the country. Following Saudi Arabia, the UAE also provided Pakistan with a similar aid package with a US$3 billion loan at an interest rate of 2.8 percent and US$3.2 billion, as deferred payment for oil supply.(104) Later, this aid package was reduced and the loan amount was brought down to US$2 billion, while the deferred payment for the oil deal was scrapped with no official explanation provided.(105) The UAE, in line with KSA, also decided to invest in Pakistan’s oil refining industry by building a project in Hub (see Figure 2), which is in the same Balochistan province of Pakistan as Gwadar.(106) A joint venture between Mubadala Petroleum Company of , Pak Arab Refinery Ltd., and OMV Pakistan Exploration Gesellschaft, is looking to invest US$5 billion in a deep conversion refinery with an output of 250,000 to 300,000 bpd.(107) They have also explored their participation in phases two and three of CPEC, reportedly showing great interest, investing in the deep seaport of Gwadar.(108) Given the close relations between the Crown Prince of Abu Dhabi, Mohammed bin Zayed Al Nahyan, and Saudi Arabia’s Crown Prince, Mohammed bin Salman, the UAE’s confidence in and support for Pakistan is important.(109) That close relationship was evident when UAE ministers rather

(104) Syed Irfan Raza, “UAE, Pakistan Formalise $6.2bn Bailout Package,” Dawn, January 7, 2019. (105) Rana, “Pakistan underutilises Saudi oil facility”. (106) Pakistan had awarded a tax incentive package to Abu Dhabi Petroleum Investment Company to establish an oil refinery in Hub: Rizvi, “$20 billion investment is phase one: Saudi Crown Prince.” (107) Saima Shabbir, “UAE to Invest $5 Billion in Pakistan’s Oil Refinery, Says Envoy,” Arab News, October 4, 2019. (108) Sib Kaifee, “UAE Seeking Investment Avenues in Multibillion China-Pakistan Economic Corridor,” Arab News, September 20, 2020. (109) Arwa Ibrahim, “MBS-MBZ: A Special Bond between Two Gulf Princes,” Al Jazeera, March 17, 2020.

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than Saudi ministers had responded harshly to Pakistan’s refusal to join Saudi Arabia’s coalition in against the Houthis.(110) It is also evident in that the two countries are jointly considering investments in the Indian state of Maharashtra, where they plan to open a huge oil refinery worth US$70 billion.(111) According to Juan Cole, China and Pakistan both realized that, given Pakistan’s dire financial situation, which includes high import bills and dangerously low currency reserves, for CPEC to work, cash infusions from other countries were needed.(112) China could have helped by providing more loans, but given the international outcry against its BRI project as a debt trap for poor countries, it was reluctant to do so. Since China had developed close economic relations with (GCC) countries, Saudi Arabia included, it found them a natural choice when choosing economic partners for CPEC. As for Pakistan, the inclusion of other countries meant less reliance on just one foreign patron. For Saudi Arabia, on the other hand, while investment in Gwadar was potentially profitable, in Cole’s opinion its financial backing of Pakistan was also a reflection of the Kingdom’s gratitude for Pakistan’s support following the international fallout over the killing of the journalist . There was some initial confusion around the inclusion of Saudi Arabia as a strategic partner in CPEC, which led to vocal criticism by Pakistan’s opposition parties about the inclusion without China’s approval.(113) Anxieties over Iran’s reaction were also raised, given that it shares a border with Pakistan in Gwadar and there were tensions in Saudi-Iranian relations. There were also those, such

(110) “UAE Minister Warns Pakistan of ‘Heavy Price for Ambiguous Stand’ on Yemen,” Dawn, April 11, 2015. (111) AP, “Saudi, UAE Discuss $70B Crude Refinery Project in India,”Associated Press, November 28, 2019. (112) Juan Cole, The China-Pakistan Economic Corridor and the Gulf Crisis, Gulf Studies Centre Monograph Series, 2019, 4: 17, https://deepblue.lib.umich.edu/bitstream/handle/2027.42/150663/ Gulf%20Studies%20monographic%20series%20No%204%20Juan%20Cole.pdf?sequence =1&isAllowed=y. (113) Iftikhar A. Khan, “Senate Questions CPEC Partnership Offer to Saudi Arabia,” Dawn, October 2, 2018. as the National Party senator from Balochistan, Mir Hasil Bizenjo, who argued over the legality of handing over the controversial Reko Diq mineral mines to Saudi Arabia by the federal government, as they fell under the provincial government’s jurisdiction.(114) Part of the reason for the consternation was the assumption that no third countries were to be allowed to invest in CPEC projects until 2020.(115) Also, the newly elected Prime Minister Imran Khan and his party members had been considered critical of CPEC both before and after elections.(116) Since coming into office he had had to reduce the size of CPEC from US$64 billion to US$50 billion to counter the balance of payments crisis in the country.(117) Subsequently, government officials had to clarify that, rather than Saudi Arabia becoming a third strategic partner in CPEC, it was going to be joining other countries that were investing in CPEC-related projects.(118) CPEC remains very much a bilateral affair between the governments of Pakistan and China. The Saudi intention to invest in an oil refinery and petrochemical complex in Gwadar is intriguing. Initially, China had planned to build an oil refinery in Gwadar, and in 2007 a Chinese company, Great United Petroleum Holdings, had also carried out a feasibility study for a US$13 billion petrochemical city.(119) However, security concerns in the area caused those plans to be shelved for the time being.(120) To control the situation, Pakistan allocated US$9.1 million and created a 15,000-man strong Special Security Division (SSD), comprising nine

(114) Amber Darr, “Long Read: The Reko Diq ‘Fiasco’ in Perspective: Pakistan’s Experience of International Investment Arbitration,” LSE Blog, , 2019. (115) Zafar Bhutta, “No Other Country may be Able to Join CPEC before 2020,” Express Tribune, August 23, 2017. (116) Shamil Shams, “Is New Pakistani PM Khan Backtracking on China’s Economic Corridor?” Deutsche Welle, September 18, 2018. (117) Tom Hussein, “As Coronavirus Bites, Pakistan Looks to China for Belt and Road Economic Boost,” South China Morning Post, May 24, 2020. (118) Khaleeq Kiyani, “Saudi Arabia Not to Be Made Part of CPEC,” Dawn, October 3, 2018. (119) Syed Fazal-e-Haider, “Gwadar Seaport Holds Key in China’s Energy Search,” South China Morning Post, February 12, 2013. (120) Chu Daye, “Operating in Pakistan Calls for Business Savvy, Security Awareness, Report Shows,” Global Times, December 20, 2016.

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battalions of the and six wings of civil armed forces.(121) These were then used to protect CPEC projects in various parts of Pakistan, such as in Gilgit-Baltistan, province, and Gwadar. Since then, security issues in Gwadar concerning ethnonational terrorist groups and the Balochistan chapter of Lashkar-e-Jhangvi and Al-Qaeda have gradually been dealt with and the situation has reportedly improved somewhat.(122) Militant action in the area still flares up from time to (123) time. As a result, the area is heavily guarded and armed escorts accompany foreign visitors, which can make the environment intimidating for investors.(124) However, the armed forces of both Pakistan and Saudi Arabia regularly engage in antiterrorism exercises together and so are well aware of each other’s capabilities.(125) As such, Saudi investment in an oil refinery in Gwadar, according to Cole, made economic sense as plans were already in place for trans-Himalayan pipelines in the region connecting Gwadar to China.(126) While exact details of the deal between Pakistan and Saudi Arabia are said to be under a nondisclosure agreement, there is speculation that perhaps the oil refinery and the petrochemical complex might not be built in Gwadar Oil Terminal City but instead in nearby Hub or Somiani (see Figure 2), due to feasibility issues.(127) Plans have also been approved recently to set up a new Special Economic Zone in Hub to support industrialization in the area, which

(121) Kaswar Klasra, “‘The Chinese are Our No 1 Enemy’: Why Beijing’s US$62 Billion Investment in Pakistan is the Top Target for Balochistan Separatists,” South China Morning Post, May 16, 2019. (122) Fahad Nabeel and Mariam Asif, “Pakistan’s Counter-Insurgency Campaign in Balochistan: An Analysis,” Journal of Contemporary Studies 8, no. 1 (2019): 52–70, 57. (123) Mohammad Zafar, “Forces Stave Off Mumbai-Style Terrorist Attack on Gwadar Hotel,” Express Tribune, May 11, 2019. (124) Recently there have been unconfirmed reports of a Pakistan army operation against terrorists in Balochistan, on the Iran border: “Eid in Balochistan: Pakistan Military Conducts Fresh Offensives,” Balochwarna News, , 2020; Baker Atyani and Naimat Khan, “Operation Underway Against Militants Near Pakistan-Iran Border,” Arab News, June 5, 2020; Sheridan Prasso, “One of China’s Most Ambitious Projects Becomes a Corridor to Nowhere,” Bloomberg, March 2, 2020. (125) “Saudi Troops Win Silver at Pakistan Army’s Competition,” Arab News, March 4, 2020. (126) Cole, The China-Pakistan Economic Corridor and the Gulf Crisis, 20. (127) Khalid Mustafa, “KSA May Install Refinery, Petrochemical Complex in Hub,” News International, March 2, 2020. is expected to create around 90,000 jobs.(128) Both Hub and Somiani are located in the same province as Gwadar, but are closer to the industrial city of Karachi (see Figure 2). If, after deliberations, Saudi Arabia proceeds with the refinery and complex anywhere other than the Oil Terminal City in Gwadar, it would be seen as a big public relations setback for CPEC, given the port’s importance to the overall project. Pakistan may still end up with a Saudi oil refinery and petrochemical complex and China may still be able to access oil from the Gulf through Pakistan, but Gwadar would lose its economic momentum, which Pakistan and China have been struggling to maintain.

Figure 2. Gwadar Port and nearby locations

(128) Tanveer Ahmad, “Hub SEZ Expected to Create 90,000 Jobs,” Business Recorder, May 21, 2020.

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3. Saudi Arabia, China, and Energy Relations The Kingdom of Saudi Arabia established diplomatic relations with the People’s Republic of China in 1990.(129) The two countries entered into a ‘comprehensive strategic partnership’ in 2017, at the heart of which, Frank Kane points out, are energy relations.(130) According to Chen Dongmei and Han Wenke, China has become Saudi Arabia’s largest trading partner in recent years, while Saudi Arabia is China’s largest trading partner in the Middle East and North Africa region.(131) The Kingdom, with oil exports numbering around 50 million tons per annum, was the main crude oil provider to China until Russia overtook it in 2016. They predict rising oil imports for China in the future, taking into consideration China’s new refinery capacity, inventory stockpiling, and declining domestic oil production. Reports of China’s 2019 oil imports increasing 9.5 percent from 2018, to 506 million tonnes or 3.7 billion barrels, appear to back these claims, as they marked the seventeenth consecutive year of increase.(132) Saudi crude oil exports to China also increased in 2019, to 83.32 million tonnes or 1.67 million barrels per day (bpd), following the signing of a deal in 2018 between Saudi Aramco and two private refineries in China (“teapots”).(133) It is this energy-fueled deepening in Saudi-Sino relations that partly explains Saudi Arabia’s investments in CPEC projects, such as the oil refinery and petrochemical complex in Gwadar.

(129) Jeremy Garlick and Radka Havlová, “China’s ‘Belt and Road’ Economic Diplomacy in the Persian Gulf: Strategic Hedging amidst Saudi-Iranian Regional Rivalry,” Journal of Chinese Current Affairs (January 2020): 10, https://journals.sagepub.com/doi/full/10.1177/1868102619898706. (130) In the same article, Jonathan Fulton is quoted as saying that the two countries are also extending business into oil refining, petrochemicals and energy infrastructure: Frank Kane, “How Saudi Arabia Has Built New Alliances,” Arab News, June 20, 2020. (131) Dongmei Chen and Wenke Han, “Deepening Cooperation between Saudi Arabia and China,” King Abdullah Petroleum Studies and Research Center (KAPSARC), March 2019, 10, https:// www.kapsarc.org/research/publications/deepening-cooperation-between-saudi-arabia-and-china/. (132) Frank Tang and Orange Wang, “Oil Price War between Saudi Arabia, Russia Set to Offer China’s Coronavirus-Hit Economy Welcome Relief,” South China Morning Post, March 11, 2020. (133) Muyu Xu and Chen Aizhu, “China Oil Imports from Top Supplier Saudi Arabia Rise 47% in 2019: Customs,” Reuters, January 31, 2020; On “teapots,” see Damon Evans, “The Rise of China’s Teapot Refineries,” Petroleum Economist, June 8, 2016. Following his trip to Pakistan, Crown Prince Mohammed bin Salman visited China and announced US$28 billion worth of deals there, including Aramco’s agreement with China North Industries Group Corp. and Panjin Sincen to set up a new company, Huajin Aramco Petrochemical Co. Ltd.(134) The US$10 billion deal is to develop an oil refining and petrochemical complex in Panjin, with operations expected to start in 2024. These investments could help the Kingdom once again become the top oil exporter to China, a position lost to Russia in 2016. According to Sean Foley, the game changer for Russian oil companies was when they decided to accept China’s Renminbi (RMB) currency in exchange for their oil.(135) Aramco meanwhile lost out, as it insisted on being paid in American dollars for its oil when its Chinese buyers preferred to pay in RMB. The recent global economic slowdown due to the pandemic, as well as sharply falling oil prices, have raised doubts whether the Panjin project will proceed any time soon.(136) Among the six BRI economic corridors that China announced, Jonathan Fulton points out that none are on the .(137) However, he says that has not stopped Arab countries that are part of the GCC, Saudi Arabia included, from trying to participate in them. In 2016, Saudi Arabia and China together signed a comprehensive strategic partnership and established a high- level joint committee to plan and coordinate cooperation between China’s BRI and Saudi Vision 2030.(138) Saudi Vision 2030 is the Kingdom’s long- term economic plan, which aims at reducing the country’s reliance on oil and comprehensively restructuring the economy by 2030.(139) Both countries,

(134) Ben Blanchard, “Saudi Arabia and China Sign $28 Billion Worth of Economic Agreements,” Khaleej Times, February 22, 2019. (135) Sean Foley, “When Oil Is Not Enough: Sino-Saudi Relations and Vision 2030,” Asian Journal of Middle Eastern and Islamic Studies 11, no. 1 (2017): 107–20, 115–16. (136) Dania Sadi, “Saudi Arabia’s $35 Bil of Petchem Investments in China May Be Affected by Coronavirus: GPCA,” S&P Global Platts, April 14, 2020. (137) Jonathan Fulton, “The GCC Countries and China’s Belt and Road Initiative (BRI): Curbing Their Enthusiasm?” Middle East Institute, October 17, 2017. (138) Chen and Han, “Deepening Cooperation between Saudi Arabia and China,” 8. (139) Saudi Vision 2030 Document, Vision 2030, 61, 67.

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through projects related to energy, construction, and infrastructure, remain committed to “strengthen[ing] the synergy between the BRI and the Saudi Vision 2030.”(140) The 2019 twin drone attacks on Saudi oil facilities reportedly exposed China’s heavy reliance on one particular country for its oil imports.(141) However, the recent drop in oil prices has seen China’s imports of crude oil rise, including those from Saudi Arabia, as it reportedly aimed to acquire 85 million tonnes of oil reserves for its emergency stockpile.(142) Estimates have led analysts to assume that the country doubled its imports of crude oil in the first three months of 2020.(143) While this sounds good for suppliers of crude oil such as Saudi Arabia, it is also a cause for consternation, given the sharp drop in oil prices worldwide and a slowdown in global demand for oil due to COVID-19. The Saudi government also has concerns regarding the impact of the slowdown on its non-oil private sector, an important pillar of Saudi Vision 2030, expected to contract for the first time ever.(144) It has also recently announced a change to the 2020 plans, restricting it to only 1,000 individuals who live locally.(145) The Hajj and regular pilgrimages, called Umrah, are not just a fundamental part of the country’s religious fabric but are also an important earning source.(146) The losses due to COVID-19 will impact the Kingdom in more than one way.

(140) Yan, “Chinese President, Saudi King Talk over Phone on Bilateral Ties,” Xinhua, May 8, 2019. (141) Simone McCarthy, “Drone Strikes in Saudi Arabia May Push China to Diversify Oil Supply, Analysts Say,” South China Morning Post, September 16, 2019. (142) Laura He, “China Has Been Stockpiling Oil for Years: Low Prices Give It Reason to Buy More,” CNN.com, April 8, 2020, https://www.cnn.com/2020/04/08/business/oil-prices- china-imports/index.html. (143) Clyde Russell, “China Doubled Crude Oil Storage Inflows during Coronavirus Demand Hit,” Reuters, April 20, 2020. (144) Marwa Rashad and Davide Barbuscia, “Saudi Arabia to Boost Borrowing as Oil Glut Weighs on Virus-Hit Economy,” Reuters, April 22, 2020. (145) Mohammed Al-Sulami, “Saudi Arabia limits Hajj pilgrims to 1,000”, Arab News June 23, 2020. (146) Paul Cochrane, “The Economics of Hajj,” Accounting and Business Magazine, July 1, 2018. In such a climate, Saudi Arabia’s inclusion in the CPEC project, especially its long-term investment plan for an oil refinery in Gwadar, could potentially help maintain its position as a leading crude oil provider in the region and in particular for China. The opening of Gwadar to Central Asian markets through CPEC interconnectivity projects could offer growth opportunities for the Saudi non-oil private sector. Establishing a Saudi presence in Gwadar, as it did with the visit of the Crown Prince, should enable Saudi businesses to reap future benefits in trade opportunities with the landlocked Central Asian countries when the interconnectivity projects are completed.

4. Saudi Arabia’s Regional Partner (India), Competitor (Iran) and CPEC The inclusion of Saudi investments in CPEC and Gwadar may have been welcomed by both Pakistan and China, but it is also important to gauge its impact on two of Pakistan’s important neighbors; India, which is a strategic partner of Saudi Arabia, and Iran, its primary regional competitor. These two countries are engaged in their own interconnectivity development project in the region, through the port of Chabahar, hence their view is important.(147)

4.1 India China’s BRI and CPEC have created consternation and anxiety among countries such as neighboring India, who consider it a deliberate snub by China. As Jabin Jacob pointed out, India was willing to cooperate with provincial Chinese governments such as Yunnan, under the Bangladesh, China, India, and Myanmar transborder regional economic forum.(148) But its sudden unilateral incorporation by China within the larger BRI project,

(147) Afghanistan is also an important neighbor for Pakistan, and many of the deals mentioned in this report do highlight this, but due to space limit the decision was taken not to include it here. (148) Jabin T. Jacob, “China’s Belt and Road Initiative: Perspectives from India,” China and World Economy 25, no. 5 (2017): 78–100, 80.

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in addition to CPEC, which included disputed areas in Pakistan, led to Indian concerns about China’s regional intent. Recent skirmishes between Indian and Chinese forces, near the Line of Actual Control (LAC) in the Galwan valley, in which several Indian lives were lost, have exacerbated India’s fears regarding China’s intentions.(149) Garlick suggests however that Chinese investments in Gwadar, should be seen as an attempt towards ‘geo- positional balancing’ against India.(150) According to him, certain projects have been chosen by China, not because of their economic potential but their importance in future conflicts by establishing a physical presence in commercial ports. India’s apprehension regarding CPEC could be an issue for Saudi Arabia to consider given that the Kingdom is India’s fourth largest trading partner and is the source of up to 18 percent of India’s crude oil imports.(151) However, the development of a ‘strategic relationship’ between the two countries whereby the Saudi company Aramco is partnering with various Indian companies to set up major refineries in India appears to have perhaps allayed such concerns, at least outwardly.(152) Their growing relationship has frustrated Pakistan’s attempts to convince the Kingdom to take a tougher stance against the Indian government’s unilateral revocation of Article 370 of the Constitution, which guaranteed autonomy to what Pakistan considers Indian-occupied .(153) Pakistan has repeatedly tried to raise the matter in the Council of Foreign Ministers of the Organization of Islamic Cooperation (OIC), only to be held back, allegedly, by Saudi Arabia.(154) According to reports, Saudi Arabia and

(149) Ananth Krishnan, “For Minor Tactical Gains on the Ground, China has Strategically Lost India, says Former Indian Ambassador to China,” , June 21, 2020. (150) Garlick, “Deconstructing the China-Pakistan Economic Corridor,” 521. (151) “Strategic Partnership Is a New High in Saudi-India Ties,” Arab News, January 26, 2020. (152) Harsh V. Pant, “The Reality behind India-Saudi Arabia’s Growing Ties,” Economic Times, November 3, 2019. (153) Desk Report, “Saudi Arabia ‘Reluctant’ to Back OIC Ministers’ Meeting on IOK,” News International, , 2020. (154) IANS, “Saudi Arabia Rejects Pakistan’s Plea for Discussion on Kashmir at OIC,” Hindu, February 7, 2020. the UAE both consider the revocation of Article 370 in Jammu and Kashmir as India’s internal affair.(155) Perhaps Pakistan was hoping to create the same spirit of unity showed by both countries with regards to China’s ‘re-education camps’ in Xinjiang, which prompted their joint letter of support for China at the United Nations.(156) Pakistan has lately accused India of supporting Balochistan Liberation Army (BLA), an internationally recognized terrorist group, which had claimed to be behind the recent foiled attack on the (PSX) in Karachi.(157) What was significant about this attack was that the target was chosen because of its connection to China.(158) The group had wanted not just to harm Pakistan’s economy but to also show their hostility towards China’s presence in Balochistan as expressed in the CPEC projects. Within Pakistan, opinion is that India views CPEC as a strategic challenge rather than an economic opportunity because of fears it may weaken their position in the region, especially with respect to the Middle East and Central Asia.(159) Pakistani analysts believe India is worried that after completion, CPEC may end up blocking their access to energy supplies and markets in Central Asia, which explains why India has invested heavily in the Port of Chabahar in Iran as an alternate route. The Port of Chabahar in Iran lies 107 miles (172 kilometers) from the Port of Gwadar in Pakistan (see Figure 2).(160)

(155) Christophe Jaffrelot and Haider Abbas Rizvi, “Muslim Countries with Which India Had Increasingly Good Relations Have Become Less Friendly,” Indian Express, April 22, 2020. (156) Xie Wenting and Bai Yunyi, “Fifty Ambassadors Throw Weight behind China on Xinjiang,” Global Times, July 27, 2019. (157) It left four security guards and the four terrorists dead while India denied any support for the group. Khalid Qayum, “Imran Khan Blames India for Pakistan Stock Exchange Attack,” Bloomberg, June 30, 2020. (158) Shanghai Stock Exchange, Shenzhen Stock Exchange, and China Financial Futures Exchange acquired 40 per cent shares in the PSX in 2016: Baqir Sajjad Syed, “Analysis: BLA Out to Bleed Pakistan Economy, Chinese Interests,” Dawn, June 30, 2020. (159) Saeed Shafqat and Saba Shahid, “China-Pakistan Economic Corridor: Demands, Dividends and Directions,” Centre for Public Policy and Governance, 2018, 67. (160) Gurmeet Kanwal, “Pakistan’s Gwadar Port: A New Naval Base in China’s String of Pearls in the Indo-Pacific,” CSIS Briefs, Centre for Strategic and International Studies, April 2, 2018.

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It was originally built in the 1990s, with partial help from India, so as to bypass Pakistan and gain sea and land access to Afghanistan and Central Asia, reducing both time and transport costs.(161) In 2016, India decided to sign a deal with Iran and Afghanistan and invest US$500 million for the development of Chahbahar port, in Mohammed Husseinbor’s opinion, as retaliation for China’s investment in Gwadar.(162) Within two months of its inauguration, Afghanistan moved 80 per cent of its cargo traffic, worth US$5 billion, from the port of Karachi in Pakistan to Chabahar and Bander Abbas ports in Iran, citing high tariffs by Pakistan as reason for the move.(163) India’s decision to invest in Chabahar was, as some suggest, due to its ambition for regional connectivity, as seen by their formation of the International North-South Transport Corridor (INSTC) in 2000 (Figure 3) with Iran and Russia.(164) A transportation development plan, the INSTC aims to connect the Indian Ocean to the Caspian Sea through various ports and rail networks, all the way to Northern Europe via the Russian Federation. Both Chabahar port and the INSTC, Fazl-e-Haider explains, provide India with a shorter and relatively cheaper route for its trade with Europe than the Red Sea-Suez Canal-Mediterranean Sea route it primarily uses. Yet, the timing chosen for the upgrade does not detract from the argument that India does consider Gwadar Port as competition for Chabahar.

(161) Subhash Singh, “India’s Chabahar Policy: Implications for China-Pakistan Cooperation,” International Journal of Applied Social Science 4, nos. 5–6 (2017): 172–82, 174. (162) Mohammed Hassan Husseinbor, “Chabahar and Gwadar Agreements and Rivalry among Competitors in Baluchistan Region,” Journal for Iranian Studies 1, no. 1 (2016): 82–99, 82. (163) News Desk, “Afghanistan looks to reduce dependence on Pakistan via Chabahar Port,” ptProfit, February 4, 2018. (164) Syed Fazl-e Haider, “INSTC vs. BRI: The India-China Competition Over the Port of Chabahar and Infrastructure in Asia,” China Brief 19 no. 21 (2019): 16–21. Figure 3. Map of International North South Transport Corridor (INSTC)

While the US had exempted the Port of Chabahar from its oil sanctions on Iran, it appears that Indian businessmen are still wary of investing further in the project, which has prompted the Indian government to slash its budget for the port by around two-thirds.(165) Iran had also been India’s third-largest oil supplier before the American sanctions set in, providing around 18.4 million tonnes of crude oil between 2017 and 2018.(166) Part of the reason for India’s failure to make good on its commitment to Chabahar, as Andrew Hanna explains, has been its inability to locate a private sector partner to operate cargo at the port.(167) US sanctions had created fear of repercussions amongst Western companies from selling even essential equipment for the port’s development. Ultimately, it was Chinese firms who won the contracts,

(165) Kersten Knipp, “Iran-US tensions Put India in a Bind,” Deutsche Welle, February 12, 2020. (166) PTI, “US Says Chabahar Project Won’t Be Impacted by Iran Sanctions,” Economic Times, April 24, 2019. (167) Andrew Hanna, “The Broken Promise of Chabahar”, The Iran Primer, United States Institute of Peace, October 8, 2019, https://iranprimer.usip.org/blog/2019/oct/08/broken-promise-chabahar.

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undermining, Hanna says, India’s rationale for the port in the first place.(168) This perhaps also explains why Iran has invited Pakistan and China to link Chabahar port with Gwadar Port, as it needs the extra business.(169) Given the stagnation of APTTA talks between Afghanistan and Pakistan, with Afghanistan subjecting Pakistan’s access to Central Asia through the Wakhan corridor with the condition it is given direct access to Indian markets, India maybe justified in its concerns about being blocked from Central Asian markets.(170) However, a recent report suggests there may be some flexibility appearing in the APTTA stalemate. Special scanners appear to have been ordered by the Pakistani government, which are to be installed at all border- crossing points and custom clearing stations.(171) These are to check containers destined for Afghanistan under the Afghan Transit Trade, with special mention of India and Iran. As these include Gwadar Port, the dry port at Sost, and Ghulam Khan, which are only included in the APTTA deal, it will be interesting to see how talks between the two countries will proceed. The effect for Saudi Arabia, given India has chosen Iran to partner in its transnational transportation corridor, might limit the economic opportunities it could expect to gain.

4.2 Iran Iran is Pakistan’s immediate neighbor and is situated on its southwestern border along its largest province, Balochistan, where the Port of Gwadar

(168) Instead of competition, it appears China saw the Indian investment as useful for infrastructure building in the region, something that would ultimately help Chinese multinational corporations: Hu Weijia, “Indian Deal with Iran Shows Commitment to Infrastructure that will Benefit China Too,” Global Times, May 27, 2016. (169) Yang Sheng, “China Remains Noncommittal on Iran Port,” Global Times, March 19, 2018. (170) Shoaib Ahmad Rahim, “Afghanistan’s Dependence on Pakistan: Trade, Transit and the Cost of Being Landlocked,” Kardan Journal of Economics and Management Sciences 1, no. 4 (2018): 1–21, 15. (171) Irshad Ansari, “PM Imran Green-Lights €250m ATT Containers Scanning Project,” Express Tribune, January 20, 2020. Two border points between Afghanistan and Pakistan had been closed since March 2020 due to COVID-19 restrictions. News Desk, “Pakistan reopens Wagah border for Afghan exports,” Express Tribune, July 13, 2020. is located. The boundary known as the Goldsmith Line divides the twin provinces of Pakistan’s Balochistan and Iran’s Sistan Balochistan.(172) Baloch communities, who share similar customs and traditions, regularly interact across the boundary, along with the Hazara community who live in , Pakistan, and in Qum and other major cities of Iran. In the past couple of years, both Iran and Pakistan have experienced violence near the Balochistan border and blamed organizations in each other’s country for carrying out clandestine activities.(173) Saudi Arabia’s investment in CPEC, particularly in Gwadar, has led some to voice concerns about further deterioration in relations between Pakistan and Iran, leading to security problems for the region.(174) Relations between Iran and Pakistan had been cordial until the Soviet invasion of Afghanistan in the 1980s.(175) Both held anti-Soviet views, but where Pakistan, along with the US and Saudi Arabia, had supported the Sunni Pashtun Taliban government, Iran, alongside India, had backed the anti- Pashtun . Post-9/11, Ahmed and Akbarzadeh claim, relations deteriorated further as Pakistan permitted the US use of its Shamsi air base to fly drones in the region and allowed US sanctions to affect its economic relations with Iran. A prime example of this is the Iran-Pakistan gas pipeline, which, while Iran has already built on its side, Pakistan, which desperately

(172) On November 22, 2004, an agreement was signed in Quetta by representatives of the two countries announcing the twinning of the two provinces: Zahid Ali Khan, “Balochistan Factor in Pak-Iran Relations: Opportunities and Constraints,” South Asian Studies 27, no. 1 (2012): 121–40, 125. (173) Shamil Shams, “Pakistan Blames Iran-Based Separatists for Deadly Baluchistan Attack,” Deutsche Welle, April 20, 2019. See also “Iranian Ambassador Called to the Foreign Office to Lodge a Protest against Terrorist Attack on FC Convoy,” Government of Pakistan, Ministry of Foreign Affairs, December 15, 2018, (http://mofa.gov.pk/iranian-ambassador-called-to- the-foreign-office-to-lodge-a-protest-against-terrorist-attack-on-fc-convoy/. Iran blames Jundallah, a Sunni Islamic organization based in Pakistan’s Balochistan and claiming to be fighting for the Rights of Sunni Muslim in Iran; Khan, “Balochistan Factor in Pak-Iran Relations”: 130. (174) Adnan Aamir, “Saudi Investment in Pakistan Could Destabilize Already Restive Border with Iran,” World Politics Review, March 1, 2019. (175) Zahid and Shahram Akbarzadeh, “Understanding Pakistan’s Relationship with Iran,” Middle East Policy 25, no. 4 (2018): 86–100, 87.

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needs energy supplies, has been delaying.(176) The pipeline, coming from Iran’s south Pars gas field and delivered at the Pak-Iran border near Gwadar should be, from an economic perspective, much cheaper than setting up a new oil refinery like the one proposed by Saudi Aramco. Traditionally, Pakistan has tried to remain neutral in matters pertaining to both Saudi Arabia and Iran, considering them both its allies. When relations between the two countries deteriorated, as they did during the 1980s Iran- War, Pakistan endeavored to mediate between them.(177) Recently, Prime Minister Imran Khan has also been seen as trying to create some sort of dialogue between the two states, reportedly at the behest of President Donald Trump and the Saudi Crown Prince.(178) Yet in their analysis of that neutrality, Ahmed and Akbarzadeh found evidence to the contrary.(179) Their analysis, which included interviews with members of both civilian and military institutions in the capital Islamabad, concluded that although the desire was to maintain good relations with both countries, the deepening Indo-Iran relationship has clearly tilted Pakistan toward Saudi Arabia. To support their argument, they pointed to the appointment of Pakistan’s General Raheel Sharif as first commander- in-chief of the Islamic Military Alliance to Fight Terrorism, despite Iran’s concerns about Pakistan joining such an alliance. They also believe this tilt is why Pakistan has never chosen to support Iran through the OIC, which often takes a strong position against Iran.(180) Saudi Arabia and their GCC allies, the authors explain, showed an interest in CPEC and Gwadar at a time when

(176) Ahmad Ahmadani, “Iran-Pakistan Gas Pipeline to be Completed by 2024,” ptProfit, August 29, 2019. (177) For a short list of mediation efforts see Baqir Sajjad Syed, “PM Begins Visit to Iran, Saudi Arabia Tomorrow,” Dawn, October 11, 2019. (178) Imran Khan, quoted in Anwar Iqbal, “Imran Mediating between Iran, Saudi Arabia,” Dawn, September 26, 2019. (179) Zahid Shahab Ahmed and Shahram Akbarzadeh “Pakistan Caught between Iran and Saudi Arabia,” Contemporary South Asia, June 16 (2020): 1–15, 3. (180) A meeting was held by Pakistan for Saudi Arabia and Iran in 1997 but on the sidelines of an OIC conference; Syed, “PM Begins Visit to Iran, Saudi Arabia Tomorrow.” international sanctions on Iran had left Pakistan unable to utilize desperately needed energy linkages with the country. Energy links, such as the proposed Iran-Pakistan gas pipeline, and which Iran has already built on its side, also appear to be something in which Beijing is interested in.(181) A recent article in suggests that Iran and China may be entering into a 25-year deal related to trade and security, in exchange for heavily discounted Iranian oil.(182) The news has been followed with reports of Iran going solo on what was meant to be a joint project with India, building a rail line from Chabahar to Zahedan on the Afghan border.(183) Citing funding issues from India that have delayed the project for three years, Iran will now build it itself, using approximately US$400 million from the country’s National Development Fund. Talks between Iran and China had been ongoing since 2016 and at one point there were fears in Pakistan of China abandoning CPEC projects for investments in Iran.(184) However, in 2018, China’s former ambassador to Iran, Hua Liming was quoted as saying: “We had to make a difficult choice. China can only focus on one flagship project at a time in one region, and in the Indian Ocean, at this stage, the CPEC is the flagship project.”(185) Developments between Iran and China will be of particular interest for Saudi Arabia, given the inclusion of discounted Iranian oil in the so-called agreement and Iran’s offer to connect Chabahar port with Gwadar. According to Garlick and Havlová, China is engaging in ‘strategic hedging’ in the region; that is, seeking to maintain good relations with both Iran and

(181) Fei-fei, Cheng-feng, and Xiao-ling, “Strategic Analysis on the Construction of New Energy Corridor,” 834. (182) Farnaz Fassihi and Steven Lee Myers, “Defying US, China and Iran Near Trade and Military Partnership,” The New York Times, July11, 2020. (183) Suhasini Haidar, “Iran Drops India from Chabahar Rail Project, Cites Funding Delay,” The Hindu, July 14, 2020. (184) Chu Daye, “Both Iran, Pakistan Stand to Benefit from One Belt, One Road,” Global Times, February 21, 2016. (185) Quoted in Yang Sheng, “China Remains Noncommittal on Iran Port,” Global Times, March 19, 2018.

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Saudi Arabia while also keeping the US placated.(186) As John Calabrese also explains, while China may consider Iran a valuable regional partner it will not allow it to jeopardize its relationship with the US.(187) In his opinion, the reason why China has never completely isolated Iran with regards to US sanctions is its fear of Iran either imploding under pressure or lashing out in frustration and thus jeopardizing China’s access to energy markets in the region. Following the placement of sanctions on Iran, Chinese companies, Calabrese notes, reduced their purchases of Iranian oil supplies and expanded relations with other oil- producing countries in the Middle East and beyond. Countries such as Saudi Arabia saw their oil sales to China increase from 921,811 bpd in August 2018 to 1,802,788 bpd in July 2019.(188) All of this bodes well for Saudi Arabia as it seeks to make oil-related investments both in China and Pakistan. Beyond (potential) energy links involving Iran, there are also infrastructural projects such as the railway network plan, connecting Pakistan to the Middle East through Taftan, which sits on the Pakistan-Iran border.(189) Although not mentioned specifically in the available news reports, this project may be a reference to the Istanbul--Islamabad (ITI) rail corridor, which was launched in 2009 within the framework of the Economic Cooperation Organization.(190) The rail corridor not only links the three countries together but can also connect Pakistan and Iran to Europe through Turkey’s Marmaray undersea railway tunnel. While it appeared that increasing Indo-Iran relations and US sanctions had created issues between Iran and Pakistan, recent reports

(186) Garlick and Havlová, “China’s ‘Belt and Road’,” 2. (187) John Calabrese, “China-Iran Relations: The Not-so-Special ‘Special Relationship’,” China Brief 20, no. 5 (March 16, 2020): 22–7, 24. (188) Annalisa Perteghella, “Is China a Security Force for the Persian Gulf?” Commentary (Italian International Institute for International Political Studies), March 10, 2020. (189) Tahir Amin, “Quetta-Taftan Rail Tracks: Plan to Connect ME Countries being Mulled, Senate Body Told,” Business Recorder, June 10, 2020. (190) Majorie van Leijen, “Istanbul-Tehran-Islamabad Container Train May Finally Run,” RailFreight.com, January 31, 2020, https://www.railfreight.com/railfreight/2020/01/31/ istanbul-tehran-islamabad-container-train-may-finally-run/?gdpr=accept. of an Iran-China 25-year deal and Iran dropping India from a joint project in Chabahar may lead to a re-evaluation of the situation in favor of Pakistan. Geo- economic issues in the region involving Iran could potentially affect Saudi Arabia’s position as a leading crude oil provider for both China and Pakistan, especially in the absence of the proposed oil refinery and petrochemical plant, for the time being, in Gwadar.

Conclusion Saudi Arabia’s inclusion in CPEC, especially its long-term investment plan of an oil refinery and petrochemical plant in Gwadar, provides a win-win solution for the Islamabad-Beijing-Riyadh triangle as all three countries stand to gain from it. As CPEC progressed to phase two, its focus shifted toward projects engaged in public and private collaborations in industrial, agriculture, and social sectors. It was at this stage that the newly elected government in Pakistan needed investment interest from overseas, in addition to the Chinese companies already present. To attract those investors they also needed to convince foreign markets that Pakistan was the place in which to invest, given that their GDP growth had fallen from 5.8 percent in 2018 to an estimated 2.4 percent in 2019.(191) Saudi Arabia’s investment of US$21 billion in CPEC projects enabled Pakistan to achieve both goals as they simultaneously provided the required funds and showed confidence in Pakistan’s economic conditions. The fact that the UAE followed Saudi Arabia, providing immediate relief to Pakistan’s balance of payments crisis and investing in the country’s economy, meant Pakistan could feel relatively optimistic moving ahead. Saudi Arabia’s potential investment of US$10 billion in an oil refinery and petrochemical plant in Gwadar can also help address some of China’s energy security concerns, especially if the Gwadar to Kashgar oil pipeline is

(191) Sheridan Prasso, “One of China’s Most Ambitious Projects Becomes a Corridor to Nowhere,” Bloomberg, March 2, 2020.

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constructed. Given that the pipeline has yet to be built, it might serve Saudi Arabia well in the future to offer to share some of the building costs with Pakistan, hence guaranteeing supply rights for their oil to China.(192) As Fulton notes, with a direct link to the Strait of Hormuz, Gwadar could play an important role in China’s energy security, which has become increasingly reliant on the GCC.(193) It also helps explain why China is interested in including the Iran- Pakistan gas pipeline within CPEC’s remit but Pakistan is holding out, due to US sanctions. With news of an Iran-China deal emerging, which involves discounted Iranian oil as payment for Chinese investments, the construction of the proposed pipeline and refinery would be even more important for Saudi Arabia’s economic interests. Retaining their top crude oil provider status with China would help them ensure the steady stream of income they need for carrying out projects envisioned within Saudi Vision 2030. The Aramco refinery would also help Pakistan’s growing energy requirements and save them valuable foreign exchange, particularly at a time when they are unable to utilize neighboring Iran’s energy supplies. The Kingdom’s investments inside Pakistan as such, by bringing in much-needed capital and creating job opportunities, could help improve its public image there. At a time when the COVID-19-led economic slowdown in Saudi Arabia and the GCC is resulting in Pakistani workers being made redundant and repatriated to their country, these investments could prove pivotal in winning Pakistani hearts and minds. Saudi Arabia’s investment plans in CPEC do not appear to have affected their relations with Pakistan’s neighbor and rival, India, with whom the Kingdom entered into a new phase of ‘strategic partnership’ in 2019. Saudi support and the promise of heavy investments inside India seem to have allayed, at least outwardly, any displays of concern from India regarding its involvement in

(192) It is interesting to note that the identity of the private-sector investors investing with FWO in building the Gwadar-Kashgar pipeline has not been made public. (193) Jonathan Fulton, “The GCC Countries and China’s Belt and Road Initiative (BRI).” Pakistan. As such, despite Pakistan’s attempts to internationalize the abrogation of Article 370 related to Kashmir, the matter received no support from the Kingdom, which considered it India’s internal matter. Whether recent tensions in Sino-Indian relations, following skirmishes in Galwan between Indian and Chinese troops, or Pakistan’s allegation of Indian support for the BLA create pressure on Saudi investments in CPEC, remains to be seen. However, it appears unlikely that Saudi Arabia would participate in India’s transport corridors to Northern Europe through Iran, given tense Saudi-Iran relations. As a result, Gwadar Port should be a much better proposition for the Kingdom when seeking shorter routes to different markets in the region. A strong Saudi presence in Gwadar, at a time when CPEC interconnectivity projects, linking it with Central Asian countries and beyond looks increasingly promising, can only be considered a positive development. Terrorist activity in Gwadar, however, is a real threat, potentially affecting progress in CPEC. The initial slowing down and even abandonment of certain Chinese initiatives, such as the oil refinery, are its visible scars. While the specially set up SSD has somewhat improved the situation in that terrorist attempts have not resulted in the loss of Chinese lives or investments, there is still considerable room for improvement. For that to happen, security policies will have to be accompanied by an inclusive, people-oriented, development policy that can bring real change in local people’s lives. Balochistan remains the poorest province in Pakistan, with a poverty rate of almost 57 percent, and where 70 percent of children between the ages of 5 and 16 are out of school.(194) It is a vicious cycle, in that investments in the area should lead to development and improved livelihoods for people living there but for those investments to make their mark, a friendly, peaceful environment is also essential. It will take time; China has taken the first step and invested in the area and the country

(194) Nabeel and Asif, “Pakistan’s Counter-Insurgency Campaign in Balochistan,” 66–67.

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at large and now, with Saudi Arabia on board, further progress is possible. Both countries have strong connections with Pakistan’s security providers, its armed forces, and so will take confidence from those relations as to how their investments will be protected. The full impact of economic slowdown led by collapsed oil prices and COVID-19 on Saudi Arabia and their overseas investments remains to be seen. For the time being, their planned proposals to build oil refineries, such as in Panjin, Maharashtra, or in Gwadar, are not likely to start any time soon. However, as news of Saudi Arabia joining CPEC and the Crown Prince’s visit were well received inside Pakistan, relations between the two countries look set to improve. In choosing Gwadar as the Kingdom’s main investment site with respect to CPEC, Saudi Arabia also showed support for China’s plans in the region, hence gaining their goodwill, which, considering their overall energy relations, is important. While Chinese officials such as Zhao Baige have touted CPEC as pivotal for the overall success of China’s BRI, it is at Gwadar, the symbol of China-Pakistan friendship, that CPEC’s success will be measured. As such, Saudi investments in CPEC, in particular in Gwadar, are assured a warm reception by both Pakistan and China as they move their joint endeavor to the next stage. The Islamabad-Beijing-Riyadh triangle, interlinked through economic development visions, has emerged not just as a promise of hope for Pakistan’s future but a potential winner for all three countries.

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About the Author

Dr. Eram Ashraf is an independent researcher based in the . She has a bachelors in International Relations from the University of Wales Swansea; MSc in Social Research from Swansea University and a PhD in International Relations from Swansea University. Her research focuses on critical security studies, social identity, and China’s rise. She has published various articles on Sino-Pakistan relations. She can be contacted at [email protected] or on Twitter @eramash

King Faisal Center for Research and Islamic Studies (KFCRIS)

The KFCRIS is an independent non-governmental institution based in Riyadh, the Kingdom of Saudi Arabia. The Center was founded in 1403/1983 by the King Faisal Foundation (KFF) to preserve the legacy of the late King Faisal and to continue his mission of transmitting knowledge between the Kingdom and the world. The Center serves as a platform for research and Islamic Studies, bringing together researchers and research institutions from the Kingdom and across the world through conferences, workshops, and lectures, and through the production and publication of scholarly works, as well as the preservation of Islamic manuscripts. The Center’s Research Department is home to a group of established and promising researchers who endeavor to produce in-depth analyses in various fields, ranging from Security Studies, Political Economy, African Studies and Asian Studies. The Center also hosts the Library which preserves invaluable Islamic manuscripts, the Al-Faisal Museum for Arab Islamic Art, the Al-Faisal Institute for Human Resources Development, the Darat Al-Faisal, and the Al-Faisal Cultural Press, which issues the Al-Faisal magazine and other key intellectual periodicals. For more information, please visit the Center’s website: www.kfcris.com/en

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