China’s energy trade with Middle East set to surge since Beijing brokered last year’s Iran-Saudi deal, UBS says

‘We believe the Beijing Accord of March 2023 has significant economic and market implications that investors may have overlooked,’ says the Swiss bank
Report says energy-related trade between China and the Middle East could raise the aggregate trade value of both regions by 11 per cent in 2030

Business of climate change

Yujie Xue

Published: 7:00am, 16 Apr 2024

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Energy-related trade between China and the Middle East is likely to increase significantly and reshape the sector globally in the wake of the Saudi-Iran peace deal brokered by China last year, according to Swiss bank UBS.

By 2030 trade between the two will have risen by US$423 billion annually, with renewables and petrochemicals accounting for US$77 billion and US$325 billion, respectively, according to Ken Liu, head of China and Hong Kong renewables, utilities and energy research at UBS Investment Bank.

“We believe the Beijing Accord of March 2023 has significant economic and market implications that investors may have overlooked,” he said in an analysis on Monday.

“We see energy representing a more trade-focused collaboration than seen to date, with likely more immediate monetisation potential and thus a quicker potential impact on share prices.”

In March 2023, Iran, Saudi Arabia, and China issued a joint statement announcing an agreement to restore diplomatic ties between the two Middle Eastern countries after years of hostility. The deal was brokered by China after four days of undisclosed negotiations among top officials from the two countries in Beijing.

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In the six months immediately after the deal was signed, Saudi Arabia invested US$16 billion in the Chinese energy sector, according to data compiled by UBS.

Liu estimated that energy-related trade between China and the Middle East could raise the aggregate trade value of both regions by 11 per cent in 2030.

For renewables, the additional trade is expected to come from China’s increasing green energy penetration in the Middle East, as the region accelerates its energy transition by leveraging the country’s complete renewables equipment supply chain, according to Liu.

The Middle East has been increasingly importing renewable energy modules from China, the world’s largest wind turbine and solar panel maker. In 2023, China exported 14.5 gigawatts (GW) of solar modules to the region, up from 11.4GW in 2022, according to data from InfoLink Consulting.

Additional trade in the petrochemicals sector could come from the larger market share taken by the Middle East and China jointly from Europe, as European factories are likely to exit the market faster due to environmental, social, and governance (ESG) concerns and tight gas supply, UBS said.

“The implications of this theme are broad. Chinese renewables and especially grid equipment players are the most immediate beneficiaries,” said Liu.

“European petrochemicals are most at risk from this theme in the long term as higher cost bases could pressure market share.”

China and the Middle East have stepped up their engagement and cooperation in recent years under the Belt and Road Initiative. From 2017 to 2022, trade between them almost doubled from US$262.5 billion to US$507.2 billion, according to Chinese customs data.

Spearheaded by the Chinese government and endorsed by President Xi Jinping in late 2013, the Belt and Road Initiative aims to improve trade and economic integration across Asia, Europe, and Africa.