Energy issues trump human rights as Scholz visits Saudi Arabia | Business | Economic and financial news from a German perspective | DW

Saudi Crown Prince Mohammed bin Salman (MBS) has become a bit of an outcast in the West after the 2018 assassination of dissident Saudi journalist Jamal Khashoggi at the kingdom’s consulate in Istanbul.

Four years later, the world has changed. US President Joe Biden and French President Emmanuel Macron met with the Saudi leader this year as rising oil prices and the energy crisis in Europe put western economies in trouble.

Now it’s German Chancellor Olaf Scholz’s turn to woo MBS. He is due to meet the crown prince in Riyadh on Saturday during a two-day visit to the Gulf. The United Arab Emirates (UAE) and Qatar are the other two stops.

While many German politicians and rights groups will publicly pressure Scholz to improve Saudi Arabia’s human rights record, Eckhart Woertz, director of the GIGA Institute of Middle East Studies, told DW the chancellor had to follow a narrow path.

“Priorities have changed”

“There is certainly less of a tendency to raise human rights when dealing with energy exporters in the Gulf at the moment. Priorities have changed as a result of the war in Ukraine. I don’t think that they will be overloaded, let’s put it that way.”

Rights groups accuse Riyadh of continuing to stifle political opposition and media freedom. Amnesty International says Saudi courts still use the death penalty “widely” and that migrant workers are still vulnerable to abuse and exploitation through a system where every person must be sponsored by a Saudi national.

Berlin didn’t say much to preview the Gulf trip. However, long-term deals have reportedly been struck with Qatar and the United Arab Emirates to boost liquefied natural gas (LNG) exports to Europe to eventually replace Russian supplies. It is unclear, however, whether a similar deal with the Saudis is even possible.

“Saudi Arabia produces a lot of natural gas, but it needs it for its national industrialization,” Woertz told DW.

The kingdom has the eighth largest proven reserves of natural gas in the world after Russia, Iran and Qatar. It is already the ninth-largest gas producer in the world, but its national economy requires huge amounts of gas for power generation, water desalination and industrial production.

Saudi Arabia’s imports from Germany have declined over the past decade

The Saudis want to double their gas production

Riyadh, however, has set itself the goal of doubling gas production by 2030 to enable it to become a gas exporter and could, in theory, provide a vital interim resource to help the EU achieve its net zero goals. for carbon emissions.

Another possible collaboration with the Saudis could be on green hydrogen, which Germany sees as essential to keep its industrial economy running at full strength during the energy transition. Berlin has already signed cooperation agreements with Denmark and Canada.

Hydrogen is said to be green when the gas is produced from renewable energies. In the case of Saudi Arabia, the kingdom has almost endless desert space for huge solar farms, but transport to Europe could be a problem due to the distance.

“German technology assistance [around green hydrogen] could be very useful to the Saudis,” Woertz told DW.

The ban by Western countries on Russian oil following Moscow’s invasion of Ukraine means that Europe is likely to become more dependent on Saudi oil. The EU ban comes into full effect in early 2023.

“Russia is now selling its oil to India and China at a discount, crowding out Gulf exporters who have mainly delivered to these markets. And these Gulf countries will most likely deliver more to Europe. so a bit of a merry-go-round,” Woertz said.

German exports need a boost

The drop in German exports to Saudi Arabia is another reason why human rights concerns may take a back seat. The Kingdom is by far the largest economy in the Middle East and North Africa (MENA) region, but was only Germany’s 38th largest export market in 2021.

German exports to Saudi Arabia almost halved between 2015 and 2021, from 9.9 billion euros to 5.5 billion euros and are expected to fall further this year, according to the state trade agency GTAI. While the Gulf region still has an insatiable appetite for German industrial machinery, Europe’s largest economy faces fierce competition from China.

German automakers are also keen to grab a bigger share of the car market as the transition to electromobility gathers pace. The Saudi market is dominated by Japanese and Korean brands Toyota and Hyundai, which hold 30% and 20% shares respectively and are also advanced in the development of electric vehicles.

German sales of vehicles and parts to Saudi Arabia totaled 1.6 billion euros in 2015, but fell to 0.9 billion euros last year, while Chinese companies doubled their shares over the past decade, GTAI recently wrote.

German multinationals could contribute to the kingdom’s ambitious goal of diversifying the economy away from fossil fuels, which currently make up 42% of gross domestic product. Six years ago, the government announced Vision 2030, whose ambitions include eight mega-projects, including a plan to build a net-zero tourism and commercial mega zone on the shores of the Red Sea named Neom.

The end of the war in Yemen could lead to the resumption of arms sales

Scholz will be accompanied by a trade delegation for his trip to the Gulf which may well include representatives of arms manufacturers. German arms sales to Saudi Arabia were negligible last year, peaking at 1.24 billion euros in 2012.

Germany banned arms sales to Riyadh in 2018, as part of Berlin’s policy not to export weapons to active conflict zones. Saudi Arabia leads an alliance in neighboring Yemen that has been fighting Iran-backed Houthi rebels alongside the government since late 2014.

With the war possibly nearing its end, German arms makers will want to boost exports with the world’s second-largest arms importer (2017-2021) – behind only India, according to the SIPRI peace. Germany is the world’s fifth largest arms exporter.

Edited by: Uwe Hessler

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