In Need of a Savior
The recent murder of Saudi journalist Jamal Khashoggi in a Saudi consulate in Istanbul has many of Saudi Arabia’s allies around the world, especially in the West, turning their heads and has plunged Saudi Arabia into a diplomatic crisis. Some top officials in the United States and the United Kingdom called for a fundamental shift or a complete reassessment of relations between Western countries. This is after recent revelations placed some of those involved within uncomfortably close distance to Saudi Crown Prince (and de facto leader) Mohammad bin Salman (MbS) with some suggesting the young prince ordered the murder himself. The impact of these revelations has not been limited to diplomacy as many people, including U.S. Treasury Secretary Steve Mnuchin and J.P. Morgan Chase CEO Jamie Dimon, pulled out of the Crown Prince’s flagship conference, the Future Investment Initiative, in light of unsteady relations caused by the schism between Saudi Arabia and its traditional allies.
On the other hand, while Saudi Arabia’s allies in the West are skeptical of Saudi Arabia’s official claims surrounding Khashoggi’s death, Pakistan has found an opening in its relationship with Saudi Arabia. This comes about as Islamabad grapples with its own crisis – although this one is more economical than diplomatic. In the past year, Pakistan’s foreign currency reserves have run as low as $8.4 billion – the equivalent of two months of imports – and requires about $12 billion to avoid defaulting on its current debts. In the midst of this, Saudi Arabia came to Pakistan’s rescue, striking a $6 billion deal with Pakistan shortly after newly elected Pakistani Prime Minister Imran Khan attended the Future Investment Initiative in Saudi Arabia. $3 billion of the deal will go straight to foreign currency aid and the other $3 billion will be used for deferred oil import payments.
While this deal will not fully solve Pakistan’s problems, Khan is also in the process of securing aid from the International Monetary Fund (IMF). This comes despite talk during Khan’s election campaign that made it seem as though Pakistan would shift away from Western institutions, such as the IMF. Yet, this current predicament puts Mr. Khan in an uncomfortable situation given Pakistan’s animosity towards the IMF and the conditions that come with their aid.
Part of these issues lie in Pakistan’s southern port city of Gwadar. Despite being in a region troubled by economic turmoil, the city has made frequent appearances in the media in recent months due to its importance in the China-Pakistan Economic Corridor (CPEC). This plan intends to build roads, ports, and airports throughout Pakistan via loans, and developing the region’s infrastructure as part of the overarching Belt and Road Initiative (BRI). These developments are in line with China’s global strategy to vastly increase global China trade and promote free trade through a series of infrastructure projects to develop an economic “string” of corridors on land and on the water. Through CPEC, Gwadar is planned to be the endpoint of an economic “belt” of infrastructure that extends from the city of Kashgar in the Western Chinese region of Xinjiang. From Kashgar, Chinese trade over land to Gwadar, located strategically near the Strait of Hormuz, would supposedly bringing vast economic benefits to both China and Pakistan. CPEC is especially crucial to the Chinese because it is the largest contribution to the BRI and because this will allow China to reduce its reliance on maritime passages such as the Strait of Malacca, a critical channel of China’s oil imports, and the South China Sea, which has become a diplomatic flashpoint in recent years, by bypassing them on land.
While this may signify increased cooperation between China and Pakistan, there are growing issues concerning the projects. Khan’s government has called for a review of CPEC the deals made under the previous administration of Nawaz Sharif. While these projects were supposed to stimulate the Pakistani economy, Pakistan has instead found itself with a growing mountain of debt, provoking Prime Minister Khan to seek Riyadh’s assistance in averting a major fiscal crisis.
This comes as the Belt and Road Initiative faces increasing scrutiny from the international community, particularly the United States and her allies. Critics accuse the project of using “debt-diplomacy” in order to gain geopolitical dominance as seen in Sri Lanka, where the government defaulted on its loans and was forced to concede a port of Hambantota to a Chinese company for 99 years. This incident is fueling a growing trend of concern among other countries which have signed Belt and Road deals with China. For instance, Prime Minister of Malaysia Mahathir Mohamad recently made a startling remark, warning of an era of “a new version of colonialism,” sending a clear message to Beijing: there will be resistance to the BRI.
The combination of a looming fiscal crisis and concerns about Chinese intentions has driven Pakistan into a closer relationship with Saudi Arabia. This could have dramatic effects on the regional balance of power. Saudi Arabia continues to have a contentious relationship with Iran with the two clashing via proxy in Yemen and Syria as well as dueling accusations of each other sponsoring terrorism against the other. The alignment of Pakistan with Saudi Arabia has the potential to put a serious strain on the security relationship between Tehran and Islamabad on issues such as the Iran-Pakistan border.
Pakistan’s turn to the IMF and Saudi Arabia may be indicative of more to come. Its shift away from Chinese lenders may serve as an example for other countries who signed deals or are considering engaging in deals through the Belt and Road Initiative. The United States may see a strategic opportunity as it gradually recognizes the threat that the Initiative has to its long-standing interests in the region. This could also lead to a trend in Pakistani foreign policy that would entail aiming to strike a cautious balance between its relationship with China and the United States in order to reap the greatest economic benefits from both competitors seeking dominance.