Despite Loan, Economic Changes Test Pakistani-Saudi Alliance

The Saudis want to maintain stability in Pakistan but also expand commercial relations with India.

Presidents Asif Ali Zardari of Pakistan and Mahmoud Ahmadinejad of Iran meet on the sidelines of a Shanghai Cooperation Council summit in Beijing, China, June 7, 2012
Presidents Asif Ali Zardari of Pakistan and Mahmoud Ahmadinejad of Iran meet on the sidelines of a Shanghai Cooperation Council summit in Beijing, China, June 7, 2012 (Presidency of Iran)

Saudi Arabia is willing to loan as much as $5 billion to Pakistan’s new government, led by the conservative prime minister Nawaz Sharif who was elected to a third term earlier this month. Yet the alliance of the two Sunni powers is increasingly tested by their respective relations with India and Iran.

The Saudis seek to avert unrest in Pakistan, where the government last year posted a deficit equivalent to 8.5 percent of economic output, when they see the country as a hedge against their rival Iran. But it is Saudi trade with Pakistan’s own nemesis India that is booming.

India and Saudi Arabia traded goods and services worth $25 billion between them in 2011 when Pakistani-Saudi trade didn’t exceed $5 billion. Saudi Arabia is India’s main provider of oil while it has had to reduce sales from Iran as a result of international sanctions. Some two million Indian workers are employed in Saudi Arabia.

Pakistan, meanwhile, is building a natural gas pipeline into Iran, a project that is opposed by both Saudi Arabia and the United States which have, so far in vain, tried to dissuade it from deepening trade relations with the Shia state.

Saudi Arabia even offered Pakistan an “alternative package,” Dawn newspaper reported last year, that included cheap oil and a cash loan. Pakistan’s foreign minister nevertheless insisted on building the pipeline “at any cost” in May of last year. Iranian gas could help ameliorate regular power outages which now sometimes last up to twenty hours per day, sparking protests and crippling industries in a country that is simultaneously struggling to suppress an Islamist insurgency in its western frontier region.

Help may yet come from another corner. China’s premier Li Keqiang suggested during a visit to Pakistan on Wednesday that the countries should expand cooperation “in connectivity, energy development and power generation.”

China, which sees India as a future competitor for primacy in Asia, also has a stake in propping up the administration in Islamabad. It is deeply invested in the construction of a port at Gwadar in Balochistan that would allow the import of oil from Persian Gulf producers which could then be transported into China overland via the Karakoram Highway, circumventing the Indian navy in the Indian Ocean.

Despite its shifting economic and strategic imperatives, Saudi Arabia is unlikely to sever relations with Pakistan altogether. It has been Pakistan’s staunchest ally in the Muslim world, backing it during its wars with India and opposing the secession of East Pakistan which became Bangladesh in 1971. It also collaborated with Pakistan and the United States in supporting the Afghan mujahideen in their resistance to the Soviet occupation in the 1980s when Saudi Arabia financed Pakistan’s military modernization. The kingdom was also the only country besides the United Arab Emirates to congratulate Pakistan when it first tested a nuclear weapon in 1998.

Retired Saudi officials have warned that if Iran attains a nuclear weapons capacity, which Arab and Western powers suspect is the aim of its uranium enrichment efforts, their government might seek to acquire such a capacity of its own. Since the United States, wary of proliferation in a politically unstable region, are unlikely to provide it, Pakistan would be the natural partner in such an endeavor.

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