The Arab Gulf States Institute in Washington's eighth annual Petro Diplomacy conference examined the upheaval in the oil and gas markets following Russia’s invasion of Ukraine and the role of Gulf Arab oil producing states in meeting the sudden demand surge.
The setbacks of the coronavirus pandemic have exposed the extent to which Saudi Arabia is financially vulnerable to systemic shocks and heightened the importance of having a well-diversified, globally connected economy. While Saudi Arabia is profiting from the effects of the Russian invasion of Ukraine on the global energy market and the resulting spike in fossil fuel prices, it is clear that banking on periodic price surges is not a sustainable strategy for ensuring long-term resiliency for a country with depleting hydrocarbon resources. Saudi Arabia’s Vision 2030 post-oil diversification strategy encompasses sectors from tourism to technology to renewable energy. The Saudi plan has gradually started delivering on its targets, and some of the most notable progress in recent years has been in logistics.
In June 2021, Saudi Arabia launched the National Transport and Logistics Strategy. By boosting its land, air, and sea commercial routes and enhancing the efficiency of its infrastructure, the strategy aims to increase the attractiveness and competitiveness of the Saudi transportation sector and position the country as a leading global logistics hub. The plan set targets including making Saudi Arabia the fifth global hotspot for transit passengers, doubling the current air cargo capacity, and increasing annual port cargo throughput to more than 40 million containers.
Among the 92 initiatives and 378 projects in the strategy, the “land bridge” project stands out due to its far-reaching implications. The estimated $26 billion plan aims to create an 800-mile railway, spanning the Saudi hinterland and connecting the oil-rich city of Dammam with Jeddah. The railway is expected to carry over 3 million passengers and 50 million tons of freight annually once completed, which Saudi Minister of Transport and Logistics Saleh bin Nasser Al-Jasser estimates will be in 5 to 7 years.
Although Saudi authorities expect to finalize contracts within a year, the land bridge project has experienced prolonged delays. These have stemmed from financial disagreements regarding the overall costs and difficulties in issuing tenders. The delays may slow down the project’s implementation as well. Further, burdened by financial pressure to reduce public spending, the Saudi leadership might reprioritize and opt for a more conservative version of the project.
Prospects for Regional Integration
The Saudi land bridge project and other regional development projects, such as the United Arab Emirates Railway Programme and the Gulf Cooperation Council Railway project, if they come to fruition, could transform the inland transportation system of the Arabian Peninsula. Part of the Projects of the 50, the UAE Railway Programme is a $13 billion initiative to build a national network of railways linking 11 key cities among the seven emirates. Meanwhile, the GCC Railway project aims to create a 1,315-mile railway stretching from Kuwait to Oman connecting all GCC member states. By connecting the Omani port city of Sohar with Jeddah, Al Haditha on the Saudi-Jordanian border, and Kuwait City, these GCC-region railway networks, taken together, would lay the groundwork for a GCC-wide, energy-efficient logistics cluster. This would transform the region’s connectivity with global shipping lanes and be a boon for the stalled GCC economic integration initiative.
Despite the potential, these countries – especially the UAE and Saudi Arabia – are vying for leadership in similar market niches, which might reduce the prospect for cooperation. However, the need to secure flexible supply chains, ensure economic security, and tackle common challenges might prompt a new phase in intra-GCC relations. If successful, the benefits of the GCC Railway might have a positive spillover effect persuading the Gulf Arab countries to seek further economic integration through this sector-based approach. Undoubtedly, the GCC Railway is no silver bullet to the GCC’s inherent problems, but it might be a testing ground for the GCC members to craft innovative solutions.
Although the extreme climatic conditions and rugged terrain of the Gulf region’s desert environment require massive investments in planning and construction operations, the long-term positive impacts of having a GCC-wide integrated railway infrastructure on the regional economic fabric help put in perspective the material costs. Among the potential benefits is the prospect of reducing risks linked to navigation through the Gulf of Aden – especially Houthi disruptive activities and Somali pirate attacks. By bypassing the turbulent waters of the Bab el-Mandeb strait, freight transportation operators would rely on less vulnerable and more energy-efficient solutions.
The UAE, Jordan, and Egypt signed an economic agreement June 2 to boost industrial cooperation in the Arab world, highlighting the importance of an integrated regionwide railway infrastructure and offering an opportunity for Saudi Arabia as a “bridge country.” While the three signatories do not have direct connecting routes, Riyadh shares a land border with Jordan and a maritime border with Egypt. Therefore, Riyadh could leverage its geographic position to become a reexport hub and serve as a conduit for trade exchange with the UAE, Jordan, and Egypt.
Should these mobility initiatives succeed, Jeddah is projected to become the coastal hub where these commercial routes would converge. With 62 berths and four terminals spanning over nearly 5 square miles, Jeddah Islamic Port is the largest Saudi port in terms of volume and cargo handling, with 75% of Saudi seaborne imports and exports transiting through its warehouses. Ranked 37 in Lloyd’s List of “One Hundred Ports 2021,” Jeddah Islamic Port is positioned to become a critical node in the global trade network. Committed to the ambitious targets of the National Transport and Logistics Strategy, the Saudi Ports Authority, or Mawani, has sought to enhance the city’s port infrastructure and capabilities by mobilizing multimillion-dollar investments and seeking strategic partnerships with leading global companies in the logistics and shipping sectors.
In November 2021, Mawani and Danish shipping and logistics company Maersk signed an estimated $133 million deal to establish Maesk’s largest integrated logistics park in the region. The project aims to handle 200,000 twenty-foot equivalent units (a measurement of a ship’s carrying capacity) annually and will be solar powered. On June 19, Mawani and DP World, the Dubai-based leading operator of marine ports and inland cargo terminals, penned a $130 million agreement to establish a logistics park at Jeddah Islamic Port. DP World already operates the Jeddah South Container Terminal at the port, but, with this agreement, it has secured a 30-year concession to build its first logistics park in Saudi Arabia.
Supporting Domestic Logistics Operators
While securing partnerships with prominent port operators and shipping lines is the first pillar of the Saudi strategy to expand and modernize its seaport activities, supporting the development of home-grown logistics operators is second.
Headquartered at Jeddah Islamic Port and operating since 2009, the Red Sea Gateway Terminal is the first Saudi private sector build-operate-transfer project and represents the spearhead of the country’s push in the logistics sector. With an annual container throughput capacity of 5.2 million twenty-foot equivalent units, the Red Sea Gateway Terminal is the largest container terminal in Saudi Arabia. In December 2019, Mawani and the Red Sea Gateway Terminal signed a 30-year concession for operations in the northern section of Jeddah Islamic Port. Banking on $1.7 billion of investment by 2050, the Red Sea Gateway Terminal aims to increase its throughput capacity to 9 million twenty-foot equivalent units by 2030. In July 2021, the Red Sea Gateway Terminal’s founding shareholders agreed to an equity sale ceding their 40% of shares, equally split between Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, and COSCO SHIPPING Ports Limited, a Hong Kong-based port operator. They are expected to provide the investments and technical knowledge necessary to fuel the growth of this flagship company.
Mawani’s Smart Ports initiative, launched in March, has significantly accelerated the Saudi push in the logistics sector. The initiative aims to develop automation solutions for operations at all Saudi ports. It includes partnerships between Mawani and leading companies in the high-tech and logistics sectors, such as Saudi Telecom Co., Ericsson, Huawei, Saudi Global Ports Co., DP World, and the Red Sea Gateway Terminal. These agreements aim to position Saudi ports among the top-tier global logistics hubs by offering advanced services and enhancing the attractiveness and competitiveness of Saudi port facilities. Ultimately, the initiative reflects the country’s determination to nurture its logistics sector and put Fourth Industrial Revolution technologies – such as 5G technology and cloud computing services – at the core of its economic diversification agenda.
While these initiatives bode well for Riyadh’s bid to turn the country into a global logistics hub, the road to success is still long ahead. Whether the achievements made over recent years will be a short-lived sprint, or a long-term path that will enable the Saudis to make up the formidable regional lead in logistics that Emiratis currently maintain, is still too early to tell. To succeed, megaprojects require time, regular inflow of investments, committed leadership, and a regional environment free from volatility and insecurity. Banking on a cooperative approach among key Saudi stakeholders, massive financial resources, and a determined elite, Riyadh seems committed to leverage its unique geographic position in its broader efforts to secure a thriving, post-oil future.
is a visiting researcher at Trends Research & Advisory in Abu Dhabi and a research assistant at Gulf States Analytics.
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