When Saudi Arabia pressed Pakistan last August to repay early a US$3 billion soft loan, Riyadh’s demand caught Islamabad’s rulers by surprise.
Islamabad quickly dispatched its current army chief General Qamar Javed Bajwa to Riyadh to defuse the tensions, but the mission failed as Saudi officials stood firm on their early repayment demand. Riyadh also froze a $3.2 billion oil credit facility with Islamabad.
Saudi Arabia applied the squeeze soon after Pakistan’s foreign minister criticized the kingdom for its perceived stalling on convening an Organization of Islamic Conference’s (OIC) Council of Foreign Ministers meeting on Kashmir, where Pakistan is locked in a conflict with India.
The incident underscored fast-shifting South Asia-Middle East relations, with several Gulf states that previously habitually sided with Muslim majority Pakistan now instead prioritizing growing their commercial and economic ties with India.
That mounting dynamic is pushing Pakistan ever closer to China, which provided funds to repay part of the Saudi loan. On December 17, Pakistan repaid $1 billion as a second tranche of its accelerated repayment schedule.
Significantly, the Saudi demand comes at a time of extreme economic and financial stress in Pakistan.
The UAE, which is Pakistan’s second-largest source of foreign remittances, has recently banned issuing work visas for Pakistani workers. While the ban was nominally imposed due to Covid-19, India, which has a much higher number of Covid cases, notably has not been banned.
Pakistan Foreign Minister Shah Mahmood Qureshi’s recent visit to the UAE failed to lift the ban, reportedly to Islamabad’s severe disappointment.
In November 2020, Pakistanis sent $519.5 million worth of remittances from the UAE, according to the figures provided by the State Bank of Pakistan. Pakistanis sent home about $615.1 million from Saudi Arabia that same month.
Pakistan’s declining relations with its two biggest sources of foreign remittances and foreign exchange is bad news for its already ailing economy.
While Pakistan dutifully repaid the Saudi loans, its rising reliance on China showed that it is not only an important but also Islamabad’s only available option in a time of financial need.
But Kashmir is not the only reason Pakistan’s relations with its traditional allies in the Gulf are on a downswing.
Pakistan Prime Minister Imran Khan recently admitted that he was under pressure from “friendly countries” to establish diplomatic relations with Israel. Observers note no “friendly countries” other than the UAE and Saudi Arabia have the clout to exert such pressure on Pakistan.
Islamabad’s initial refusal to follow the UAE’s lead in normalizing relations with Israel reportedly contributed to the UAE’s imposition of a ban on Pakistani work visas.
Pakistan’s bubbling tensions with the Gulf states is also a reflection of its own changing foreign policy orientation, seen in slowly but surely growing ties with Gulf state rivals Turkey and Iran.
Unlike previous premier Nawaz Sharif, Khan does not have direct personal relations with the House of Saud or personal business stakes in the oil-rich kingdom. Rather, Khan is known to be more predisposed to the Turks.
Sources say Khan is fond of reading Turkish history and literature and has publicly encouraged Pakistani youth to watch Turkish mystic TV dramas. Khan is also known to admire Mustafa Kamal, the founder of the modern Turkish state who rebuilt the nation out of the ruins of World War I.
During Khan’s visit to Turkey in January 2019, the leader also paid a special visit to the tomb of Ataturk and laid a wreath saying “to one of the greatest statesmen and visionary leaders of the 20th century – Ghazi Mustafa Kemal Ataturk.”
The Khan regime’s lean towards Turkey is reflected in his recent foreign policy choices, including its stated willingness to revive the dormant transnational rail service linking Istanbul, Tehran and Islamabad in 2021.
The ITI transnational railroad is expected to enhance connectivity via China’s Belt and Road Initiative (BRI) by providing a direct rail connection between China and Turkey via Iran. China’s presence in the line’s revival is of central importance.
China has already committed to invest tens of billions of dollars in Iran. Meanwhile, the China-Pakistan Economic Corridor (CPEC), which aims to turn Pakistan into a transit route for China to reach Europe via Iran and Turkey, is perhaps Pakistan’s only ongoing multi-billion-dollar project.
With China’s and the European Union recently agreeing to a new investment pact, the CPEC has taken on new importance in linking the East-West trade route.
With Pakistan the conceptual first link in China’s New Silk Roads to Europe, it is logical for Islamabad to develop strong ties with other key connecting states, namely Iran and Turkey. The so-called “Imran Khan factor” is underwriting this reorientation of Pakistan’s foreign policy, ever so gradually, away from the Gulf states.
In December, Pakistan opened a new border crossing with Iran to facilitate bilateral trade. While the link is part of Pakistan’s own search for more trade ties with regional counties, its choice of Iran comes notably at a time when India-Iran ties have rapidly deteriorated over Teheran’s decision to knock New Delhi out of important projects including the Farzad-B gas venture.
India’s rising tensions with Iran have already led the latter to suggest directly linking the China-developed port of Gwadar in Pakistan with Iran’s Chabahar port, which India was previously solely managing. The new Pakistan-Iran border crossing is located only 130 kilometers from Chabahar.
While Pakistan tentatively expands its ties with Iran and Turkey, Saudi Arabia and the UAE have applied clear pressure on Pakistan’s two biggest sources of foreign remittances at a delicate economic juncture, undermining – at least for now – Islamabad’s ability to chart a truly independent and perhaps more forward-looking foreign policy.