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Saudi Arabia’s seven-year diplomatic freeze and proxy conflict with Iran appears to have come to an end after China brokered an agreement between the two nations to re-establish relations. That represents a multi-lateral shift in the geopolitical landscape, and one that likely carries significant economic implications. Saudi Arabia has been bolstering economic relations with China, its top oil buyer, and could now play a major role in Beijing’s broader de-Dollarization efforts through a potential implementation of the petroyuan.

Saudi Arabia was the fastest growing G20 economy in 2022 and an increasing amount of their growth has been spurred on by non-oil activity. Though crude prices have been easing recently, business activity outside of the energy sector has just risen to an eight-year high in the Kingdom as it continues implement the Vision 2030 project, meant to revitalize and diversify the Saudi economy.

Related ETF: iShares MSCI Saudi Arabia ETF (KSA)

Saudi Arabia’s economic transformation is also becoming a geopolitical transformation that could stabilize embattled regions of the middle east. Last week, Iran and Saudi Arabia agreed to re-establish diplomatic relations, ending seven years of severed ties and diplomatic disassociation, ignited when anti-Saudi protests broke out in Iran, leading to an attack on the former’s embassy in Tehran. Much more has happened behind the scenes between the two countries in years past, including a clash of Islamic doctrine – Sunnism and Shi’ism – that has endured throughout all of modern history, as well as a civil war in Yemen, which both Saudi Arabia and Iran are parties to. Saudi Arabia has formally backed and fought alongside the internationally-recognized Yemeni government, while Iran has thrown waves of material support behind the Houthi rebel faction, which has launched several notable missile and drone attacks on Saudi Arabian territory.

As part of their newly formed agreement with Riyadh, The Wall Street Journal reports that Iran will halt their covert weapons shipments to the Houthis. A lack of military supplies could cool the Houthis’ offensive capabilities and bring a conflict that has raged at Saudi Arabia’s southwestern border for eight and a half years closer to conclusion. Once it is confirmed that Iran has kept up its end of the deal on this front, both countries will reopen their respective embassies within two months’ time.

While the partners in this deal are notable, the identity of the broker party may be the most consequential detail. China was the nation who ultimately brought Saudi Arabia and Iran back to the table and sealed an end to their bilateral feud, Beijing’s first foray into Middle East mediation – one the US likely could not have undertaken due to sanctions and other issues that have made itself a rival to Iran. As part of a broader geopolitical mission internationally, China has taken a particular interest in Saudi Arabia recently. MRP previously covered a major meeting between…

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