Complex Made Simple

Saudi-Canada trade row: What business is at stake?

Saudi Arabia halted new trade and investment dealings with Canada and suspended diplomatic ties in a dramatic escalation of a dispute over the kingdom’s arrest of a women’s rights activist, reports Bloomberg.

The kingdom recalled its ambassador to Ottawa and ordered the Canadian envoy to Riyadh to leave within 24 hours, according to a foreign ministry statement cited by the Saudi Press Agency (SPA).

“The kingdom of Saudi Arabia … will not accept interference in its internal affairs or imposed diktats from any country,” the foreign ministry tweeted.

The immediate economic impact was that the Canadian Dollar weakened as much as 0.35 to 1.3019 per U.S. dollar in early trading.

Regardless of the reasons that led to this stand-off, a lot of business is at risk as a result.

Read: Saudi Aramco raising billions to buy Sabic: Smart but will it work?

Saudi business with Canada

According to Maclean’s, Canada’s prominent current affairs magazine, the Kingdom is the world’s 16th largest exporter and 29th largest importer, with a GDP of $653 bn.

“Out of Saudi’s population of 31 million, 49% are youth, 71% are tech-savvy, with approximately 25,000 Saudi students studying in Canada,” it said.

According to Bloomberg, Saudi investments in Canada include G3 Global Holdings Ltd., a joint venture between Bunge Ltd. and Saudi Agricultural & Livestock Investment Co., which purchased the former Canadian Wheat Board in 2015.

Saudi Arabia has invested about $6 billion in Canadian businesses since 2006, Bloomberg data show.

Canadian imports of Saudi produts reached $2,618,960,654 in 2017 according to Canada International.

For the past 35 years, Canada has trained more than 5,000 Saudi medical and healthcare professionals, who in turn have provided expert medical care to thousands of Canadian hospital patients every day, at no cost to the Canadian taxpayer, and generating billions of new dollars into the Canadian economy, accordig to Maclean’s.

“The Saudi government recently awarded the University of Toronto and York University multi-million dollar contracts to provide immersive pedagogical training to 250 Saudi K-12 educational professionals,” it added.

The Saudi Industrial Development Fund, which recently received an injection of $1.6 billion to help finance the Kingdom’s entry into in new growth sectors like agriculture, automotive, mining, healthcare, technology, renewable energy, is now part of the Montreal Group, of which the Business Development Bank of Canada is a founding member.

Insights: Where does Saudi’s $500bn NEOM stand today?

Canadian business with Saudi

Tanks, armored vehicles and parts and motor vehicles accounted for about 45 percent of Canada’s 2016 exports to the kingdom, while crude oil and copper ores comprised about 98 percent of imports, according to a government report. Saudi Arabia supplies oil to the Irving refinery in Saint John, New Brunswick.

So far this year, Canada has exported C$1.4 billion (US $1.08bn) in merchandise goods to Saudi Arabia and imported C$2 billion (US $1.54) in imports, according to Statistics Canada data.

CNBC reported that In 2014, the Canadian unit of U.S. weapons maker General Dynamics Corp won a contract worth $11.63bn to build light-armoured vehicles for Saudi Arabia, in what Ottawa said at the time was the largest advanced manufacturing export win in Canadian history, and which Saudi took delivery of this year.

Canadian exports to Saudi was $1.12bn during 2017, according to the United Nations COMTRADE database on international trade, but more like $1,452,946,571 according to Canada International.

Related: Saudi pumped less oil in July: Is the kingdom stockpiling crude?

The oil connection

Forbes says that Canada’s many upstream oil producers need WTI to be greater than $55 a barrel in order to be profitable.

A lot of that pricing is depending on demand and supply that OPEC puts out on the market, and specifically Saudi.

On July 6, Reuters reported oil futures pointed to a lower opening for Canada’s main stock index as oil prices dipped due to higher output from top exporter Saudi and under pressure from a trade war between the United States and China.

Oil slipped towards $77 a barrel after Saudi Arabia told OPEC it raised production by almost 500,000 barrels per day last month.

Read: Laborers leaving Saudi in mass: Mega construction in doubt

According to data from the Energy Information Administration (EIA), in 1990 OPEC countries supplied nearly 54% of U.S. crude oil and product imports. Saudi Arabia was the top supplier of crude to the U.S., with a 17% share of crude imports. They were followed in second place by fellow OPEC member Venezuela, with Canada in third place with a 12% share.

By the turn of the century, OPEC’s share had dropped to under 46% of U.S. oil imports. Canada had become a top oil supplier even then with nearly a 16% share, but they were still followed closely by OPEC countries Saudi Arabia and Venezuela.

“Fast forward to 2017, and OPEC’s share has steadily declined, while Canada’s has steadily risen,” said Forbes.

“What are those imports worth? Canadian crude oil has traded at a discount to West Texas Intermediate (WTI) of about $8/barrel in recent years. Last year, WTI prices averaged $50.79/bbl. If we approximate and assume an $8/bbl discount of Canadian crude, then the four million barrels per day the US imported from Canada last year were worth roughly $63 billion,” explained Forbes.