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China’s Increasing Economic Presence in Oman: Implications for Oman’s Economy

BY Sophie Smith



China’s Increasing Economic Presence in Oman: Implications for Oman’s Economy

In recent years, Oman’s economy has been experiencing a downturn with its fiscal and current account deficits rising and government debt to GDP ratio worsening.[1] The ratio had deteriorated considerably from 4.92 percent of GDP in 2014 to 47.2 percent in 2018.[2] This comes as Oman remains the biggest Arab oil exporter outside of OPEC, despite the Vision 2040 project to diversify its economy.[3] Low oil prices and the COVID-19 pandemic are merely exacerbating this trend as predictions speculate that the government debt-to-GDP ratio will reach 70 percent in 2020 and is likely to be sustained in the following years.[4] As a result, two major credit rating agencies, Moody’s Investors Service and Fitch, recently downgraded Oman’s sovereign rating for the second time this year, with the former arguing that ‘in a lower oil price environment, which [is likely to] persist into the medium term, the government will unlikely be able to significantly offset the oil revenue loss and avoid a large and durable deterioration in its debt and debt affordability metrics or erosion of its fiscal and foreign currency buffers.’[5] Oman has already had to borrow considerable amounts of money and might need further cash infusions from the International Monetary Fund (IMF).

China’s Increasing Presence in Oman

Such a deteriorating trend has shed light on Oman’s relationship with China. Over the years, China has deepened and expanded its economic ties with Oman, particularly in the oil sector, to the point that China receives almost 50 percent of Oman’s total exports.[6] In 2002, the state-owned China National Petroleum Corporation (CNPC) acquired a 50 percent interest in the country’s oil field Block 5.[7] More recently, there has been speculation that CNPC is in talks with the London-based energy company, BP PLC, to acquire a 10 percent stake in Oman’s Khazzan natural gas field.[8] This comes as Oman’s crude oil exports to China continue to rise. In 2020, China continued to be the world’s largest customer for Oman’s crude oil, importing approximately 78.4 percent of its oil, a substantial increase from 17.8 percent in 2002.[9]

While oil dominates their bilateral relations, China has been slowly establishing itself in Oman’s non-oil sectors as well, in line with its Belt and Road Initiative (BRI), a project focused on infrastructure development and international cooperation to project Beijing’s influence globally. The Oman-China Friendship Association has been working to strengthen cooperation ties and enhance their joint initiatives in various economic, social, cultural, scientific and sports arenas for the past decade.[10] Since then, China has launched the China-Oman Industrial Park in the Duqm Special Economic Zone and expects to invest just under 8.5 billion EUR in it by 2022.[11] Additionally, in 2019, the State Grid Corporation of China acquired a 49 percent stake in Oman Electricity Transmission Company in the first major privatisation by the Middle East’s largest non-OPEC oil producer.[12] Further, the Asian Infrastructure Investment Bank (AIIB) has become a vital source of funding for Oman’s projects; in 2016, the Bank approved a loan of $265 million for Oman’s maritime infrastructure at Duqm Port and $36 million (30.2 million EUR) for the country’s first railway system.[13] In 2017, it invested $239 million (200 million EUR) in the national fibre broadband network and, most recently, in March 2020, it provided $60 million (50.3 million EUR) of non-sovereign funding for Oman’s Ibri II 500MW Solar PV Independent Power Plant Project.[14] Likewise, the Ministry of Technology and Communications inked a partnership with Huawei to develop Oman’s digital society and support the ICT sector.[15] As a result, China’s foreign direct investment (FDI) into Oman has risen more than five times between the second quarter of 2018 and 2019, from RO 95 million (208.5 million EUR) to RO 486.2 million (1.07 billion EUR).[16]

Vision 2040: Attracting Foreign Investments

The deepening ties with China speaks volumes for Oman’s broader strategy to diversify its economy away from hydrocarbons by attracting foreign capital and expertise to non-oil sectors. The drive is guided by several five-year plans corresponding to the overarching goals of Vision 2040. Numerous measures have already been implemented to foster a business-friendly environment. Oman has established free zones, such as the Duqm Special Economic Zone, which offer benefits such as tax exemptions, the transfer of profits abroad and lower quotas for hiring Omanis.[17] On a larger scale, Oman has introduced several laws that facilitate public-private partnerships and the privatisation of state companies.[18] For example, Royal Decree 50/2019 enables 100 percent foreign ownership, removes minimum capital requirements and no longer requires local participation, while reducing red tape.[19]

Accordingly, FDI into Oman has risen, reaching RO 11.65 billion (25.57 billion EUR) in the second quarter of 2019, a 13.3 percent increase over the previous year.[20] The UK accounted for the lion’s share of Oman’s FDI (54.2 percent), followed by the UAE (11 percent), the US (8.6 percent), Kuwait (8 percent), China (4.7 percent), Qatar (4.1 percent), India, Bahrain and the Netherlands (all under 3 percent).[21] These figures show that the massive boost of Beijing’s crude oil imports from the Sultanate has, so far, not translated into Chinese takeover of the Sultanate’s non-oil sector.

The Implications of Deepening Ties

Within this environment, the deepening ties between Oman and China have several implications for Oman’s economy. Between 2002-2009 Beijing replaced Japan as the top importer of Oman’s crude, nearly doubling its share.[22] Nevertheless, Oman’s portfolio of crude oil importers was still much more diverse in 2009, with China accounting for roughly a third (36.6 percent), followed by Japan (19.1 percent), Thailand (15.4 percent), South Korea (11.9 percent), Taiwan (8.2 percent) and the US (6.9 percent).[23] A decade later, in 2019, China already overwhelmingly dominated this group, consuming over two-thirds of Oman’s crude exports, whereas Japan (7.5 percent), India (4.8 percent) and Korea (3.4 percent), the only other significant partners, had only minor shares.[24] Such over-reliance on one importing country, coupled with the country’s overall dependence on hydrocarbons for most government revenues, puts Oman in a vulnerable position. This situation is further exponentiated by the oil market’s susceptibility to economic shocks, as recently evidenced by the COVID-19 pandemic. In June 2020, China’s crude imports from Oman neared 95%.[25] However, China is not heavily dependent on Oman for its crude oil as Oman made up only 6.87 percent of China’s total crude oil imports in 2019, which shows the imbalance of the relationship, providing Beijing potential leverage over Muscat.[26]

The nature of BRI itself has also raised concerns, most notably concerning the lack of transparency, corruption and the recipient incurring unsustainable levels of debt.[27] While the BRI has provided Oman with vital funds for projects to develop its economy, the Sultanate is vulnerable to such debt entrapment, meaning investments should be approached cautiously.[28] Moreover, the BRI projects tend to employ Chinese – as opposed to local – labour and firms for construction, leading to fewer employment opportunities for locals, which, in turn, limits opportunities for economic growth and development.[29] Another factor is the increasing regional competition for FDI, particularly with Iran, with whom China is currently negotiating an agreement that could include investments in free trade zones, infrastructure, ICT and discounted oil supplies.[30] Such issues should be carefully considered to ensure Oman is not exacerbating its economic situation or jeopardising its geopolitical position as a neutral actor.

The Future

China’s increasing economic presence in Oman represents a larger Chinese investment trend in the Gulf Cooperation Council (GCC). China has invested in countless projects in all the Arab Gulf nations; for example, recently, China’s Silk Road Fund acquired a 49 percent stake in Saudi Arabia’s ACWA Power Renewable Energy Holding.[31] Accordingly, the Chinese investments and contracts in the region have risen from $1.35 billion (1.14 billion EUR) in 2005 to $12.43 billion (10.5 billion EUR) in 2019.[32] This trend is likely to continue amid the intensifying competition between China and the US, a key player in the Gulf. Bearing this in mind, Oman should diversify its crude oil exports to reduce China’s domination over the oil sector, and by extension government revenues, which has left it in a more vulnerable position financially and politically; by doing so, Muscat would strengthen its position vis-à-vis Beijing.


  1. The World Bank. “Oman’s Economic Update – April 2020.” The World Bank, April 16, 2020.
  2. CEIC Data. “Oman Government Debt: % of GDP.” CEIC Data, n.d.–of-nominal-gdp.
  3. U.S Energy Information Administration. “Country Analysis Executive Summary: Oman.” U.S Energy Information Administration, January 7, 2019.; Worldometer. “Oil Reserves by Country.” Worldometer, n.d.; “Oman Vision 2040.” Oman 2040, n.d.
  4. The World Bank. “Oman’s Economic Update – April 2020.”
  5. Trading Economics. “Oman – Credit Rating,” 18 August 2020,; Moody’s Investors Service. “Rating Action: Moody’s Downgrades Oman’s Rating to Ba3, Changes Outlook to Negative.” Moody’s Investors Service, June 23, 2020.–PR_426102.
  6. The World Bank. “Oman’s Economic Update – April 2020.”
  7. China National Petroleum Corporation. “CNPC in Oman.” China National Petroleum Corporation, n.d.
  8. Bloomberg News. “Chinese Oil Giant CNPC Eyes BP’s $1.5 Billion Stake in Oman Gas Field.” Bloomberg, July 31, 2020.
  9. National Center for Statistics and Information. Statistical Yearbook: 2002. Sultanate of Oman: National Center for Statistics and Information, 2002.; National Centre for Statistics and Information. Statistical Yearbook: 2020. Sultanate of Oman: National Center for Statistics and Information, August 2020.
  10. Oman-China Friendship Association. “Objectives.” Oman-China Friendship Association, n.d.
  11. Duqm Special Economic Zone Authority. “Built on a total area of about 1172 hectares Usufruct agreement for China-Omani industrial park in Duqm signed.” Duqm Special Economic Zone Authority, May 23, 2016.
  12. Nama. “Annual Report: 2019.” Nama, 2019.
  13. Asian Infrastructure Investment Bank. “Asian Infrastructure Investment Bank breaks new ground approving two projects in Oman.” Asian Infrastructure Investment Bank, December 9, 2016.
  14. Asian Infrastructure Investment Bank. “AIIB invests in nationwide fiber broadband network in Oman.” Asian Infrastructure Investment Bank, December 11, 2017.; Asian Infrastructure Investment Bank. “Oman: Ibri II 500MW Solar PV Independent Power Plant Project.” Asian Infrastructure Investment Bank, n.d.
  15. Ministry of Technology and Communications. “MTC and Huawei Ink Partnership to Develop Oman’s ICT Ecosystem.” Ministry of Technology and Communications, May 5, 2020.
  16. National Centre for Statistics and Information. “Foreign Investment.” National Centre for Statistics and Information, February 7, 2019.
  17. “Duqm Special Economic Zone.” Duqm Special Economic Zone Authority, n.d.
  18. Ministry of Legal Affairs. Royal Decree 52/2019 Promulgating the Public Private Partnership Law. Sultanate of Oman: Ministry of Legal Affairs, 2019.; Ministry of Legal Affairs. Royal Decree 51/2019 Promulgating the Privatisation Law. Sultanate of Oman: Ministry of Legal Affairs, 2019.
  19. Ministry of Legal Affairs. Royal Decree 50/2019 Promulgating the Foreign Capital Investment Law. Sultanate of Oman: Ministry of Legal Affairs, 2019.
  20. National Centre for Statistics and Information. “Foreign Investment.”
  21. Ibid.
  22. National Centre for Statistics and Information. Oil and Gas. Sultanate of Oman: National Center for Statistics and Information, 2016.
  23. Ibid.
  24. National Centre for Statistics and Information. Statistical Yearbook: 2020.
  25. National Center for Statistics and Information. Monthly Statistical Bulletin: July 2020. Sultanate of Oman: National Center for Statistics and Information, 2020.
  26. International Trade Centre. “Trade Map.” International Trade Centre, n.d.
  27. Kliman, Daniel, Rush Doshi, Kristine Lee, and Zack Cooper. Grading China’s Belt and Road. Washington, DC: Center for a New American Security, 2019.
  28. Crawford, Nick and David Gordon. “China Confronts Major Risk of Debt Crisis on the Belt and Road Due to Pandemic.” The Diplomat, April 10, 2020.
  29. Kliman, Daniel, Rush Doshi, Kristine Lee, and Zack Cooper. Grading China’s Belt and Road.
  30. Mogielnicki, Robert. “Oman’s Bittersweet Economic Relations with China.” The Arab Gulf States Institute in Washington, July 21, 2020.; Cordesman, Anthony H. “China in the Gulf: A New Partnership with Iran?” Center for Strategic and International Studies, July 15, 2020.
  31. ACWA Power. “ACWA Power and Silk Road Fund Announce the Completion of Partnership over ACWA Power Renewable Energy Holding Ltd.” ACWA Power, May 10, 2020.
  32. American Enterprise Institute. “China Global Investment Tracker.” American Enterprise Institute, 2020.