Spain's King Felipe VI met with Prince Mohammed bin Salman, who serves as defence minister and also controls economic policy for the world's top oil exporter, at the Zarzuela Palace on the outskirts of Madrid, before hosting a luncheon in his honour attended by senior Spanish officials and businessmen.
King Felipe VI and Queen Letizia greet the Saudi crown prince. Photo: AFP
The Saudi prince then held talks behind closed doors with Defence Minister Maria Dolores Cospedal and Prime Minister Mariano Rajoy.
He is expected to sign five memorandums of understanding in the areas of culture, science, employment, air transport and defence.
Top-selling daily newspaper El Pais reported earlier this week that Spain would likely make progress during his visit on a deal to sell five corvettes warships to Saudi Arabia for around two billion euros ($2.5 billion).
"The signing of this memorandum of understanding (on defence) can be a step in that direction," a Spanish government source told AFP.
A coalition of NGOs including Amnesty International and Greenpeace urged Madrid not to go ahead with the deal because the corvettes could be used in Saudi Arabia's military campaign against Iran-backed Houthi rebels in Yemen, where thousands of civilians have been killed.
But Spain's loss-making shipbuilder Navantia is placing a lot of hope on the deal, which has reportedly been under negotiation for two years.
Prince Mohammed is already seen as the country's de facto ruler controlling the major levers of government.
He arrived in Spain late on Wednesday hot on the heels of a three-day official visit to France and after a tour lasting several weeks of Egypt, the United States and Britain that saw the self-styled moderniser sign multimillion-dollar deals.
Madrid is the last stop of his global diplomatic charm offensive.
The goal of this global tour "is to present this young prince, who is quite unknown, in countries he considers key for his plans to transform Saudi Arabia," Haizam Amirah-Fernandez, an analyst at Spanish think-tank Real Instituto Elcano who specialises in the Awarb world, told AFP.
Spain is a leader in sectors such as renewable energy and infrastructure which are key to Prince Mohammed's "Vision 2030", a package of economic and social policies designed to free the kingdom from dependence on oil exports, he added.
As part of this plan Riyadh plans to spend 32 billion euros on transportation infrastructure in the next decade and Spanish firms are keen to score building contracts. Spain's public works ministry has identified Saudi
Arabia as one a "nation of interest".
Spanish firms have already won two major infrastructure contracts in Saudi Arabia in recent years.
A Spanish consortium, Al-Shoula, is building a high-speed railway across the desert to link the holy cities of Mecca and Medina while Spanish construction group FCC leads one of three consortia building a rapid transit system in the Saudi capital.
Spain and Saudi Arabia's royal families are very close as King Felipe's father Juan Carlos was a close friend of the kingdom's late King Fahd, who reigned from 1982 to 2005, and is close to his brother King Salman.
King Felipe visited Saudi Arabia in January 2017, three years after he assumed the Spanish throne.