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Economy first, what next?

Dr. N. Janardhan
Filed on February 20, 2006

KING Abdullah’s four-nation tour in January set the stage for a dynamic relationship with Asia not only for Saudi Arabia, but also for the other five Gulf Cooperation Council countries. The visit was a recognition of the increasing importance of Asia as an economic ally at a time when the GCC economies are robust following high oil prices and need new avenues to invest. Secondly, Asia’s oil consumption is soaring fuelled by its own economic boom.

It is worth identifying the significance of Abdullah’s visit from a Saudi perspective. First, the itinerary —which included Beijing, New Delhi, Kuala Lumpur and Islamabad, —targeted the capitals of influential countries in the political, economic and military spheres.

Riyadh recognises the capability of these countries to play a major role in international stability and security based on their political positions as well as their economic and industrial achievements and nuclear power (three of the four are nuclear powers). The fact that the four countries represent nearly one-third of the world from a demographic angle also gave the visit the extra impetus.

Second, the trip signalled a win-win situation economically. Saudi Arabia attempted to make sure that the future Asian economic growth has a Saudi contribution through uninterrupted energy supply. Saudi Aramco now does almost half its business in Asia. Guaranteeing oil supplies, could be a calculated move to prompt a decisive tilt by New Delhi and Beijing away from Iran, which is a big competitor in the energy market. The economic dynamics could have a political angle as well. While it could also serve as a tool to erode Iran’s ties with India and China, Riyadh definitely sought to use the influence of all the four countries to diffuse the current nuclear stand-off.

In a similar vein, in dealing with India without linking it to Pakistan, and warming up to China, Saudi Arabia put economic pragmatism ahead of religious ideology. Politically, Riyadh has now offered to play a constructive role in resolving the Indo-Pak dispute. If this approach to the Iran crisis succeed even minimally, Saudi Arabia’s credentials as the leader in promoting Gulf-Asia relations will get a boost.

Riyadh also realises that solutions to many of its problems —including unemployment, need for better education, advancement in the field of science and technology, etc. —lie in linking up with Asia. There is the profitability of business ventures too. Indian officials are suggesting that what costs the Saudis $100 in the West, only costs $15 in the East. This sets the stage for Saudi investment in the infrastructure projects of the Asian countries, while also opening the Saudi economy for foreign investment.

The Saudi Arabian Investment Authority is investing about $5 billion abroad annually, and India plans to build about 28 new airports. Similarly, the Kingdom has chalked $624 billion to invest in various sectors over the next five to 10 years. Two Indian oil companies are in discussion with Saudi Aramco for possible Saudi investment, which is, in turn, associated with possible investment by Indian companies in the Yanbu refinery.

Third, Saudi Arabia is clearly not in favour of putting all eggs in one basket. It perhaps realises that if the 19th century belonged to the British and the 20th to America, then 21st century could well belong to Asia. Its friendship is widening with a spectrum of nations, which marks its new strategy for separate alliances in the security and economic spheres. In this context, the ‘look East’ policy is not a replacement for its traditional ally —the United States —but could be an effort to restrict Washington’s influence.

Fourth, the tour is an indication that Saudi Arabia is at ease dealing with the Asian countries because they carry no excess political baggage. India and China are not interested in linking political reforms to economic ties. Both are positioning themselves to take advantage of a globalised business environment. China’s emphasis on economic reforms over political reforms and its criticism of Washington’s anti-terror campaign and democracy plans for the region are definitely in sync with Riyadh.

Linking Abdullah’s Asian tour to the possible benefits for the GCC as a whole is easy. According to GCC Secretary-General Abdulrahman Al-Attiya, the visits would boost economic relations between both Saudi Arabia and the GCC with each of the four countries and will also contribute to a swift establishment of free trade zones between three of them and the GCC.

At a broader level, the GCC’s evolving shift toward Asia is logical. It consumes 23 million barrels per day, which is 30 per cent of the world’s demand. The GCC exports two-thirds of its oil output to Asia, which could more than double by 2020. Further, more than half of the GCC exports go to Asian countries, while a third of the GCC imports are from Asia. Together, the GCC-Asia oil and non-oil trade figure is worth approximately $200 billion. This figure will certainly grow as negotiations for free trade agreements are currently under way with China, India, Japan and Pakistan.

Co-operation and greater linkages between the two regional blocs in the oil sector is thus a key element to ensuring both security of supply for Asian consumers and of demand for GCC oil producers. The rise in energy demand by Asian countries is likely to influence the long-term political economy of the GCC countries and shape international relations in the coming decades. Beyond the oil and trade dynamic is the human element. Approximately 70 per cent of the GCC’s labour force is made up of expatriates, who send home nearly $30 billion as remittances annually. Again, of the 12.5 million expatriates in the region, about 70 per cent are Asians.

Recognising these factors, the GCC Chambers of Commerce and Industry has called for giving priority to activating economic co-operation with Asian countries. This ‘Look East’ policy in the economic realm comes at a time of regional introspection in the political arena too.

It is natural that increasing economic ties will impact the political and security dynamics too. But the question is if countries like India and China are willing to play a role in those realms, will they take the same path as the U. S.? How will China and India balance their ties with Iran and Israel on one side and the GCC countries on the other? More crucially, are the GCC countries looking out of the box for their security or is the US making a mountain out of a molehill while expressing long-term fears about China’s intentions in the regional security architecture?

By focusing on the Gulf and restoring traditional linkages with the immediate and extended neighbourhood, India, for example, claims to be addressing its shortcomings in the historical, security, economic and global decision-making realms. Indian leaders are now talking about "soft power" and diplomacy. They are coming out loud and clear that the security of the Gulf countries, as well as the wider Middle East, is of "paramount concern". But by suggesting that it is willing to play a proactive role by sharing its experience in combating terrorism, maritime security and military training, New Delhi may also be indicating just how far it is willing to go, which, in fact, is not far enough for the long-term security concerns of the Gulf countries. Thus, while the present GCC-Asia ties are rooted in economics, in what direction are they headed next?

Dr. N. Janardhan is the Editor of the Gulf in the Media at the Gulf Research Centre in Dubai





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