Abu Dhabi, UAEThursday 22 August 2019

The region's ties with Asia are a delicate balancing act of geopolitics and commerce

The G20 summit in Osaka is a window onto how immediate tensions are a distraction from the long-term agenda

Saudi Arabian Crown Prince Mohammed bin Salman, left, is welcomed by Japanese Prime Minister Shinzo Abe in Osaka at the G20 summit. Kim Kyung-Hoon / pool via Getty
Saudi Arabian Crown Prince Mohammed bin Salman, left, is welcomed by Japanese Prime Minister Shinzo Abe in Osaka at the G20 summit. Kim Kyung-Hoon / pool via Getty

One man’s Middle East is another’s West Asia. The debate over semantics and what to call the region has been rumbling on for a long time but last weekend's G20 summit in Japan was a good time to assess the region’s pivot to Asia.

Head-to-head battles between the US and China were the focus of the Osaka meeting.

The rivals seek a new equilibrium in trade and influence and there are consequences for all regional countries – especially for those allies of the US now seeking a broader relationship with the East.

Discussions on Iran and its threats to global energy security cannot be divorced from this context. Iran’s gamble that Asian customers will keep buying its oil as it is steamrollered by US sanctions is both a boon and hurdle as the rest of the region reaches out to Asia.

As US President Donald Trump has observed, America has become virtually energy self-sufficient while Asian countries are dependent on regional oil supplies. This has game-changing implications.

US officials say foreign businesses and investors will be forced to chose between America’s vast markets and Iran’s crisis-ridden crunch economy

A senior executive of a major Japanese conglomerate told a London conference this week that the imbalance was undeniable and should be acknowledged. As he said, Asian countries will need to deepen their engagement in regional security concerns.

At the same time, tensions with Iran mean Asian countries must prioritise their most reliable partners. The executive said it was imperative to work with the strategic economic plans of partner countries in the Middle East.

Yet the fear of tensions spiralling means there is short-term pressure to reduce exposure to regional forces. This means balancing geopolitical considerations is at the forefront of Asian concerns.

US officials reiterated last week that foreign businesses and investors would be forced to chose between America’s vast markets and Iran’s crisis-ridden crunch economy.

The US is thrilled with the impact of unilateral sanctions. Brian Hook, the US envoy, observed in a London briefing that these have been far more effective than a multilateral campaign to shut down Iran’s access to international trade.

There is still more pressure in the pipeline. Iran is still exporting in excess of 350,000 barrels of crude oil per day to Asia while Washington has a policy of penalising every customer of Iranian oil.

China has hinted that it will cautiously challenge this US objective, something that could trigger a renewed trans-Pacific confrontation.

These are the kind of immediate calculations that affect the region’s Asian relationships.

The policy profiles of big Asian states thus matter increasingly to Middle Eastern powers. The UAE is closely tied to the Indian economy and has burgeoning trade links with Japan. It also enjoys a close relationship with China. The significance of last year’s visit by Xi Jinping, the Chinese president, will be measured over decades, not mere months.

China’s Belt and Road Initiative creates a new dynamic for all countries that deal with the world’s biggest emerging economy.

Dozens of countries have make significant investment alliances with Beijing to unlock opportunities that would not be developed by market forces alone.

Look at the importance of the BRI to Pakistan, for example, or the economies of the Horn of Africa, all of which are strategically important to the UAE. For that reason, UAE companies have made ambitious plans to strengthen their involvement in the BRI.

It is not just developing economies that are deriving benefits from the BRI. Economists at the Chinese investment bank ICBC point out the City of London is a major source of finance for the ambitious scheme — alongside Hong Kong — even though the UK has not formally signed on as a BRI participant.

The challenge of exploiting the Arabian Gulf’s geographic position and commercial strengths is just the starting point when it comes to Asia. At the G20, the world’s most powerful economies will look forward to the first ever meeting in the Middle East next year. The relative positions of the US, China, Japan and India will provide the major themes of that meeting but within a local context. Judging by current trends, the US is likely to focus extra scrutiny on its allies' relationship with the Chinese at that time. As the region seeks to develop its digital economy, the partnership with all four countries will be vital to future prosperity.

Start-ups want to bring Silicon Valley skills to the Middle East. Tensions like the current fireworks are a distraction from the long-term agenda for these new businesses.

The figures for trade and investment with Asia look good. The bigger picture represents a balancing act of geopolitics and commercial might. The G20 is a window onto how co-operation benefits all. This year it allows Japan to showcase the advantages of working with its advanced businesses and services.

Working with its Asian partners allows the Middle East to access opportunities across the G20, something that will be highlighted at the Saudi Arabian meeting in November next year.

Updated: June 29, 2019 05:26 PM

SHARE

SHARE