Doing Business with the Gulf Arab States, or Not

Beyond the mindless ranting that infects most policy debates in this country, there are facts on the ground. Normally, you will only find them in the business press, as in this Financial Times article by Andrew England and Simeon Kerr. It appeared a couple of days ago in the paper. Since we cannot link to FT articles, I will offer some considerable excerpts.

The issue is the Middle East, especially the United Arab Emirates and Saudi Arabia. These countries, long time and long standing American allies, have lately been developing extensive new commercial ties with China. In short, we are losing out in the Middle East, on a very basic level.

Consider the ways. The authors open thusly:

As the first senior United Arab Emirates official to visit the Biden administration touched down in Washington, the message the Gulf state sought to promote was “the strength and continuity” of the partnership between the two countries. Yet when Anwar Gargash, diplomatic adviser to the UAE’s president, sat down with his American counterparts it was another of the Gulf state’s relationships that was the focus of much of the discussions: China.

China has become a major purchaser of crude oil. What with America’s shale gas and oil bonanza China is now the biggest market for Gulf energy. And, of course, the singular ineptitude of our withdrawal from Afghanistan has certainly been noticed in the region:

It is a balancing act that the UAE and other Gulf states have been grappling with since China began broadening its economic and political footprint across the Middle East two decades ago — Beijing is now the biggest buyer of crude oil from the Gulf region. The trend has coincided with the perception among Gulf rulers that the US is bent on disengaging from the region, a sentiment exacerbated by its chaotic withdrawal from Afghanistan.

Can the Gulf states still trust America? Can they trust an America led by fools like Joe Biden and Kamala Harris:

“There’s a trust deficit with America which is growing by the day,” says Abdulkhaleq Abdulla, an Emirati professor of politics. “The trend is more of China, less of America on all fronts, not just economically but politically, militarily and strategically in the years to come. There’s nothing America can do about it.”

For decades, Gulf leaders viewed Washington as the guarantor of their security, while the US looked to them as reliable suppliers of global energy. But US oil imports from the region have declined markedly over the past 10 years as a result of the shale gas boom in North America. In contrast, demand for oil in Asia soared, and as the economic ties deepened, the China-Gulf relationship has flourished into one that today is about far more than just crude.

Naturally, everyone in the region is talking up the relationship with America, but still:

But as more assertive rulers in Saudi Arabia and the UAE — the Middle East’s two biggest economies and traditional US partners — look to diversify their relations and project their power, the more they look eastward.

China has high quality telecommunications equipment, and it is willing to sell it with no strings attached. We impose political conditions on sales:

Often it is a pragmatic choice, officials say, as China provides technology that is cheaper and more readily available than western options, with Huawei’s 5G technology a prime example. Beijing is also willing to sell equipment to Gulf states that Washington is not — and it comes without political conditions.

Apparently, the Gulf Arab states believe that Congressional limitations on technology transfers are harassment:

“More and more is going to be done with China for obvious reasons,” says Ali Shihabi, a Saudi analyst. “First of all the Chinese are willing to transfer technology and don’t have a Congress to harass you; secondly, China is our biggest market and, thirdly, China has influence with [Saudi Arabia’s rival] Iran. It’s virtually Iran’s only valuable ally, so exceedingly important to Saudi Arabia.”

When it comes to the 5G network in the new Saudi city of Noem, the winner was Huawei:

As an example of the blossoming relationship, he cites Riyadh’s decision to use Huawei 5G in Neom, Crown Prince Mohammed bin Salman’s $500bn flagship development project to include a futuristic city, even though the “Americans were dead set against it”. The tech firm is already building its biggest overseas retail outlet in the kingdom as China cements its position as Saudi Arabia’s biggest trading partner. Over the past two decades, trade between the two has soared from less than $4bn in 2001 to $60bn in 2020, nearly half of which was Chinese imports.

“We don’t really pivot to China but we have to be onside with China,” a senior Saudi official says. “With 5G, it wasn’t a question of ‘we are taking theirs over yours’, it was ‘we are taking the best available’. You do the same and we will buy from you. But we have to protect our own interests, so develop your technologies or we will develop our own.”

Did you catch that-- the best available.

And then, when America refuses to sell defense technology to the Gulf states they go elsewhere. Would you do otherwise?

More recently it has been the US refusal to sell armed drones to Gulf states that has caused both Riyadh and Abu Dhabi to procure the weapons from China instead. After Saudi King Salman and Crown Prince Mohammed met President Xi Jinping in Beijing in 2017, a deal was reportedly agreed to establish a Chinese drone factory — the Gulf’s first — at the kingdom’s King Abdulaziz City for Science and Technology.

A similar set of circumstances had the Gulf states turn to China for personal protective gear against the coronavirus:

Three years later, as coronavirus hit the region, the UAE turned to China as it scoured the globe for the resources to tackle the disease. Group 42, a state-affiliated company chaired by Sheikh Tahnoon bin Zayed al-Nahyan, the federation’s national security adviser, quickly established ventures with Chinese firm BGI, to open a coronavirus laboratory in Abu Dhabi and conduct trials for a vaccine.

In contrast, when Khaldoon al-Mubarak, one of the most trusted lieutenants of Sheikh Mohammed bin Zayed al-Nahyan, the UAE’s de facto leader, contacted Honeywell to supply much-needed personal protective equipment, the conglomerate was unable to deliver because of a US ban on PPE exports. Honeywell ultimately sourced supplies from its subsidiary in China as Beijing allowed the equipment to be shipped to the UAE, before setting up a joint venture with Mubadala, a state investment fund, to manufacture it in the Gulf state.

And, of course, China is not clamoring about human rights. It is not trashing the Saudis over the murder of Jamal Khashoggi. In return,  the Gulf Arab states have had nothing to say about the way China is treating the Uighurs. And, the Crown Prince of Saudi Arabia, leading his own reform and modernization drive, seems more intent on emulating the Chinese example, not the American example:

From a Gulf perspective, China offers something else that the US and other western powers cannot — an autocratic, state-led development model that resonates with the Gulf’s dynastical rulers.

“There’s a lot to learn from China and its ability to develop the way it has is predicated on the fact it’s not a democracy . . . it can make the decisions and it has to be state led,” says the Saudi official. “They are becoming light years ahead on a lot of things.

“We are also studying their industrial cities, not just big industry but downstream industries, technology, and looking at how they built them so successfully,” adds the official.

And the Chinese mind their own business:

The Gulf states and China also appreciate pledges not to meddle in internal affairs. When much of the western world was chastising Prince Mohammed in the months after the 2018 murder of Jamal Khashoggi by Saudi agents, the crown prince was warmly welcomed in Beijing. And Prince Mohammed, whose father, King Salman, is custodian of Islam’s two holiest mosques, made no public comments about China’s mass internment of the predominantly Muslim Uyghur minority. Instead, he said Beijing had “the right to take anti-terrorism and de-extremisation measures for safeguarding national security”, according to a Chinese foreign ministry account of his meeting with Xi.

Compare the American with the Chinese way of doing business:

“They look at China and they see a rising power that creates a lot of opportunity and they don’t demand a whole lot, whereas western countries tend to tie in human rights issues, or political ideology,” Fulton says. “China’s got this very firm, non-interference principle hard baked into its foreign policy.”

He believes the US still has the ability to influence the direction of relations between China and the Gulf, but adds that “there’s no way they can stop it from happening”, adding: “I don’t think there’s any changing it, just look at markets, population projections: the global centre of gravity, economic gravity, is just constantly moving eastward.”

As for human rights concerns, the more we pressure the Gulf leaders about human rights, the more they buy from China.

Others take a blunter view — particularly if Washington seeks to pressure Gulf leaders, such as Saudi Arabia’s crown prince, over human rights.

President Joe Biden entered the White House criticising Saudi Arabia over Khashoggi’s murder and promising to reassess relations with the kingdom, while freezing some arms sales.

“I think China is going to slip in and eat more of America’s lunch in Saudi Arabia because every hassle the Americans give the kingdom, it just encourages them,” Shihabi says.

‘There’s an effort to make them choose in a binary fashion and the Emiratis have been firm in saying “don’t make us choose”’

‘The Chinese are willing to transfer technology; China is our biggest market and [the country] has influence with Iran.

So, that’s the state of play. We are losing out in the Gulf, largely because of our own ineptitude. Then again, we have our ideals and we would rather be loyal to our ideals than to do business.