Saudi Arabia - China - New Silk Road

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Item of Interest
April 10, 2007

The New Silk Road
Afshin Molavi

DUBAI, United Arab Emirates -- When Chinese President Hu Jintao visited the oil giant Saudi Aramco last year, he didn't need a translator. Plenty of Chinese-speaking Saudis were on hand. A few years earlier, Saudi Aramco had sent dozens of employees to study in Beijing. After all, China, not the United States, represents the future growth for Saudi oil exports.

Meanwhile, the Saudis are sponsoring students to study in India, China, Malaysia, Singapore and South Korea. Three of those countries -- India, China and Malaysia -- were among King Abdullah's first four foreign visits after he ascended the throne in 2005.

The Saudi students represent one small part of the growing trade and business corridor between the Middle East and Asia. Dubbed the "new Silk Road," trade and investment between the regions has quadrupled in the past decade and will continue to rise dramatically through 2020, according to the management consultant McKinsey & Co.

Here in Dubai, newspaper headlines last month spoke not of Iraq or of Arab-Israeli peace diplomacy but of the historic visit to India by Sheik Mohammed bin Rashid Maktum, Dubai's CEO-like ruler. Among the dozens of agreements signed on the trip: a nearly $20 billion real estate project to create three townships on 40,000 acres in India's Maharashtra state.

This new Silk Road is not only boosting economies (the India deal is expected to create 100,000 jobs) but is changing the geoeconomic and geopolitical landscape of the East, with serious ramifications for U.S. policy.

The new Silk Road is largely the result of the confluence of China's and India's economic growth and high oil prices. China and the six oil-rich members of the Gulf Cooperation Council (GCC) -- Saudi Arabia, Bahrain, Oman, Kuwait, Qatar and the United Arab Emirates -- are flush with cash. What's more, Chinese and Indian energy needs will ensure that the GCC region -- the equivalent of the world's 16th-largest economy -- continues to grow. By 2025, forecasts show, China will import three times as much oil from the Persian Gulf as the United States.

Key "caravan posts" on the new Silk Road are regional economic "winners" or rising stars: Dubai, Beijing, Mumbai, Chennai, Tokyo, Doha, Kuala Lumpur, Singapore, Hong Kong, Riyadh, Shanghai, Abu Dhabi. The old Silk Road civilization centers such as Persia (Iran), the Levant (Lebanon, Syria, Jordan) and Mesopotamia (Iraq) lag behind. Dubai, it might be argued, is the unofficial Middle East capital of the new Silk Road -- a gathering place of capital, ideas and traders fueling the growth -- and Iran, once a central force, is the sick man, albeit with enormous potential.

Investors from the GCC have been pouring money into real estate, banking and infrastructure across Asia. The Kuwait Investment Authority, the largest foreign investor in the Industrial and Commercial Bank of China, has doubled its Asia investments in the past two years. A Dubai official said last month that some GCC states are contemplating buying the yuan to diversify their reserves. Meanwhile, Chinese, Korean, Indian and Japanese companies are active in Middle East real estate, consumer products and industrial investments. China and Egypt -- another Silk Road laggard, just now sputtering to life -- have pledged to double trade in the next few years.

Undersecretary of State Nicholas Burns said in February that the crisis in Iraq, the Israeli-Palestinian conflict, discord in Lebanon and the containment of Iran are "at the heart of our engagement right now in the Middle East." He said the State Department's top officials spend "a huge percentage" of their time managing those crises.

Fair enough, those are critical issues. But when our foreign affairs bureaucracy focuses mainly on putting out fires, we miss out on important trans-regional trends and links. And it's not only business. A great benefit of the new Silk Road is its potential for expanding American security.

Security in the Persian Gulf is now as important to Beijing and New Delhi as it is to Washington. China will no longer be content to perch under America's security umbrella, and the Indian navy now more assertively patrols the Arabian Sea. What's more, China and India have far more influence with Iran than we do -- and less tolerance for a disruptive war. Many of the Islamic republic's political elites are also business elites, eager to find a way out of conflict.

Charting a path toward greater integration on the new Silk Road will probably be a more moderating force on the Iranian leadership than isolation. Iran's president, Mahmoud Ahmadinejad, may not be too concerned, but more powerful conservative establishment players are more interested in stability (and making money) than war.

Washington might also consider efforts to lure GCC capital to our hemisphere. President Bush recently pledged to assist Latin American economic development. Let's leverage our contacts to link emerging Latin markets to GCC capital networks -- creating a global Silk Road.

As the new Silk Road grows, more such opportunities will arise. But we might be too busy putting out fires to see them.

"The New Silk Road" originally appeared in the Washington Post on April 9, 2007.

ABOUT AFSHIN MOLAVI

Afshin Molavi is the author of Persian Pilgrimages: Journeys Across Iran, which was nominated for the Thomas Cook literary travel book of the year. A former Dubai-based correspondent for the Reuters news agency and a regular contributor to The Washington Post from Iran, Mr. Molavi has covered the Middle East and Washington for a wide range of international publications. His articles have appeared in the Financial Times, Businessweek, The New Republic, Foreign Policy, The Christian Science Monitor, The Nation, the Journal of Commerce, The Wilson Quarterly, among others. Born in Iran, but raised and educated in the West, Mr. Molavi holds an M.A. from the Johns Hopkins University Paul H. Nitze School of Advanced International Studies in Middle East History and International Economics. He has also worked at the International Finance Corporation, the private sector development arm of the World Bank.

As a New America Fellow, Mr. Molavi will study the links between economic development and democratization with a special emphasis on the Middle East. He argues that the region's widespread economic failure represents the largest obstacle to regional democratization because it creates societies that have weak middle classes that are overly dependent on the state or susceptible to the utopian promises of undemocratic opposition forces. At New America, he will examine U.S. efforts to promote democracy in the Middle East and will also explore and interpret regional trends in politics, culture, and economics. Mr. Molavi is also interested in issues related to global economic development, globalization and culture, and the economics of immigration.

Source: New America Foundation Web Site

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