The Future Is Asian

by Parag Khanna

  The more embedded China becomes in the thorny eastern Mediterranean, the more it must learn to navigate both the legacies of colonialism and the labyrinth of overlapping and conflicting interests in play today. China has called for an independent Palestinian state (with its capital in East Jerusalem) in exchange for support for its diplomatic priorities, placing it in opposition to US policy while also raising suspicions in Israel. Yet China’s involvement in Israel’s logistics sector could establish new pathways for cooperation between Israel and its Arab neighbors. In 2014, China Harbour Engineering Company began construction of a new port at Ashdod that is larger than Israel’s current main port at Haifa. Witnessing the project’s rapid progress in 2016, the Israeli transportation minister declared to the Chinese executives, “You’ve stepped into Moses’s shoes, turning water into land.”5 Meanwhile, Israel is planning a new freight railway from Ashdod to Eilat on the Red Sea (the so-called Red-Med link), which would allow goods to bypass the Suez Canal. This will also require Israel to massively expand Eilat’s capacity, even extending the rail line to Jordan’s much larger neighboring port of Aqaba. At the same time, China has become the largest investor in the Suez Canal Economic Zone, leading a herd of Asian industrial exporters including Malaysia and Indonesia, who want to use it as a bridgehead to boost sales across the Mediterranean.

  There is no doubt that Israel is entrenched in the security complex within its Arab and Asian neighborhood. In the past decade, it has fought across its border with Lebanon, supported an independent Kurdistan, launched hundreds of air strikes on Syrian military facilities, destroyed Iranian military installations in Syria, and carried out a much harder line—including cyberattacks, sabotage, and military operations—to thwart Iran’s nuclear program. Interestingly, this activity has brought Israel into closer contact with the Gulf Arab states to its south. Israel has had economic ties with Qatar since the 1990s, and Qatar has also been an important back channel for Israeli communication with the militant group Hamas. In 2015, Israel opened a diplomatic mission in the UAE to represent its interests at the International Renewable Energy Agency (IRENA) in Abu Dhabi. In 2017, the Israeli and Emirati air forces (as well as those of Greece, Italy, and the United States) participated in joint military exercises. Both Saudi Arabia and the UAE have made explicit overtures to Israel, promising a lifting of trade restrictions and allowing flyover rights in exchange for progress toward a Palestinian settlement. Both Gulf states are also growing customers for top-tier Israeli surveillance technologies needed for their counterterrorism operations. And all three nations share an overt hostility toward Iran that has translated into high-level strategic coordination that is not even masked. As Benjamin Netanyahu said at the Munich Security Conference in February 2018, Iran’s aggression has had the positive consequence of bringing “Arabs and Israelis closer together as never before” and “may pave the way for a broader peace.”6 Thus far, these instances of normalization have not been followed by formal recognition of Israel, but they do represent substantive interactions on common interests among countries that until very recently were sworn enemies. Whereas Israel once sought to wall itself off from the Arab world and brand itself an outpost of Europe, it is becoming ever more a part of the Asian system.

  The Persian Gulf: Asia’s Western Anchor

  After the massive growth liftoff in Asia in the 1980s and 1990s, Arab oil flows began to shift in ever greater proportion toward Asia. The two-decade-long “supercycle” linked Arab energy with Asian demand in a symbiosis of high commodities prices and surging consumption, with East Asia today being the Gulf oil and gas exporters’ largest market. West Asia thus began an economic and even strategic detachment from the West that is visible in its economic and even military affairs.

  One of the primary purposes of the United States’ military encroachment into the Arab world over the past half century has been to protect the flows of oil to Europe and the United States. Four decades ago, Gulf countries used oil as a weapon against the West, embargoing their exports to the United States after President Nixon pulled the United States off the gold standard. When the United States backed Israel in the Yom Kippur War, the Gulf exporters pushed oil prices up five-fold. But the increasingly self-sufficient United States and the renewables-focused Europe require less and less Gulf energy. Once the energy-focused “Carter Doctrine” to unilaterally protect Saudi oil flows expired, US priorities shifted toward boosting arms sales to Gulf nations, stabilizing Iraq, and containing Iran. Yet nearly thirty years after rallying the Gulf countries to expel Saddam Hussein’s armies from Kuwait and establishing a massive network of bases to promote Arab military cooperation, the United States found that its efforts to turn the Gulf Cooperation Council into a “NATO of the Middle East” had failed.

  In 2017, Saudi Arabia and the UAE, in their power struggle with fellow GCC member Qatar, demanded that the United States close its Al Udeid Air Base in Qatar. Even the Trump administration’s enormous arms sales to GCC countries have not made it any easier for the United States to navigate among its Gulf “allies.” The episode also revealed the Asianization of regional loyalties. While Saudi Arabia sought to convince Asian powers to curb their ties with Qatar because of its alleged support for regional terrorist groups, Turkey and Iran swooped into Qatar with food and other goods usually supplied via Saudi Arabia. When the UAE pulled its companies out of Qatar, India sent in its steel and construction contractors. Qatar initiated a minimum wage for South Asian guest workers to burnish its image with India and Pakistan. The United States’ military presence guaranteed Qatar’s sovereignty, but Asian powers provided an equally important lifeline. Even though the United States continues to lead arms sales to the Gulf and maintain robust bases in Saudi Arabia, Qatar, Bahrain, and the UAE, Saudi Arabia has become an eager buyer of Chinese missile systems and drones. The kingdom hopes to achieve as strong a relationship with China as China has with Iran. If Iran crosses the nuclear threshold, Saudi Arabia’s likely response will be to acquire the necessary components for its own nuclear weapon from its longtime Asian ally Pakistan.

  Economic shifts mirror the Gulf region’s changing strategic outlook. Every single GCC country has declining trade with the United States, while their trade with Asia is surging. Two-thirds of East Asia’s goods exports and four-fifths of its oil imports pass through the Strait of Malacca and then either the Suez Canal or the Strait of Hormuz. Almost 100 percent of India’s goods trade transits through either the Suez Canal or the Strait of Malacca. ASEAN energy consumption is expected to double between 2015 and 2030, with much of the additional supply coming from the Gulf. Hence Saudi Arabia’s Saudi Aramco and the UAE’s Abu Dhabi National Oil Company (ADNOC) are competing ferociously with Iran, Iraq, Nigeria, and others to be Asia’s top oil and gas supplier. As a result, the OPEC unity of the 1970s and ’80s has given way to a collapse of coordination, with oil producers jockeying to secure long-term Asian customers. South and East Asia are thus able to import stable oil supplies from West Asia without importing the area’s political instability.

  The Arab Gulf nations have long had intense trade ties with Asia. The GCC exports petroleum and gold to India and imports jewelry and textiles amounting to nearly $200 billion per year. China also has nearly $170 billion in trade with the GCC countries, and their growing use of the renminbi is rekindling plans for a free-trade agreement. In the past decade, Japan and South Korea have also increased their trade with the Gulf states, and Japan is pursuing a free-trade agreement with the GCC. Both Japan and South Korea have been crucial in providing the high-end industrial machinery and electronics necessary for the Gulf states’ ambitions for economic transformation. Meanwhile, ASEAN exports of meat, fruit, tea, and other agricultural goods to the Gulf states have doubled in less than a decade, contributing to their $130 billion in annual trade.

  Fresh investments spanning the breadth of this new maritime Silk Road from the Strait of Hormuz to the Strait of Malacca—the world’s most significant energy passag
eways—are further evidence of the Asianization pulling all corners of the region together. In early 2017, Saudi Arabia’s King Salman spent one month traveling to Malaysia, Indonesia, Japan, and China, inaugurating new petrochemical refineries for their oil imports from the kingdom. Many of his generation studied in India, and now thousands of young Saudis are returning to Indian universities as King Abdullah Scholarship recipients. All Gulf states have launched eastward-facing campaigns. Kuwait and Qatar have invested in large new refineries in Indonesia, while the UAE’s Mubadala Investment Company is underwriting gas exploration in Thailand and Vietnam. Of course, more local gas production in Southeast Asia will displace some imports, but by owning portions of those facilities, Gulf Arabs profit anyway.

  In the reverse direction, China has bought into the UAE’s oil fields by acquiring a stake in ADNOC’s onshore drilling operations, while both the Jiangsu Province Overseas Cooperation and Investment Company and Cosco have signed thirty-five-year and fifty-year leases, respectively, on facilities at Abu Dhabi’s Khalifa Port. Across the Arab world, China invested $26 billion in 2016 alone, versus only $7 billion in investment by the Unitd States. Arabic is the fastest-growing language at Beijing’s Foreign Studies University. Cross-Asian investment growth is inspiring plans for a great decoupling between oil and the dollar. In return for a strong investment in Saudi Aramco, Saudi Arabia may begin to sell China oil priced in renminbi. Welcome to the petroyuan.7

  Gulf economies cannot achieve their goal of economic diversification without support from East Asia. GCC countries’ sovereign wealth funds (SWFs) manage a total of $3 trillion, and parking that money in London or low-yield US Treasury bonds is less and less a sensible option. Instead, they are rapidly repatriating hundreds of billions of dollars from the United States and United Kingdom to spend with the Asian and European contractors that are building their future transportation networks and industrial parks. In 2015, Saudi Arabia’s Public Investment Fund (PIF) purchased a 38 percent stake in South Korea’s POSCO Engineering & Construction, after which Saudi Aramco turned to Korea’s Hyundai to construct the Gulf’s largest shipyard. In 2018, South Korea signed agreements securing its role in providing nuclear power plants and special forces training for the UAE. Bahrain and Oman are turning ever more to East Asian banks for trade financing and joint investments. GCC countries need to invest an estimated $131 billion just on electricity generation and transmission, and European utilities and Asian nuclear power plant operators are lining up to bid on projects.8 The Gulf region is looking more and more to Asia for its future, with or without oil.

  Asia’s SWFs and financial conglomerates are also working with high-growth Asian countries on crucial infrastructure projects. The UAE’s Mubadala Investment Company has a $10 billion joint venture with China Development Bank, while Dubai Ports World has a $3 billion fund that is targeting investments across India’s rapidly growing logistics sector. Asian tech companies are also leading the drive to capture the Arab world’s 400 million customers, half of whom are regular Internet users. Alibaba has begun a $600 million investment into a “tech town” near the UAE port of Jebel Ali that will house robotics and mobile app companies. Tencent is launching WeChat services across the region, facilitating payments and remittances for the millions of migrant laborers from South Asia, while Xiaomi has begun selling an $88 smartphone targeting low-wage workers.

  In Muscat, Oman, all conversations are about the country’s growing Asian ties. China’s investment in industrial parks at Oman’s new megaport of Duqm on the Arabian Sea will help Oman expand nonoil industries such as shipbuilding and auto assembly. And as the country diversifies its economy, it is the wealthy Indian merchants and businesspeople (Indians constitute more than one-third of the country’s population) who will benefit most by providing consulting, financial, legal, and technology services to the country’s broader commercial base.

  The more South and East Asians engage with the Gulf region, the more they will want to protect their investments. China, India, Japan, and numerous other Asian powers have all stepped up their freedom of navigation, counterpiracy, and other naval drills in the western Indian Ocean. India, seeking to recover the Chola Dynasty’s maritime might, has increased its naval acquisition to more than a quarter of its defense spending with the aim of becoming the gatekeeper of the eponymous Indian Ocean. In the name of maintaining a “free and open Indo-Pacific,” India and Japan cooperate in the annual Malabar Exercise with the United States, which has renamed its Pacific forces to Indo-Pacific Command. China is also seeking to recover its Ming Dynasty glory, sending flotillas to the Indian Ocean led by modern-day Zheng Hes. China alone has four times as many destroyers, frigates, and other surface warships as India (though still fewer than the United States and Japan). In the coming years, it may anchor more of them in Sri Lanka’s Hambantota port—which the government leased to China in 2017 for ninety-nine years after being unable to repay the loans for the port’s construction—or even the Maldives, which has agreed to become a maritime hub of the Belt and Road Initiative. China’s more active presence in India’s maritime theater has the country on high alert. Sri Lanka first reached out to India to develop the Hambantota port, but India was indecisive. Now India is offering instead to upgrade and manage Hambantota’s airport, from which it can monitor Chinese activity.

  The growing complexity of ties among Southwest Asian states is a reminder of how much less US dependent the regional system is becoming as countries establish a more diverse array of partners: the Arabs detest Israel but increasingly partner with it for their own security and to deter Iran; Saudi Arabia lavishes aid on Pakistan but courts India as an energy market and relies on the nearly 3 million Indians in its labor force. Yet even Iran’s leadership declared in 2018 that it was open to direct talks with Gulf Arabs about finding a regional accommodation—even proposing a “regional dialogue forum”—provided that no Western powers were present. Whether or not Saudi Arabia and Iran have a direct military confrontation, it is inevitable that trade between Arabs and Persians will return to the centuries-old pattern of dhow-boat diplomacy, exchanging food for goods across the narrow strait between them—even if they never agree on the name of the gulf.

  Iran Rejoins the Silk Roads

  Iran’s nearly four decades of isolation are an anomaly for a country that for thousands of years has sat at the geographic center of the Eurasian Silk Roads. Modern Iran, whether led by the shah or the ayatollahs, has chafed under British, Soviet, and US pressure, always seeking to ward off foreign interference and return to Persian hegemony. Iran’s western forays have gotten the most attention in the West. Its manipulation of Shi’a politics in Iraq, its propping up of Bashar al-Assad in Syria, backing of Hezbollah in Lebanon, and its arms shipments to Houthis in Yemen all show that it already is more important than the United States in much of the region. US officials decry Iranian attempts to create a “land bridge” to Lebanon, but from Iran’s point of view, its westward campaign across Iraq, Syria, and Lebanon to the Mediterranean Sea is less trespassing and more the restoration of the Safavid Empire’s dominion over the Tigris and Euphrates river valleys. In more recent terms, Iran is revisiting the 1980s Iran-Iraq War with the latter now in a far weaker condition than it was then.

  At the same time, Iran’s strategic outlook is equally oriented around its eastern opportunities. Like Saudi Arabia, Iran wants to ensure safe passage for its oil and gas exports to East Asia. Iran and China have conducted regular joint naval exercises in Gulf waters since 2014, with the Chinese flotilla docking at Bandar-e-Abbas near the Strait of Hormuz. The new Shanghai-Tehran freight railway, which arrives via Turkmenistan, takes twelve days rather than the thirty required by sea. Like Turkey, Iran is on the cusp of membership in the Shanghai Cooperation Organisation (SCO), through which it hopes to stabilize Afghanistan and more easily trade with China. Together, Iran and China want to tackle the “Golden Crescent” zone, which leads the world in the production of heroin and other opiates; dru
g addiction in Iran has doubled in just the past six years. Iran is also plotting to get more water from Afghanistan’s Helmand River, on which Iran’s second largest city of Mashhad depends. In the large western Afghanistan border province of Farah—also known as “Little Iran”—Iran runs its own commercial and espionage networks.9 Afghanistan’s largest trading partners are already China, Iran, and Pakistan, a reminder of how temporary, if painful, the United States’ foray into the country has been. The less the United States does to stabilize Afghanistan, the more Asians will do.

  The overlapping maneuvers of allies and rivals across Southwest Asia has created a plot as difficult to navigate as the geopolitical thriller Syriana. Saudi Arabia has recruited significant numbers of Pakistani military personnel to fight on its behalf in Yemen against Houthi rebels backed by Iran, which has caused tension between Iran and Pakistan—which China would like to reconcile to stabilize the Baluchistan region, which straddles their border, to avoid any interruptions to its gas, electricity, road, and port projects. Despite the complexity, Asians remain undeterred in their simultaneous pursuit of Arab and Iranian commercial opportunities. They have not been shy about making deals with Iran despite US sanctions and are far more comfortable interacting with Iran’s Islamic Revolutionary Guard Corps (IRGC) and its many commercial interests. China has financed the Tehran-Mashhad railway, along which Chinese factories are springing up to supply goods to Iranian and Chinese trading businesses. The Korean and Iranian banking federations signed an agreement in 2017 to offer trade financing in their own currencies rather than the US dollar or euro. With many European companies lacking credit lines from European banks, which fear US reprisals for dealing with Iran, Asians are racing ahead to lock in investments to their advantage. When European energy companies such as Total bend to US pressure and exit their stakes in the Iranian gas fields, the China National Petroleum Corporation takes over. A planned Iran-to-India undersea natural gas pipeline would make importing natural gas from Iran even cheaper for India than producing it domestically. As they maneuver for influence across the region, Arabs, Persians, and other Asians are also resurrecting their ancient ties.