The Gulf and the ‘New Silk Road’

 

 

A Modern Silk Road Between Asia and the Middle East

By ANGELA SHAH and STANLEY REED

DUBAI — When Christy Lee, a South Korean investment banker, was dispatched to the Gulf four years ago to drum up business, her friends in Seoul had a hard time taking the assignment seriously. “They would say, Did you enjoy riding the camels?” she recalled.

Then the Gulf states’ oil earnings led to orders worth tens of billions of dollars for South Korean companies: The most noteworthy so far has been the deal for South Korea Electric Power Corp. to build four nuclear plants in Abu Dhabi, worth as much as $30 billion.

Now, when Ms. Lee talks about the Gulf, people listen. She has started her own firm, Daewon Advisory Services, with offices in Seoul and Abu Dhabi. In the past year she has brought 120 executives and leaders from the United Arab Emirates and other Gulf countries to South Korea, eager to figure out how it made its big economic strides. She expects these visits to bring in more deals.

Ms. Lee is one of a growing number of entrepreneurs and other people who have carved out roles as intermediaries between Asia and the Gulf, reviving in modern form — real estate projects, joint ventures, and investment deals — the centuries-old link between the Middle East and Asia known as the Silk Road.

Traders centuries ago brought silks and other goods from China by overland caravan trails and sea passages plied by sailing dhows — ancestors of the chunky boats that still berth, several abreast, along the banks of the Dubai Creek while scruffy crews load cargoes ranging from machinery to soft drinks for Iran and India.

In more recent times, as the West waxed in wealth and China waned, the old routes waned with it. But now the pendulum is swinging back and the Middle East — especially the Gulf region — is again growing much closer to Asia. Trade between Asia and the Middle East rose 700 percent in the decade ending in 2010, and more than half of the region’s trade is now with Asia, said Farouk Soussa, chief Middle East economist at Citi in Dubai.

Booming trade is leading to growing investment as well as political and cultural ties. Not long ago it would have been a total shock for Abu Dhabi to order nuclear reactors from South Korea. American or French providers would have been the likely choice.

“Asia is quite clearly where the Gulf is making a strategic gamble,” said Raad Alkadiri, a partner at PFC Energy, a consulting firm in Washington. “The Gulf states are hoping to tie their economies more closely with Asia’s. With the U.S. strategic focus shifting, they may eventually look to the giants of Asia to fill some of the security vacuum in the Gulf.”

Gambles can be lost as well as won. The Gulf could lose if Asian growth somehow peters out or if Gulf leaders waste the opportunity being provided by the current surge in oil revenue.

The United Arab Emirates, with the most open economy in the Gulf, is very aware of how much it could benefit from being a node on the new Silk Road. “The U.A.E. is the bridgehead for the integration of the Middle Eastern economies into China’s global supply chain,” said Nasser H. Saidi, chief economist at the Dubai International Financial Center.

Dubai, the U.A.E.’s trade and financial hub, has put the welcome mat out for China and its companies, hoping they will use it as a hub for their business in the Middle East and Africa.

Far-sighted if sometimes reckless, Dubai has invested heavily in trade infrastructure. Its Jebel Ali container port is one of the world’s largest and it has a monster airport which it now plans to expand, while also developing an even bigger one near Jebel Ali.

The early signs are that the strategy is working. In a few years the Chinese presence has surged from practically nothing to 150,000 residents, perhaps 8 percent of the population, and 2,000 companies, Mr. Saidi said.

For all of Dubai’s efforts to be a modern day caravanserai, oil and natural gas from Saudi Arabia, Qatar, and Abu Dhabi are the main glue that binds the Gulf and Asia. Gulf oil fuels the fast-growing Asian economies. The tankers that load crude at Ras Tanura, the main Saudi oil terminal, are increasingly likely to head for Asian ports. In 2010, 55 percent of Saudi crude exports went to the Far East compared with 16 percent for the United States and just 4 percent for Europe.

In February, China imported nearly 1.4 million barrels per day of oil from the kingdom, roughly 15 percent of Saudi production and more than three times the volume five years earlier.

Those sales are helping Middle East producers generate gushers of cash. Simon Williams, chief Middle East economist at HSBC in Dubai, said that oil exports will earn $750 billion for the region’s oil producing countries this year. He estimates that the main sovereign wealth funds of Kuwait, Saudi Arabia and Abu Dhabi already have a total of $1.5 trillion in their coffers.

“The Gulf is the beneficiary of the restructuring of the world economy and Asian growth,” he said. ”The region has never been richer.”

Given the source of those riches, it is not surprising that even Saudi Aramco, the kingdom’s national oil company, is turning East. It paid China the compliment of holding a board meeting in Beijing in May, 2010. And Sinopec, the huge Chinese state company, is now a partner of choice along with the likes of Exxon Mobil.

Stanley Reed reported from London