Gulf nations’ great recalibration

After the triumphant forward march of globalization in the years leading up to the financial crisis of 2008-2009, increasingly discordant tones have come to challenge the idea of shared prosperity built on economic integration.

The relationship between the world’s two largest economies — the US and China — has grown more fraught in recent years, and there are indications of deliberate decoupling. Add to this the ongoing military conflict in Eastern Europe, and echoes of Churchill’s 1946 Fulton, Missouri speech come alive.

Whether we are indeed looking at the new Iron Curtain or something akin to the Cold War, “deglobalization” is a reality today. The prospect of a more explicitly stormy relationship between two or more blocks is no longer impossible to fathom.

These realities present a challenge for the Gulf economies, which have been among the principal beneficiaries and leading lights of globalization. The Gulf Cooperation Council countries are exceptionally open economies, critically dependent on foreign markets for their energy and manufacturing exports and systemically reliant on a wide range of imports.

Moreover, openness remains a unique strategic opportunity as the tool that allows regional economies to scale by transcending their domestic constraints, which, even after decades of rapid, transformative development, remain acute.

The region’s population has increased some 25 times over the past century but, at around 60 million, remains relatively modest in international comparison. While economic diversification is adding to local productive activities, the Gulf, in many ways, remains more a region of brokers and traders rather than producers. The local natural resource base is exceptional but narrow and heavily dominated by hydrocarbons.

In contrast, openness is something that the Gulf economies are in a position to influence meaningfully through policy, regulation and infrastructure development. This is an area that has delivered impressive achievements.

The Gulf has, with extraordinary success, transformed itself into a leading, dynamic hub for a multitude of international flows — people, goods or capital. It has positioned itself through world-class connective infrastructure and an attractive regulatory framework at the heart of the Old World.

These attributes constitute a compelling value proposition in a globalized world. They has given the Gulf economies much flexibility in their external economic relations; witness, for instance, the eastward shift during the global financial crisis and the westward pivot in energy trade over the past year.

Proactive openness is central to the Gulf countries’ future economic plans and ambitions. A case in point is Saudi ambitions to develop its transportation and tourism sectors under Vision 2030. All the regional economies are working more resolutely to attract and retain talent through conducive regulation and a focus on lifestyle.

Continuing down this road unequivocally offers the region the greatest opportunities for economic progress. The region could make the world its oyster and achieve growth and diversification much faster than it could with a purely domestic focus.

A “deglobalizing” or divided world is a challenge to the Gulf region’s inherently global value proposition if it restricts the scale or optionality with which these exceptional assets can be used.

Barriers to global mobility, whether administrative or caused by increasing risks or costs, threaten to limit the utilization of these assets and the returns on investment. For instance, adopting sanctions may increase the costs and practical challenges of interacting with particular jurisdictions to a point where the costs, real or perceived, including reputation, may outweigh the benefits.

Realpolitik is a concept favored by the onetime US Secretary of State Henry Kissinger. It refers to a foreign policy motivated by practical considerations and interests rather than ideology.

In the Gulf context, realpolitik entails strategic neutrality. A posture that pursues pragmatic economic relationships in multiple directions is the logical choice for the Gulf region, given its competitiveness drivers and strategic aspirations.

Wherever possible, such ties should be developed beyond the bare minimum, particularly in strategic cases enshrined through formal treaties or economic partnerships. But it is important to accept that one size will not fit all, and possibly not consistently over time.

The Gulf countries are likely to make the most of their economic assets and opportunities through a flexible balancing act, seizing strategic opportunities where possible and mitigating risks where necessary.

In an increasingly volatile and uncertain world, bipolar or not, such as posture cannot result in total continuity in the direction or composition of external economic relations.

Moreover, it will inevitably involve ongoing vigilance and responsiveness. But it will also guarantee economic policymaking that seeks to safeguard competitiveness through continued innovation and adaptation. This approach is the ultimate recipe for agility, resilience and dynamism, a good foundation for enduring prosperity.