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The new Arab gambit

, March 14, 2014, 0 Comments

The new arab gambit-MarketExpress

West Asia, which includes the Gulf Co-operation Council (Saudi Arabia, UAE, Kuwait, Oman, Qatar, and Bahrain) and other key regional players like Iraq and Iran is undergoing unprecedented changes. The international press has been very vocal about the events and after effects of Arab Spring and the possible impact of American Shale energy revolution on the region’s energy exporters.

While these events are indeed important catalysts of change in the region, however, the far deeper implications bubbling under the surface have been largely unexplored. One of the biggest implications of the post-Arab Spring, and post-Shale energy revolution would be the emergence of a new or a group of new peace brokers in a region that has been severely infested by sectarian fault-lines and power struggle.

America fulfilled the role of the primary peace broker in West Asia for decades. Post cold war the powerful American army and naval forces have played a critical role in preventing the notorious wave of sectarian violence from disrupting the region, which, until 2010 was crucial for American energy security. However, a complex mix of unrelated events ranging from Arab Springs, Shale energy revolution, reversal of ties with Iran, and cut down on defense expenditure is weakening America’s ability and political will to engage in foreign logjams and conflicts.

While the Arab Spring cost America some friendly regimes, for instance, Hosni Mubarak in Egypt, shale energy is transpiring America into an energy independent state. Importantly, after an exhaustive and inconclusive war in Afghanistan the willingness of the army to engage in foreign conquests have diminished along with the need to control the defense spending in light of still weaker-but-improving economic backdrop. Also by softening its stance over Iran’s controversial nuclear programme America has massively disappointed key regional allies like Saudi Arabia and Israel.

Peace Brokers Wanted, please!
The GCC, spearheaded by Saudi Arabia has been proactive in its search for the new peace broker in the region. The GCC is presently undergoing massive socio-economic changes post Arab Spring. The monarchies are concerned about plethora of issues; youth unemployment, skills development, rise of sectarian violence, oil revenues in light of energy revolution, diversification from oil-based model of growth, and regional security.

At a time when the fever for rapid democratization of governance models is pitch high the region urgently need a new peace broker who would be not just ”non-interventionist” in their governing matters but simultaneously help them solve the unemployment and non-oil industrialization riders. Looking at the expectations and the responsibilities of the new peace broker many would perceive China to fill in the power vacuum in the region. However, the GCC has grossly tangent ideas!

West Asia holds immense importance for India. There are over 6 million Indians working in the GCC and the other West Asian countries. The remittances wired into India by those 6 million Indians bolster our foreign exchange reserves. Last year, according to a World Bank report Indians working in West Asia wired $30 billion into India in the form of remittances, which was around 45% of the overall remittances wired into India through different global locations.

The Indo-GCC trade crossed $200 billion last year allowing India to hedge its exports from the ailing economies of the debt-laden rich nations. West Asia is clearly the land of opportunities for India.

It was the Saudi Crown Prince, Deputy Prime Minister, Minister of Defense Salman Bin Abdulaziz Al Saud, the custodian of the two holy mosques in Mecca and Medina who paid a high-level visit to New Delhi earlier this month. Since the beginning of 2014 the hustle and bustle between the officials in New Delhi and the GCC has been on an uptrend. The visit paid by the Saudi Crown prince was an ”enormously important” event as the same materialized at a time when India is just months away from fresh round of elections.

Interestingly, America postponed high level visits of some key officials and Chinese President Xi Jinping, stretched his visit to India post elections citing change in power structure of the country. On the contrary, the GCC has stoked such immense trust and confidence in India that a mere change in power structure was not perceived as a factor in timing their high-level meetings with the Indian counterparts. Another biggest vote of confidence for the Indo-GCC relations was the signing of ”Defense Co-operation” pact between Saudi Arabia and India at a time when the UPA government’s chances of holding onto power are honestly dubious.

These visits and high-level exchanges in the backdrop of change in power structure in the country are certain indications of the expectations of the GCC from India in playing a much ”active” role in the geopolitical events in West Asia. The Arabian press duly welcome the refreshing approach of the regional monarchies of empowering India to play a bigger role in the regional affairs.

India’s history vs China’s economic might

India has been interacting with the West Asian region since 3 BC. Although the diplomatic relationship between the Arabs and India have been highly volatile and inconsistent during various periods in time, however, it has largely been enriched by the people-to-people connect driven by the presence of over 6 million Indians in West Asia. Arabs perceive Indians as reliable and socially compatible with the ethos of the religion and the Arabian societal values.

Unsurprisingly, the Saudi officials awarded a leg of the labor-intensive project of the ambitious EUR12 billion Mecca-Medina high-speed rail to an Indian company overlooking Chinese tenders precisely for the reason mentioned above. A lesser known fact about the Indo-GCC relationship is after the EU and America, India is the only third such power in the West Asian region that has been granted the status of being a ”dialogue partner” in regional affairs. It is noteworthy, that Indian population although dominated by Hindus houses third-largest Muslim population in the world behind Indonesia and Pakistan. The Muslim population in India varies between 130 million to 180 million in comparison to China’s 20 million. In a region where religion trumps reason this is a giant factor for economic and political exchanges.

Apart from religious affinity there are certain attributes of the Indian economy that makes India a sought-after partner over China. India derives strength from technology industry. After foreign remittances it is the IT sector of India that contributes the most foreign exchange reserves to the exchequer. This remarkable transition from being a poverty-stricken, aid-dependent nation in the early 60s to a knowledge industry leader by 2000s has been duly noticed and acknowledged by the West Asian countries.

After years of complacency which was fueled by the rising energy exports and prices the threat of substitutes like Shale energy has endangered their traditional revenue model. The GCC is eager to shore up non-oil industry and focus on technology, agro-processing, pharma, textile, high-speed rail and chemicals segments to name a few. India, has already scaled commendable heights in many of these sectors with proven global credentials. Although the Chinese leaders have committed themselves to the goal of rebalancing their economy away from manufacturing of low-value goods to move up the value chain the development on the technology front has been slower than expected. Over the years China rapidly expanded its web of influence globally through massive cash injections in infrastructure projects primarily in cash-starved but mineral-rich countries spanning MENA, CIS, Africa, and South Asia.

While it is true that China manages the world’s largest foreign exchange reserves running into trillions of dollars the GCC economies do not see much value in China’s contributions in their diversification goal. The GCC are a bunch of cash-rich countries with a per capital of nearly $29,000. What they need is the exchange and access to technological know-how and high-value processing industries like Agro, food, and chemicals. This is where India scores several notches over China.

One of the unique features of India’s relationship with the Islamic world is the cordial ties that India enjoys with both Shia and Sunni sects of Islam. Much of the MENA including the GCC is Sunni-dominated with Iran and Azerbaijan being the only two Shia countries in the world. Despite of the dominance of Sunni population the GCC houses a size able Shia population. Post Arab Spring as the calls for greater freedom and democratization gained momentum the centuries old sectarian-strife between Shia-Sunni sects too gained momentum.

While the GCC led by Saudi Arabia has been accusing Iran of using the Arab Spring as a pretext to stir instability by expanding an arc of Shia resistance spanning Iraq, Lebanon, and Syria leveraging the services of Hezbollah. The protests by Shia populations for greater freedom  in the oil-rich east Saudi Arabia and Bahrain last year heightened tensions between Saudi Arabia and Iran. America, which was preparing for a withdrawal from Afghanistan and busy on expanding Shale energy production didn’t put its heart and soul in dousing the flames of sectarian rifts between Shia and Sunnis.

India has deep cultural, religious, and linguistic affinity to Iran much before Islam replaced Zoroastrian as the core religion. Despite of hiccups in the recent past pressed by the American pressure on India to vote against Iranian nuclear program both countries enjoy close relationship. India and Iran’s common strategic view of the situation in Afghanistan, Central Asia and the world means the mutual trust and belief in diplomatic dealings is deep. Iran perceives India as a stabilizing force in the South Asian region with similar ideology of supporting peace and progress in the region.

The series of developmental projects initiated by India in the smaller neighboring countries like Bhutan, Nepal, and Bangladesh resembles Iranian contributions in neighboring Central Asian states. Saudi Arabia and the GCC would not hesitate to request India to leverage India’s relationship with Iran to draw the Iranians to negotiation table where the vexed issues of Shia-Sunni differences could be discussed and resolved. Unlike America and China which relies on their economic relations with Iran, India is uniquely placed to emerge as an ”impartial and honest” peace broker owing to its cultural and historical links with both the GCC and Iran. Moreover, the suspicion directed toward Muslims in Western countries post 9/11 and the consistent repression of Uyghur Muslims in the restive Xinjiang province by the Chinese government has shaken the trust element between the Islamic world and the rest.

Gains in the shadow of losses
India must seize the momentum and reward the trust exhibited by the GCC with coherent policies on plethora of issues concerning the West Asian countries. While there is a lot that India could offer to the GCC countries the reciprocal gains are evenly impressive. This new partnership would help India in securing its Sea Lines Of Communication, which constitutes 90% in volume and 70% in value of total Indian trade. This would also mean steady and continual supply of energy resources to power our industrialization and rapidly expanding urbanization. Importantly, over a period of time India could propose greater role for INR in the West Asian region thus increasing the profile of Indian currency and eliminating exchange rate volatility faced by Indian exporters.

On the other hand, the partnership between the Indian corporates and the cash-rich Sovereign Wealth Funds could be enhanced to open up new investment opportunities for GCC investors in India. India could also propose a plan where in a fixed percentage of revenues earned by the GCC countries through Oil and Gas sales to be invested in joint infrastructure projects. Remember India need to invest over $1 trillion over the next decade to meet infrastructural development and urbanization goals. Most importantly, India would emerge as a regional leader of a key geopolitical mass with a young, rich, and aspirational market of consumers with an unfailing potential of transforming the economic position of Indian corporates across the spectrum of large, medium, and small.

As attractive the gains may be the losses are equally profound. It is crucial to note that many great powers such as America and Turkey have burnt their fingers while dousing the flames of sectarian fires in West Asia. What India could learn from the mistakes of Turkey and America is to avoid taking sides in the Shia-Sunni conflicts and maintain its non-interventionist approach in their domestic affairs. India must realize that this is exactly what is expected out of her by the Sunni GCC and Shia Iran. Incidentally, this is perhaps the only area where China has better track record than India.

Understandably, India must also be cautious to not to maintain anti-Pakistan rhetoric while interacting with the GCC as religion trumps reason in that part of the world. While in a best case scenario India would emerge as a serious global power in a worse case scenario there will be terrible loss of credibility that has the potential of undercutting India’s influence in the immediate neighborhood. Indeed, a lot would be at stake while crossing the Arabian Rubicon!