Gulf Leaders View Obama as a Positive Impact on Politics but Question the Economic Benefits

Business leaders in the oil-rich Arab states of the Gulf expect US president-elect Barack Obama to have a positive impact on the politics of the region but are less clear about the economic benefits.

Obama, who visited the Middle East for the first time in 2006 on a trip to Iraq, is expected to break from the Middle East policies of outgoing President George W Bush’s and embrace a more co-operative approach to the region, analysts said.

“His election allows the region to try and pitch itself as a major force in international economic organizations such as the International Monetary Fund,” said Beejan Roohi, the managing director of a major international bank based in Dubai.

Building an understanding with key US allies amongst the oil-rich Arab states of the Gulf amid growing calls for the region to invest more of its wealth to help ease global economic turmoil will be a key challenge for Obama.

This week, British Prime Minister Gordon Brown visited the Gulf asking its leaders to donate extra cash for the IMF’s $400bn emergency fund. The fund is being used to aid countries like Iceland, Hungary and the Ukraine, whose economies are on the brink of collapse amid the global credit crunch.

An Obama presidency is expected to encourage Gulf states to use their petrodollars to help prevent the spread of global economic contagion.

Another immediate concern for the new Obama administration will be to find an economic policy that works for the US, which desperately needs lower oil prices to help boost areas of the economy such as auto sales.

But this is unlikely to help Gulf states where oil accounts for the majority of export earnings.

According to the IMF, oil-giant Saudi Arabia needs prices above $50 a barrel to balance its budget. Finding an equilibrium that works for both the US, the world’s largest oil consumer, and the Gulf will be crucial to the new relationship.

“Next year people will be looking more at how a US recession will lower demand for oil and impact on prices,” said Raja Kiwan, a Gulf-based analyst at PFC Energy International.

But a Democrat administration isn’t traditionally seen as a friend of big oil, or high prices, said Mazen al-Nahed, the general manager of treasury at National Bank of Kuwait.

Under the last democrat president Bill Clinton, oil prices plummeted to lows of around $15 a barrel. Under Bush, oil prices have surged to record highs this year of $147 a barrel.

“Democrats have always been green, supporting less oil and energy consumption, which may result in lower oil prices,” says al-Nahed.

“Since Gulf economies are mainly driven by revenues from high oil prices, this will have a tremendous impact on governments budgets going forward.”

Obama’s choices in the region will also be limited by the $700bn economic package that Washington has pledged to assist the financial industry in the US Government bailouts could reduce the value of Gulf assets overseas.

“The numerous bailouts of the US economy will require massive issuance of US Treasury bills and may hurt the dollar in the middle and long run,” Eckart Woertz, the program manager for economics at Gulf Research Center said.

“This is in turn would affect the large foreign dollar holdings of Gulf countries.”
Dealing with Iran will be a key political challenge for the new Obama administration as it builds relations in the Gulf.

US opposition to Tehran’s development of nuclear technology has brought heightened tension to the region.

“The mood has changed,” said Paul Salem, the director of the Carnegie Middle East Center.

“On the economic side, President Bush’s rhetoric led to tension and uncertainty with Iran, driving up prices and risk premiums for assets and commodities like oil. Obama is more likely to engage Middle East nations.”

The Bush administration has put pressure on Gulf states like the UAE to abide by economic sanctions against Iran. The emirates are Iran’s largest trading partners in the Gulf region.

More engagement will include making crucial decisions on the continued US military presence in Iraq and whether to intensify the war against the Taliban and Al Qaeda in Afghanistan.

This will include deciding on whether to scale back the vast US military effort in the region including whether to reduce the number of expansive aircraft carriers to keep stationed on alert in the Gulf region. – Zawya Dow Jones.

Author: Jo Amey