March 13, 2024
MANILA – Last year saw the Middle East pivot to Asia accelerating significantly.
This is according to the 2023 report by Asia House, an independent think tank
and advisory service that enables commercial, political, and economic engagement between Asia, the Middle East, and Europe.
The Gulf Cooperation Council (GCC)—comprising Saudi Arabia, the United Arab Emirates, Qatar, Oman, Kuwait, and Bahrain—marked a “remarkable surge” in trade with “Emerging Asia,” it notes.
“Emerging Asia” refers to the International Monetary Fund’s (IMF) “Emerging and Developing Asia” list of 34 Asian economies, including China, India, and most ASEAN members. But it excludes advanced Asian economies such as Japan, Singapore, South Korea, Hong Kong, Macao, and Taiwan, as well as Australia and New Zealand.
Trade between these regions increased by 34.7 percent from US$383bn in 2021 to US$516bn in 2022 and is growing faster than previous reports’ projections.
Current GCC regional trade and forecasted GCC regional trade in 2023 (percent).
Source: 2023 Asia House Report
Should GCC-Asia trade continue to grow at the average annual growth rate achieved from 2010 to 2019—about 4.9 percent—it is set to reach approximately US$757bn by 2030, soaring almost two-fold in value from 2021.
Going beyond oil
Much of the growth is attributable to higher average oil prices in 2022 compared with 2021.
Trade, however, reaches beyond oil. As the Gulf states implement their economic
diversification strategies, Gulf-Asia technology trade has expanded into the digital services area as well as the procurement of Asian expertise to bolster the Gulf’s digitalisation agenda and develop new growth sectors.
These include AI, communications technology, cloud technology, 5G, semiconductors, health tech, fintech, and food technology.
Sustainable cooperation between the Gulf and Asia, with a particular emphasis on China, is also rising. Synergies in renewables, hydrogen, electric vehicles (EVs), and green construction have fuelled this collaboration.
Gulf-Asia tourism and soft power activities such as cultural, educational, and people-to-people exchanges are also seen as possible contributors to strengthening the pivot.
A major geoeconomic and geopolitical shift
As per the Asia House report, Asia is “fast overtaking” the West as the Gulf’s key economic partner.
Gulf trade growth with Asia continues to outpace that with Western nations such as the US, UK, and Euro Area, a category of countries which use the Euro currency and are mostly in Western Europe.
Gulf-Asia trade rose by approximately 34.7 percent between 2021 and 2022. In comparison, the Gulf’s combined trade with the US, UK, and Western Europe rose by approximately 32 percent.
Gulf trade with Advanced Economies was worth US$587bn in 2022. These economies pertain to an IMF list of 40 countries, including traditional GCC trading partners like the US, UK, and Euro Area.
Advanced Asian economies are also on the list, along with Australia and New Zealand.
Asia House’s projections suggest, however, that trade with Asia will soon surpass trade with Advanced Economies probably by 2026.
China as a “key driver” of the Middle East’s pivot to Asia
The report describes China’s bilateral trade with Gulf nations as “accelerating at a blistering pace.”
Gulf-China trade has risen by about 50.6 percent over the last decade, a figure that almost matches the Gulf’s combined trade with the US, UK, and Western Europe.
The UAE-China trade relationship is now the most significant in this pivot, increasing by about 37 percent from an estimated US$78bn in 2021to US$107bn in 2022.
In an article by Yang Ran on China Daily last December 15, 2023, it was mentioned that China is the UAE’s top global trading partner, according to Hussain bin Ibrahim Al Hammadi, ambassador of the UAE to China.
Meanwhile, in the same report, it was stated that the UAE is now China’s top trading partner in the Arab world, “ranking first among Arab countries in the top 20 nations where China invests.”
Remarkably in both years, the UAE’s trade relations with China surpassed its trade with the US, UK, and Western Europe combined.
Saudi-China trade has also soared to about 28 percent from US$82.1bn to US$105bn between 2021 and 2022.
Chinese President Xi Jinping’s visit to the oil-rich country in December 2022 resulted in the signing of 34 deals for investment in green energy, information technology, cloud services, transport, construction, and other sectors, according to Saudi state news agency SPA as mentioned in an article in The Straits Times.
It was reported that the two countries sealed initial agreements worth US$30 billion during the said visit.
The continued internationalisation of the Renminbi (RMB) as a global trade currency could further boost China’s economic sway in the region, with RMB use in trade settlement tripling in the last three years. It now surpasses the Euro at about 6 percent of the global trade.
With China’s expanding economic influence in the Gulf, the world’s second most populous nation now also has greater involvement in regional politics. This shift can potentially reduce US influence in the region.
Besides China, the Gulf’s bilateral ties with other Asian nations are also thriving.
India’s trade with the Gulf, for instance, has grown, encouraged by the UAE-India
Comprehensive Economic Partnership Agreement (CEPA), which was signed on February 18, 2022 and entered into force on May 1, 2022.
In addition, the two countries signed an agreement on a trade corridor last February 14, 2024, according to a report on The Straits Times. The agreement aims to connect Europe with India through parts of the Middle East by sea and rail, an “ambitious plan” backed by the US and the European Union.
GCC trade with Asia is catching up with Advanced Economies.
Source: 2023 Asia House Report
Despite trade falling to a low of US$67bn in 2020, it recovered to US$95bn in 2021 and has since then surged to US$138bn in 2022.
Current and potential challenges
Despite the optimism, challenges remain.
The recent Middle East conflict has made the region’s future more uncertain.
In the event of an escalation, the region’s energy producers and energy prices could be negatively affected, possibly dampening global growth by fuelling inflation and interest rate hikes.
2023 has also seen a deceleration in Middle East economic growth, while Asian economies such as China continue to tentatively recover from COVID-19 on top of an underperforming property market, high youth unemployment, and reduced private sector confidence.
US-China tensions have also deteriorated over the past year and could negatively impact the pivot.
Growing competition between the Gulf states could lead to protectionism and localisation and undermine the pivot.
A rosy outlook
Despite these challenges, the Asia House report describes the long-term growth fundamentals for Gulf-Asia trade as “robust.”
The Gulf’s efforts to diversify its economies beyond oil and into areas such as sustainability and technology will further drive cooperation, it notes.
Trade is seen to increase as Asia’s economies, middle-class populations, and energy demand expand over the next decade.
The Gulf’s economic and social reforms, capital market expansion, and growing focus on Asia by Gulf Sovereign Wealth Funds (SWFs) are also expected to attract greater investment from Asia, further propelling the pivot.
Overall, Asia’s growing economic importance to the Gulf is leading to greater political engagement and cooperation.
According to the Asia House report, as the Gulf’s trade and investment ties with Asia increase, it follows that Asian viewpoints will carry more weight in the strategic decision-making of Gulf leaders, and a probable weakening of Western influence.
It cannot be denied that the Middle East pivot to Asia is one of today’s defining geopolitical and geoeconomic shifts, and should warrant greater attention from global business and political leaders, it further notes.