Globalization

Don't Count On Gulf Oil Producers to Bail Us Out

Wendy J. Chamberlin and Zubair Iqbal — Mon, 17 Nov 2008 10:08:46 -0500

One of the more alarming characteristics of the global financial meltdown is that –well, it’s global. That makes it very difficult to know where to turn to for help. British Prime Minister Gordon Brown reckoned relief might be found in Riyadh. After returning from Beijing with empty pockets, Pakistani President Asif Zardari has also gone hat-in-hand to the Saudis. There are a number of reasons why troubled economies can’t count on the cash wealthy oil producers in the Gulf for a bailout.

The hard truth is that major oil producing states in the Gulf face liquidity shortages and for the same reasons others do. They are heavily invested in the very Western banks that are in trouble owing, partly, to the sub-prime rate housing collapse in the United States and Europe.

Western economic downturn further negatively impacted the Gulf oil producers because demand for oil is down. The rest of the world simply won’t be buying as much oil as last year. The latest IMF forecasts for the Gulf region show that the combined external current account surplus of the six states in the Gulf Cooperation Council (GCC) is expected to fall by at least 7 percentage points of GDP in 2009. This drop effectively wipes out the large bonus from oil sales in 2008 that helped fund ambitious projects in the Gulf.

There are other reasons for caution. Earlier wise decisions of several GCC countries to diversify their economies by building the tourism, real estate, financial services, transportation and other non-oil sectors will help cushion the sharp decline in fiscal surpluses caused by a fall in demand for oil. But these sectors also took a hit with the global downtown.

The slowdown in GCC countries will reverberate negatively throughout the region. Currently, Gulf oil producers assist the developing economies of their neighbors by providing subsidized oil and access to jobs for expatriate labor. Any slowdown will eliminate jobs for the armies of guest workers who now send billions of dollars home to countries like Pakistan, and the Philippines. Those emerging economies have become dependent on the remittances of overseas workers and the slow-down will compound the global recession.

Outlook for major oil producers is manageable. The oil producers, under current expectations; will have comfortable foreign exchange reserves. But if the exchange rates of Gulf currencies remain tied to the appreciating U.S. dollar, the authorities in the GCC countries will find it difficult to tighten monetary policy and may encounter continued high inflationary pressures. Political pressures may also build to increase government expenditures to stimulate domestic growth, and avoid unemployment pressures.

In any case, the current global crisis will make the path toward the planned monetary union by 2010 in the GCC more challenging. This is a shame because coordination of financial policies that will be called for by the monetary union to support a common exchange rate would also help reduce destabilization of cross border capital flows.

What should be done to address the gathering storm? The GCC States could consider three broad initiatives.

First, at the national level, further improving regulation and prudential supervision could strengthen domestic banking sectors. Countries in the GCC have already taken some steps in that direction and this should be applauded. But the current crisis offers the opportunity to push for further restructuring and consolidation of distressed banks in order to minimize domestic contagion. Of course, these steps should be undertaken in concert with similar initiatives at the global level.

Second, at the regional level, a more organized approach should be taken to aiding those distressed economies in neighboring developing economies that are most negatively impacted because of their dependence on economic support from Gulf States -- like Pakistan. Consideration should be given to establishing a trust fund made up of multilateral and regional lending agencies, selected GCC countries, and the G-7 to pool resources and facilitate their effective use by vulnerable counties under IMF/World bank guidance. Regional stability hinges on the lowest common denominator. It is in everybody’s interest to prevent economic implosion in Pakistan. A rescue plan could have the advantage of presenting an opportunity to force countries like Pakistan to come to grips with entrenched structural distortions in its economy.

Finally, at the global level, the cash surplus oil producing countries of the Gulf, although also weakened, can still help the way out of the global crisis. The GCC States should be encouraged to maintain a degree of fiscal expansion so as to stimulate demand in the world economy. Such a policy is not entirely without self-interest. It would have the positive effect of increasing demand for oil exports.

Beyond the Cartoons

Kenneth Audroue — Fri, 17 Feb 2006 12:00:00 -0500

Many in the West find it hard to understand the degree of outrage throughout the Muslim world over caricatures of the Prophet Muhammad that have been published in the US and European press. Some assert it shows the Muslim world’s lack of respect for freedom of expression, its intolerance, or even its hypocrisy.

We all like to be confirmed in our assumptions or predilections, but there are lessons in this affair that go deeper than issues of freedom of speech or cynical manipulation. One is the ever-present danger of such cultural clashes in our shrinking, globalized world. Another is perhaps the inevitability of such conflict, given our ignorance in the West of foreign values and our missionary tendency to propound our own as “universal.”

But the most telling aspect of this incident is what it reveals about the sheer depth and extent of Muslim anger toward the West, an anger waiting to be tapped by such a random, unpremeditated incident.

We cannot say we have not been warned. Poll after poll has in recent years charted the rise of Muslim anti-Americanism, usually explained by objections to US foreign policies as aggressive, biased, or unjust. This theme is long familiar to those of us with overseas experience but is usually ignored at home. Given the lack of interest of most Americans in foreign affairs, this warning has perhaps never struck home, either before or even after September 11, 2001.

Some might argue that a serious discussion of a possible relation between policy and terrorism has been deliberately avoided or suppressed. Although we dismiss hostility to United States policies at our own risk, Muslim anger may have even deeper roots. I recall hearing hostile remarks about the US on the streets of Fez, Morocco more than 30 years ago. Intriguingly, at that time I found Americans were most welcome in Soviet-aligned Syria. Meanwhile, in Saudi Arabia the status of Westerners and especially of Americans, once regarded there as super-humans, has steadily declined since the 1950’s.

Before we dismiss this latest incident as one more proof of Islamic extremism and take comfort in the fact that it is not directed against the US, let us ask ourselves whether Muslim rage, which has been percolating below the surface for decades and anger over perceived insults, humiliation, and impotence to influence events, is not also a real motivating factor for acts of terrorism.

In view of the above, perhaps we should be less dismayed and instead welcome the recent victories of Islamist political parties in increasingly free Middle East elections. After all, empowerment might create responsibility. Today we find groups such as Hamas condemning acts of kidnapping and calling for calm in the cartoon uproar.

Now is the testing time for Islamist parties that have gained power through peaceful means to transform that anger and rage into responsible governance for those who have chosen to channel their energies into a democratic solution.

What We Don't Know About the World: The Danger of Ignorance in US-Arab Relations

Edward S. Walker, Jr. — Mon, 11 Apr 2005 12:00:00 -0400

For two years, scholars and experts from the Middle East Institute in Washington and the Al Ahram Center in Cairo worked together to examine the crisis in relations that divides us. We found significant common ground in our personal values and national goals.

Yet the anger, frustration and disappointment that often marked our dialogue provided ample evidence of the stress that has developed between our societies. Our Arab friends said, "It's the policy, stupid." There is no doubt that our way was complicated by our active policy in Iraq and our passive policy on the Palestinian issue. But while policies play a part in the estrangement, they are only a part of the problem and not really the most important part.

What we found was that because of our different histories, our exaggerated expectations of one another, the stereotypes we have developed of one another, our different cultural heritage and our ignorance of each other, we are hard wired into mutual mistrust. We come at problems from different perspectives, and that leads to misunderstanding. If a negative interpretation of the motivation for our respective policies is possible, that will too often be the interpretation that is adopted.

This is particularly true of U.S. efforts to support democracy in the region. We think we are the "good guys." Arabs, however, often interpret our true agenda as nothing more than an effort to expand U.S. and Israeli hegemony over the region. It is hardly encouraging when our Arab friends accuse us of actually impeding local efforts to expand democracy because those efforts are often suspected of being dictated by Washington. In every area of U.S. policy, whether it is success in Iraq, the war on terrorism, the peace process or our commitment to regional economic and democratic political development, the air of suspicion that acts as a fog, obscuring our true intentions, hamstrings our efforts.

These are issues that demand broad cooperation between the United States and the Arab world. But that will not happen as long as Arabs see us as being deaf to their concerns and aspirations and we see them as dwelling on the past and blaming others for their problems. "Get over it," the Americans said when confronted for the umpteenth time with the sins of colonialism. The Arabs told us, "You never listen." Unfortunately, there is an element of truth in each of these charges.

As a people, we are endowed with energy, impatience and the basic confidence that all problems can be solved. Based on their past history, the Arabs are endowed with reflection, caution and fear of chaos. While we see reform and democracy as critical requirements for attacking radicalism and terrorism, our friends in the region see undue haste as a prescription for instability and the rise of radicalism.

This is not a problem of "public diplomacy" although that may provide part of the solution. It is a much deeper problem of understanding. We did not pretend to have the answers to all the problems we faced. But we did feel that the kind of honest-no-holds-barred dialogue we held over time did help us in understanding one another, and we considered how we could institutionalize such a dialogue: We proposed a continuing "Leaders Forum" made up of academics, politicians and nongovernmental personalities from the United States and the region to work together, report to our leaders and look for ways to reduce misunderstandings. We suggested that governments, ours included, engage a mix of our own citizens who could question our actions and provide a reality check on the policies we were following. We thought that the student and cultural exchanges and the funding for them that were so useful and plentiful in the Cold War could be re-established in this new war against terror. A large fund could be set up to combine government and private money to support these efforts. We believed that each of our societies' think tanks, which are so used to flying solo, should establish agreements with one another for joint projects across national boundaries. We suggested that media organizations might develop practical exchange agreements to publish high-quality articles from other societies and cultures and develop exchange programs for reporters and editors. We felt there was a place in our entertainment industries for an exchange of ideas to help sensitize one another. Finally, we called for interfaith dialogue, something that is given more lip service than practical expression.

In sum, we felt that the greatest enemy of democracy and the greatest asset for terrorism was our relative ignorance of one another, an ignorance that sustains suspicion and feeds our prejudices. We must set aside stereotypes and suppositions, practicing instead the act of engaging one another to face the issues that challenge us.

The Quiet Revolution - Saudi Arabia

Edward S. Walker, Jr. — Wed, 14 Jan 2004 12:00:00 -0500

There is a quiet revolution going on in Saudi Arabia. No one knows its depth, its breadth or its ultimate impact, but the reform effort is very real and is probably unstoppable. There was a note of caution sounded by government and business alike during my discussions in the Kingdom in December. King Faisal's reform effort and ultimate assassination were on people's minds and on their lips. The Crown Prince made it clear to me that he was dealing with a traditional and strongly religious society. He did not want to follow the example of Kuwait where the government had to back away from a proposed reform in the face of parliamentary opposition. He advocated one step forward at a time and none back.

Religious Reform

The core of the reform and its success or failure will depend on the Royal Family's unified efforts to define Islam and delegitimize its more extreme elements. King Fahd made a publicized speech while I was in Riyadh to a body of high Islamic religious scholars. He said: "scholars must highlight the dangers which extremism poses to the Muslim faith and conduct." He called on the scholars to join hands to "correct the flaws in the thinking of some Muslims through dialogue in seminars, conferences and the media." He stressed that "deviant thinking" has led to terror in the Kingdom and said that there is a need for clear meanings for terms such as "jihad." And among other more esoteric demands, the King told the scholars to devise religious arguments to annul "aberrant fatwas" which legitimized militancy and suicide bombings.

In and of itself, this was an extraordinary statement which threw down the gauntlet to those who advocated an extreme form of Islam, including al Qaeda. The King's statement appears to have the unified backing of the Royal Family and much of the population. It is being backed up on the ground by a series of acts. Over 2,000 Imams whose preaching advocated militancy have been removed from the pulpit and 1500 have been sent for reeducation or to jail. In December two prominent Saudi Islamic militant imams publicly recanted their fatwas in which they had called for militancy. At the same time, there has been renewed vigor in tracking down militants and in cooperating with US authorities in the war on terrorism.

According to some Saudi businessmen the role of the religious police has been curtailed - there are fewer mutawwas on the streets and their behavior is less aggressive. The process of curtailing the flow of cash to terrorist organizations has had the unfortunate side effect of substantially depressing all charitable giving. The government has, according to these businessmen, removed the poor boxes from the streets in front of mosques. Individual giving has declined precipitously in the face of new controls and fears of funds being diverted or misdirected. Edicts have been put in place to track funding through charitable institutions.

A National Dialog on Reform

The reform effort has been developing for some time in the mind of the Crown Prince. But the real thrust seems to have come after the May terrorist attacks in Saudi Arabia. These attacks, and particularly the one against the Muslim compound this past fall, have brought the Royal Family, the businessmen and the average Saudi citizen together in opposition to the threat to the state, to moderation and to the tactic of terrorism. In June, the Crown Prince declared a reform initiative calling for self-reform and the development of political participation through a National Dialogue. The Crown Prince told me that this effort included all elements of the society including Shiites and other sects of the Islamic faith. He called this a process of the intellect to bring people together in consensus behind reform rather than a political process that tends to divide people on ideological lines.

Political Reform and Elections

In June 2003 the King granted the Majlis al-Shura (Consultative Council) the right to propose and debate, but not pass, new bills or proposed amendments to existing laws without the permission of the King. In October, the Saudi authorities announced that they would prepare for elections for half the members of each municipal council within one year.

The Media and Human Rights

In other areas, Saudi journalists established a trade association in February 2003, the first association of its kind. According to one prominent American journalist, there has been an improvement in the reporting of the Saudi press, which he attributed more to the competition of satellite TV stations like Al Jazeera and Al Arabia than to the Journalists Association. On human rights, in May 2002, the King approved establishment of an independent human rights organization but there has been little visible movement on this to date. A criminal procedure law was passed in 2002 regulating the rights of defendants and suspects before the courts and police, but the terrorist threat and pressure from the US and from within, particularly on issues such as detention without trial and access to a lawyer, where the US example is mixed, may have short-circuited implementation of these reforms.

Economic Reform

Economic reforms have been driven by the Saudi high unemployment figures and Saudi desire to join the WTO. Negotiations with the Europeans have led to new WTO compliant intellectual property laws and other legal and banking reforms. Negotiations with the US and a few others are still pending.

Education

Of all the problems the Saudis face, the most difficult and troublesome is the system of education and its religious content. Several limited steps have been taken. Girls education was removed from control of the religious authorities. Textbooks have been reviewed and egregious statements excised. The curricula are being updated and modernized. A woman has been appointed, for the first time, to a senior academic position in the Arab Open University in Jeddah. Student councils are being set up in public schools to begin educating young Saudis about civic responsibility and participatory governance. But the basic question of methodology - memorization and authoritarian teaching practices - and the extensive number of hours devoted in early education to Islamic studies have not been touched.

The Road Ahead

Saudi Arabia still has a long way to go - Saudis freely admit this. But they have been encouraged by the direction the Crown Prince is taking and by growing unity within the House of Saud in favor of reform. The image of the assassination by a religious fanatic of King Faisal, who organized the first major reform effort, and the takeover of the Holy Mosque by radicals, still haunt the Saudi leadership. They fear that a misstep will bring chaos. And they fear that the forces of change under those conditions would favor the radical Islamists not modernization or moderation. The fear of radical reaction will moderate the pace of reform, but what has been started in the Kingdom in the way of reform, will be very difficult to turn back, unless it is by violent overthrow of the House of Saud. And for now, overthrow looks unlikely. While the Crown Prince and other members of the Royal Family told me that foreign pressure would neither increase the pace of reform nor discourage it, Saudi businessmen were less sanguine. They felt that pressure, particularly from America, would work to the advantage of the religious extremists and undercut the legitimacy of the process of reform as a Saudi driven national priority.

MEI Annual Conference 2008: Panel II

Susan Bastress; Nabil Ali Alyousuf; Amr Awadh al Rawass; Aamir Rehman — Tue, 25 Nov 2008 16:22:30 -0500

Nabil Ali Alyousuf cites the UAE as an example of major regional trends toward development and openness in the Gulf. In the past, he says, Gulf countries spent their vast oil revenues outside of the region. In recent years, they have learned to invest internally, improve local government structures, and open markets to outside investors. Alyousuf advises developing countries to encourage inward investment to take advantage of a larger share of the world's economic growth.

The UAE Minister explains that market driven reform has allowed businesses to prosper. Government has played a transparent and objective role as regulator. He suggests economic regulations, which establish a rule of law, will trickle down to the general public. If the private sector sees that the government is serious about regulations and openness, companies will be more likely to make large investments in the country. He cites a recent survey that ranked the UAE in first place for its desirability as a place to live and for the perception that hard work will be duly rewarded.

Alyousuf considers the UAE a model for other countries when it comes to diversifying economies. In the UAE, only five percent of the GDP comes from oil revenues. Other sectors play a larger role. Saudi economic cities, tourism throughout the GCC, and the real estate markets of UAE, Qatar and Bahrain are other examples of regional economic diversification. Dubai has created new sectors like tourism out of virtually nothing. Now tourism contributes to over 20 percent of the GDP. Dubai took in over eight million visitors this past year; more than India or Egypt, two widely recognized tourist attractions.

Amer Awadh Al Rawas describes changes in the GCC's development strategies. In the past, he says, investments were made outside the region or in the oil and gas sector. Gulf countries were susceptible to declines in oil prices, as witnessed in 1986 and 1997. GCC countries learned from these downturns. They began increasing their sovereign wealth funds, selling more oil when prices were high, investing in oil exploration and production, and using prudent fiscal balancing. Today, small countries like Qatar are enjoying huge surpluses. The recent spike in growth has allowed for large investments in infrastructure to take place, which supports the many immigrants and tourists coming to GCC countries. However, Al Rawas also mentions a downside of rapid growth: a spike in inflation rates, difficulties for the GCC's low income population, and lower immigrant worker remittances.

Al Rawas says the global financial crisis will cause companies to fire some workers and rehire them at lower prices. Competition will increase, and the government must play an increased role in the economy. Al Rawas reiterates the point that Gulf countries must move toward more diversification. Oman has done so by branding itself as a tourist destination, building several airports throughout the country, and investing in indigenous resources.

Aamir Rehman identifies three factors that will continue to make the GCC attractive for international business. The first is sustainable prosperity and growth, which the GCC economy has achieved with wealthy emerging markets.

Second is the GCC's attractive demographic, which includes a young population and two generations of an educated public.

Third is the regulatory reform by GCC governments, where Dubai is a clear front-runner. Rehman assures that surpluses in GCC economies will allow for a quick bounce back from the global financial crisis. And the attractive regional demographics are long term trends. The biggest challenges will be providing employment to the young population, and avoiding a policy of protectionism. Another development to watch closely in the region is the opening of Saudi Arabia's free economic cities.

Rehman advises economic stakeholders in the GCC to expand prudently, as surpluses are not what they used to be. Stakeholders should buy through private equity and other sophisticated investment tools. Finally, Rehman counsels GCC governments to keep capital within the region, to diversify revenue sources – possibly through taxation. He explains that taxation will positively alter how the public and government interact. Although the GCC is facing many challenges, all three panelists identified ways for the GCC to grow and become more competitive in the long run.

Iran on the Horizon: Panel II: Iran and the Gulf

Wahid Hashim, Ebtisam al-Kitbi, Sami al-Faraj, and Barbara Slavin — Wed, 13 Feb 2008 12:48:51 -0500

Opening the panel, Barbara Slavin, spoke briefly about the current goal of US policy in the region to isolate Iran and its allies. She noted that Gulf Arab states have been increasingly reluctant to buy into the current US policy agenda, hedging their bets against Iran's growth as a regional hegemon. Hamas' recent performance and public relations victory in Gaza coupled with Hizbullah's success in delaying the Lebanese presidential election has added to the perception that Iran and regional allies are doing well. This signifies to GCC states the imminent emergence of a new power order in the region. Due in part to this and to the sense that the US is struggling in its role as a regional power, Slavin stated that Iran has received a warmer reception from GCC states. President Mahmud Ahmedinejad was the first Iranian president to be invited to a Gulf Cooperation Council summit which recently took place in Qatar, where he called for the establishment of economic and security pacts among Persian Gulf states. Also, King ‘Abdullah of Saudi Arabia invited President Ahmedinejad to perform the Hajj, which as been seen by many as a reconciliatory gesture.

Dr. Wahid Hashim, the first panelist to address the audience, focused on relations between Iran and Saudi Arabia, with particular emphasis on the history of the Shi‘a-Sunni conflict. The Gulf region has been defined by the continuity of the struggle between Shi‘a and Sunni Muslims, and since the Islamic Revolution in 1979, Shi‘a Muslims, Persian or otherwise, have increasingly turned to Iran and its clergy for leadership. He argued that prior to the Revolution, a pan-Shi‘ite identity did not exist to unify Arab and Persian Shi‘a under a singular national identity. Following the events of 1979, Iran was able to create such an identity and gather a strong following of Shi‘ite supporters, Dr. Hashim asserted, by exporting their ideology of revolution mainly along Shi‘a lines. Iran was able to garner such support from the non-Iranian Shi‘ite community since Shi‘a Muslims felt they were not being adequately represented in governments dominated by Sunnis, causing Arab Shi‘a in the Gulf to turn elsewhere for ideological leadership, which they found in Iran.

The tensions that once existed along Arab and Persian lines, Hashim declared, have shifted and now divide the Gulf region along Shi‘a and Sunni lines. Iran sees itself as being surrounded by Sunni states, namely and because of this, Dr. Hashim claimed, Iran is seeking to build what he termed as “the Shi‘a bomb” in order to balance its Sunni counterpart and to discourage Sunni interference in Iranian affairs.
Dr. Hashim followed this statement expressing his view that the future of relations between Iran and Saudi Arabia is not without hope. The antipathy and suspicion that exist between the two states is present at the level of government, but not on the street, pointing to the warm reception that Shi‘a on pilgrimage receive in Mecca. He concluded that beginning a new era of bilateral relations between Iran and Saudi Arabia, despite their storied history, would be beneficial to both parties and is contingent upon the cooperation of the two countries' respective governments.

Following Dr. Hashim's presentation on the dynamic of Saudi Arabian relations with Iran, Dr. Ebtisam al-Kitbi addressed the conference on the subject of the Gulf Cooperation Countries' changing stance toward Iran and the United States, focusing on that of the United Arab Emirates. The invasion of Iraq and the US failures there, she said, have contributed to the image that the US administration has lost its credibility and is more the cause of regional instability, rather than its cure. As such the US can no longer expect to impress its policies on Gulf states, adding that the US has yet to come to terms with this reality. As a result, the UAE and GCC countries are beginning to define their own national interests outside of the need for US military support and protection in exchange for a stable oil supply.

With US power declining in the Gulf region, Dr. al-Kitbi explained that GCC states have decided it is a better long-term strategy to engage with an emergent Iran now. This comment sheds light on why President Ahmedinejad was invited to attend the recent GCC summit in Qatar. In light of an expected reduction of US influence in the Gulf region, a trade agreement between Iran and any GCC state could be useful. Improving economic relations between Iran and GCC countries, al-Kitbi stated, would also serve as a vessel to lessen overall political tensions in addition to the economic benefits each country would reap. She added that Iran is eager to engage GCC countries economically because it provides a way for Iran to counter US moves to strangle the Iranian economy.

Dr. al-Kitbi focused the rest of her remarks on the stance of the UAE toward Iran and the crucial factors it would have to consider before making future policy decisions. She listed geographical proximity, Iranian military power, and religious influence, among several other factors, as important considerations the UAE must make in its future dealings with Iran. Of primary interest was her exploration of the economic relations between the two countries. She stated that 8,050 Iranian companies were listed in the Dubai Chamber of Commerce, the worth of Iranian assets in the UAE totaled around 66 billion USD, and that the 2006 volume of trade between the countries stood at around 11 billion USD. The UAE stands to gain a great deal from establishing a free trade agreement with Iran, she said, which would allow Iran a window through which to access the international market.

Concluding her remarks, she noted that the UAE is weighing its options to enhance its ties with the West in the face of Iran's rise to power in the region.

Dr. Sami al-Faraj, the final panelist, spoke about the threats that a nuclear Iran would pose to GCC states, focusing his remarks on Kuwait. Throughout his presentation, he presented the issues facing Kuwait and GCC states concerning the rise of Iran using an extended metaphor of Iran as the ex-girlfriend of the man of the house, a role played by the US, and the impact that letting her back into the household would have for the wives, GCC states, and the neighborhood. Iran sitting down with the US to solve regional problems, he argued, would only erode US influence, a consequence which the GCC states must come to terms with as members of the household under US protection.

Iran as the ex-girlfriend, now an object of interest for the husband despite the fact she poses a danger to the other wives, wants to become the primary power in the region, effectively eclipsing the current wives. One of the problems, al-Faraj noted, is that Iran will not go away. As appealing as eliminating the ex-girlfriend would seem because she is troublesome, it would create havoc for the entire region and pose dire consequences for GCC states. That being said, al-Faraj stated that the GCC outlook toward Iran is that it will certainly become a source of trouble in the future and that GCC states must be prepared to face that eventuality.

Iran, he said, wants to become a hegemonic power on the cheap and could resort to terrorism, war, the antagonism of Shi‘a in GCC states, or even mishaps in Iraq to launch Iran into that position. Given that Iran is likely to obtain nuclear capabilities, GCC states must be prepared to cope with disasters of national proportions. Therefore, the GCC must band together to ensure mutual survival stressing that he spoke not of economic survival, but material survival, as humans regardless of extant religious and/or ethnic divides. There is no way that any of the GCC states could protect themselves without real cooperation, nor without Iran as a partner. He pointed to the fact that Iran's lack of transparency concerning its uranium enrichment program worries GCC states as they are unsure of the security measures set in place on Iran's part to prevent nuclear disaster.

Dr. Sami al-Faraj concluded by suggesting that the US does not need to marry Iran and bring her back into the household. Rather, Iran must have a special status and be aware of its borders and barriers.

MEI's 61st Annual Conference - Closing Remarks

H.E. Abdullah AlirezaH.E. Abdullah Alireza — Mon, 26 Nov 2007 11:42:01 -0500

Abdullah Alireza began his address on a positive note, drawing attention to the encouraging developments of the economic sector in the Middle East. He emphasized that in the three decades since his last visit to the National Press Club as a Georgetown student in 1968, the economic trajectory of the Middle East has been significantly altered. The benefits reaped for the Kingdom of Saudi Arabia from the economic boom of the 1990s are considerably different than the economic improvements that were ushered in as a result of the windfall from the 1970’s oil boom.

Alireza highlighted Saudi accession to and participation in the World Trade Organization and underscored that despite the region’s ongoing struggle to position itself favorably in the 21st century, the Middle East is not in a state of perpetual negative flux.

Despite the chaotic backdrop, he contended that the Middle East is experiencing an economic boom and the Gulf Cooperation Council (GCC) is emerging as a strong and stable entity, which along with China, constitutes a $300 billion current account surplus—55 percent of which was invested in the US between 2002-2006. The GCC has also helped link North Africa to the rest of the Arab world; GCC exports have been the drivers of integration, increasing from 5.8 percent to 8.9 percent in the last few years alone. The private sector has also been quite active, demonstrating sustainable progress amid economic diversification.

Mr. Alireza noted that Saudi Arabia is ranked 25th among the world economies and the Kingdom boasts a $700 billion stock market. World Bank data demonstrates that unemployment is declining. He noted that some consultants calculated that Saudi Arabia is able to offer some 600,000 jobs in middle management, with approximately 200,000 Saudis qualified to fill the positions. He said there is $600 billion available for economic investment; much of which could be allotted for various sectors including natural gas, chemicals, tourism, technology, and much more. Saudi Arabia is also seeking greater cooperation between China, India, Brazil and Turkey.

The Saudi advisor said King Abdullah took a another step in 2004 to try to open the way for future economic successes for his nation by delineating the four steps needed for a healthy transition to private sector development: diversification, increasing private sector opportunities, enhancing bureaucratic efficiency and utilizing private sector capital for investment. Another effort has included construction of the King Abdullah University for Science and Technology—the only institution outside of the Jeddah, Riyadh and eastern provinces devoted to research and development. Seventy percent of the members on its board of trustees are non-Saudi. Its president is also President Emeritus of Cornell University. Ideally the university would accommodate some 300,000 graduates.

Notwithstanding these hopeful measures, he said US investment in Saudi Arabia remains highly deficient. Mr. Alireza called for greater western economic involvement and suggested greater use of economic restructuring to alleviate some of the issues plaguing Palestine, Lebanon and Iraq. He also underscored the importance of modernization and development in conflict resolution.
Saudi Arabia, he said, can continue to foster a robust economy well into the future by investing the wealth from its vast oil revenues into technical knowledge and human capital and by promoting institutional collaboration. He emphasized that Adam Smith’s predictions 200 years ago rings true today—that free market economics and capitalism is the key to building a viable and sustainable society.

Abdullah Alireza urged that dialogue replace the chaos and destruction in the region that has colored relations between the West and the Muslim world.

Engaging Political Islam

Maysam al-Faruqi, Richard Murphy, S. Abdallah Schleifer, Akbar Ahmed — Tue, 14 Nov 2006 12:00:00 -0500

Professor Akbar Ahmed opened the panel by critiquing the West’s approach to political Islam. According to Ahmed, political Islam has become the dominant discourse in the Muslim World as a direct response to the failure of the relationship between moderate Islam and the West. Had democracy and construction of civil institutions occurred, more extreme elements of Islam would have been contained.

He warned that Western policies of ignoring, clashing with, and bombing Islamists have not contained political Islam, but instead have given rise to more extreme variants. Such an approach has not only strengthened extremists, but has further weakened moderate Islamic leaders. Professor Ahmed concluded that a more moderate approach is needed in order to constructively engage Islamists in the political sphere and reverse this trend.

Mr. Schleifer drew on his personal experiences as a Muslim and a journalist to highlight the rise of increasingly violent Islamist movements. As a journalist he was struck by the hospitality of Palestinian Fedayeen and militia in Lebanon. These groups had an abstract ideological attachment to nationalism, yet were devout spiritual Muslims with a true commitment to Islamism. Mr. Schleifer argued that contemporary Islamist movements no longer reflect the typically Islamic values of hospitality and civility. With the focus on violence, the intrinsic spirituality is gone and an ideology has filled that void. Islam remains as rhetoric, not as a spiritual and social guide. While these contemporary groups are nominally Islamists, in Schleifer’s view they are essentially ideologues.

To further illustrate this trend, Schleifer compared the treatment of captives held by Islamic oriented guerilla movements in the past three decades. Schleifer stressed that there is a distinct difference between Islamic organizations committed to the political process and those that are in principle committed to the sanctification of violence and terrorism. Although their tactics may be appalling, terrorist groups should still be engaged by diplomats. Pointing to the militant actions of Menachem Begin, Yitzhak Shamir, and Yassir Arafat, Schleifer reiterated that groups considered to be terrorists today will not necessarily be terrorists in the future.

Maysam al-Faruqi, the second panelist, argued that if Muslims are given the opportunity to freely chose their governments, they will create institutions that reflect their Islamic identity—a reality that the West is unable to accept. While culturally constructed Western structures are effective in the West, they are not the best model for other regions. Pointing to the Holocaust, the genocide of Native Americans, slavery, and segregation, al-Faruqi asserted that the Western model of democracy is not sacrosanct.

Colonialism destroyed the traditional state, cultural and social structures. In al-Faruqi’s opinion, political Islam is the natural resistance to the artificial structures left behind by colonialism and perpetuated by authoritarian rulers. As a result, Islamists are embroiled in internal and external struggles: internal struggles against the imposed institutions and ideologies, and external struggles against Western intervention in internal political, economic, and military affairs. Al-Farqui also argued that extreme Islamist movements are a result of political issues and not of religion. Opposition groups have become increasingly radical as Muslim populations are being oppressed in Bosnia, Chechnya, and in the Palestinian territories. Muslims who normally oppose the use of violence, see these violations as the work of the West and as a justification for retaliation. She insisted that these urgent political issues must be addressed in a constructive manner in order to provide stability and reverse the rapid trend of radicalism.

The final panelist, Ambassador Murphy began his statement by admitting that the United States’ ability to engage political Islamists has been severely constrained in the last 30 years. In his opinion, three barriers prevent diplomats from understanding and making recommendations to shape U.S. policy towards political Islam: diplomats are more favorably disposed toward secular political movements; they are constrained by their state-centric view of international relations; and they must weigh the benefits of engaging political Islamic groups against the costs of damaging their relationship with the host government.

In order to overcome these obstacles, Ambassador Murphy provided a number of recommendations for current and future American policymakers. He emphasized that the West must resist treatment of all Islamist parties as an undifferentiated group. In contrast to al-Qaeda, most Islamists are in fact local and nationalist. He also suggested that American policymakers begin to explore the common ground between America and emerging Islamist leaders who have disavowed violence. American refusal to engage in dialogue reinforces the perception that America supports their exclusion from the political process. Ambassador Murphy concluded by arguing that the U.S. should refocus efforts into tackling issues such unemployment, corruption, and monopoly of political power. Once these grievances are addressed, only then will the attraction to extreme political Islam subside.

Panel: Commercial Prospects in Libya

Alan P. Larson, Douglas Bell, Matthew S. Borman — Fri, 23 Jun 2006 12:00:00 -0400

Douglas Bell stated that economic policy and trade agreements between the US and Libya are at an important juncture. As a general free trade initiative and policy infrastructure currently are being created to reflect the new reality of an economic relationship between both countries, policymakers must remain attentive to Libyan economic ambitions and formulate policies that are in line with the country's vision for the future.

Bell suggested that a number of tools should be utilized in order to induce a prosperous free trade area in the region within the next ten years. First, the World Trade Organization (WTO) should engage Libya in multilateral track negotiations and establish a rules-based trading and investment regime. Libya, along with Lebanon and Iraq, is one of the few countries in the Arab world that does not belong to the WTO and is consequently economically circumvented. Membership in the WTO will place Libya on a progressive track that will institute the rule of law, address market access issues, and will modernize energy services and telecommunications.

A second step is a bilateral trade and investment framework agreement between the American and Libyan governments. While such agreements with Morocco, Jordan, and Israel have set a good standard, agreements with Libya have lagged over the past four years due to the slow pace of reform. Once the US has a better understanding of what Libya wants and is able to achieve, a formal regulatory agreement may be adopted and implemented.

Libya's participation in a general assistance program for low-income countries is another method of promoting free trade. US commercial and foreign policy interests must be identified and incorporated into the final framework, which should deepen the economic relationship between countries, but also promote reform, a global economy, inter-country trade, and integration.

Libya currently maintains observer status at the WTO and has conveyed interest in joining the organization. Bell affirmed that the country is rich in resources and has a well-established history of promoting reform. Bilateral economic dialogue between Libya and the US inevitably will be followed by political dialogue, creating opportunities for personal interactions between citizens of the two countries and ultimately leading to a deeper cultural understanding. The challenge will be determining Libya's desired pace of development toward stable and sustainable reform. Although high expectations and excitement over future economic prospects are mitigated by the challenges of real economic transformation, Bell was hopeful and optimistic that at this time next year a great deal of progress will have been made.

Matthew S. Borman addressed the practical implications of a free trade agreement with Libya, and discussed the adaptation and application of existing US trade models in the country. The majority of hardware and software exports is commercial and has minimal restrictions, though items with military capabilities and dual uses must adhere to unilateral export controls. Up until 2004, all products exported to Libya required approval, and most approval requests were rejected. Libya's renunciation of weapons of mass destruction in 2003 enabled the US to lift the embargo on Libya. A US petition submitted to Congress requesting the removal of Libya from the terrorist designation list will go into effect in the coming weeks. In addition, the responsibility of overseeing exports to Libya was returned to the Export Administration, which translates into lower levels of restrictions for the exportation of goods.

From a commercial perspective, three new regulatory agreements have defined the implications of lifting the embargo between the US and Libya. According to the April 2004 agreement, items can be exported to Libya without prior government approval. The annual dollar value of US commercial exports such as food, medicine, textile, automobiles, and industrial machines has increased significantly since the removal of sanctions. The March 2005 agreement improved upon the previous one by easing the licensing policy and further increasing exporting capabilities from the US to Libya. Moreover, this agreement specified to US exporters how to cope with an install base including items such as computers, which may already be in Libya from past licensing activities, or items illegally exported into the country. Although these items should be reported before being modified, they may then be refurbished or upgraded with exported parts from the US.

The third agreement in November 2005 identified a group of items that would receive a licensing exception as long as they are used by US persons conducting business or professional activities in Libya. Accordingly, items such as office supplies may receive a license exception, and then be easily exported from the US. As a result of all three agreements, over $83 million worth of products are exported to Libya each year. The dollar value of all products requiring a license is valued at $1.2 billion. Borman recommended that US businesses consider getting a license if they anticipate a business opportunity with Libya, as the process for a two-year license takes thirty days to complete.

The Role of New Arab Media: Shaping Opinion and Breaking Barriers

Jihad Ballout — Wed, 15 Feb 2006 12:00:00 -0500

Jihad Ballout, Director of Media Relations for the Al-‘Arabiya satellite news channel, talked about the changes in Arab television and news gathering over the last ten years, and the future of what he called “new Arab media.” Ballout pointed out that, since the launch of the BBC’s now defunct Arabic news channel in 1994, there has been an unprecedented proliferation of Arabic news and entertainment satellite channels. Al-‘Arabiya’s researchers predict that there will be 250 Arab satellite channels broadcasting all over the world by 2007.

The greatest achievement of new Arab media, Ballout said, was to take away the state’s total control of news and information about domestic as well as international issues. Arab satellite channels have opened up debate across the Middle East, bringing social and political issues once censored by state-run media to the forefront, which has given governments in the region two options: either to “play ball” with the satellite channels in order to make official opinions heard, or to put up obstacles to hamper the channels’ effectiveness. Ballout cautioned that the decision by Middle East leaders to “play ball” should be viewed with skepticism. The tendency of governments around the world to “come in the back door” to promote their views on supposedly independent news outlets, as has happened with the re-launch of the BBC, Telesur, and certain Russian news channels, should be closely monitored to prevent it from happening in the Middle East.

Along with the positive developments for the people of the Middle East, the new Arab media has also offered the West a new window through which to observe the region and its people, and the view is not one the West has enjoyed taking in. The launch by the United States of the Al-Hurra and Sawa networks to counter what it sees as anti-US, anti-Western propaganda by networks like Al-‘Arabiya and Al-Jazeera, is a non-starter, Ballout said. Ballout emphasized the fact that the Arab public knows Al-Hurra and Sawa are connected to the US government, and that Arabs therefore associate the networks and their reporters with an antagonistic force, which makes the success of these outlets unlikely. Ballout said that what the Arab world is looking for is not repackaging of US policy and ideas, but a fundamental rethinking of that policy. Ballout noted that it was legitimate for the US to try and influence “hearts and minds” through their own Arabic language broadcasts, but that ultimately these efforts, if not tied to a change in US policy towards the Middle East, were doomed to fail.

Addressing the role of the Arab media in the Danish cartoon affair, Ballout noted that Al-‘Arabiya had covered it extensively, and had gone to some length to present various views on the matter. Al-‘Arabiya, he said, was the first news organization to invite the Danish Prime Minister to appear on a debate show with a Muslim cleric as well as a Danish Muslim. Ballout defended freedom of the press as a “sacrosanct” principle that must be “embraced and defended,” but noted that with such freedom comes with responsibility, for both the East and the West. The media should put events in context and examine the repercussions of any and every story, not just for East-West relations, but for the Middle East region as well. Ballout said he perceived not only frustration and anger in the violence arising from the publication of the cartoons, but the hand of governments trying to hijack the sentiment for their own gain, deflecting criticism westward, instead of on the regimes themselves, just as some Western political movements had used the violence to highlight what they perceive as East-West incompatibility. Ballout said he saw Al-‘Arabiya’s role as not to provide a platform for inflaming sentiment, yet to inform and appeal to its viewership.