The reconstruction of Beirut's destroyed port may become yet another flashpoint for great power rivalry in the Middle East. AFP
The reconstruction of Beirut's destroyed port may become yet another flashpoint for great power rivalry in the Middle East. AFP
The reconstruction of Beirut's destroyed port may become yet another flashpoint for great power rivalry in the Middle East. AFP
The reconstruction of Beirut's destroyed port may become yet another flashpoint for great power rivalry in the Middle East. AFP

The world's great powers will soon face off in Lebanon


  • English
  • Arabic

Iran has long been fault line in the politics of great power rivalries, and now it is increasingly so. China and Russia have been investing in the country based on their own calculated desires for the region, but also in the context of their respective rivalries with the US. This, however, does not stop them from being deeply concerned about the costs that could come with their investments in the form of US sanctions targeting Iranian interests.

A new flashpoint of the wider tension, however, is in Lebanon. Russia, which has an expensive alliance with Iran in Syria, has declined to take on the same level of involvement in Lebanon. Iranian allies in Beirut – namely, Hezbollah – have therefore eyed eyeing Chinese funds and expertise to restore the city and its port after this month’s devastating ammonium nitrate explosion demolished them. The speediness and lack of conditionality that comes with Chinese support would provide a shortcut for Hezbollah to pre-empt any other powers stepping in as the city’s saviour and to bring its dominance of Lebanese politics to the level of a monopoly.

Iran has unveiled a new surface-to-surface ballistic missile called "Martyr Qassem Suleimani" to reassert its growing influence in the Middle East, on August 20, 2020. West Asia News Agency via Reuters
Iran has unveiled a new surface-to-surface ballistic missile called "Martyr Qassem Suleimani" to reassert its growing influence in the Middle East, on August 20, 2020. West Asia News Agency via Reuters

Iran’s leadership is seizing the period running up to the US presidential elections to consolidate its agenda in Lebanon, Iraq and the wider region by imposing new facts on the ground while Washington is distracted. The distraction may even last until January, should the incumbent, Donald Trump, lose, requiring a transition period until the new president’s inauguration. For Iran, it is an opportunity to consolidate existing alliances or secure new support with Russia and China in arenas like Lebanon, Syria and Iraq. The next two to four months are, therefore, a precious gift that Tehran cannot afford to squander.

As Iran advances in the region, the Gulf states may be less exposed than their other Arab neighbours – not because they are not in Iran’s crosshairs, but because China and Russia have huge trade interests in the Gulf, especially Saudi Arabia and the UAE. Therefore, Moscow and Beijing may help to contain Iran’s designs for the Gulf region.

Lebanon, however, will not be so fortunate. There is little incentive for Russia and China to deter Iran’s prospective takeover of the country. The US will object loudly, and while Gulf states will be unwilling to ignore the implications of growing Iranian influence in Lebanon and a potential showdown between great powers there, there will be a limit to how much they would want to wade in.

At the UN Security Council, the great-power battle now revolves around a “snapback” of comprehensive international sanctions against Iran. The sanctions would be triggered by Iranian non-compliance with the nuclear deal Tehran signed with former US president Barack Obama and European powers in 2015. On Thursday, the US formally initiated Security Council proceedings to trigger the snapback, but it has been opposed by European signatories to the nuclear deal on the grounds that, as Mr Trump has since withdrawn the US from the agreement, Washington has no standing to do so.

US Secretary of State Mike Pompeo departs a meeting with members of the UN Security Council about Iran's alleged non-compliance with a nuclear deal at the United Nations in New York, August 20, 2020. AFP
US Secretary of State Mike Pompeo departs a meeting with members of the UN Security Council about Iran's alleged non-compliance with a nuclear deal at the United Nations in New York, August 20, 2020. AFP
There is little incentive for Russia and China to deter Iran's prospective takeover of Lebanon's political structure

The division between Western allies is encouraging for Russia, as it signals that a harsher, more comprehensive sanctions regime is unlikely to pass. Both Russia and China are eager to do more business in Iran, including potential arms deals. While the US would no doubt react punitively with its own sanctions directed at both countries, they will not be as biting. A full sanctions regime against Russia and even China would have devastating effects for both nations’ economies.

If the price of Russia and China’s endorsement of Iran is so costly, then why continue the alliance? And why recognise Hezbollah, which Washington and its allies classify as a terror organisation? Much of it is simply to do with counterbalancing the US, but it is possible that Moscow and Beijing will need to reassess. Indeed, allying with Iran as it embroils itself in increasing complexity – with Hezbollah in Lebanon and the Popular Mobilisation Front militias in Iraq, as well as the Houthis in Yemen – may just prove more expensive than it is worth.

For one thing, they risk alienating Gulf states, particularly if they begin supplying Iran with weapons it will threaten to use against Saudi Arabia or the UAE. Secondly, the US, regardless of which administration sits in the White House, is unlikely to tolerate any flow of Russian and Chinese weaponry to Iran that would allow it to monopolise influence in Iraq and Syria at the expense of American strategic interests.

Iran is no doubt unrelenting in its efforts to sway Russia and China to supply it with weapons, anxious that the two countries may hold back due to the threat of sanctions. Its efforts to supplant American and European influence over Beirut’s reconstruction are part of its sales pitch, by showing that in Lebanon Iran is the only game in town.

China may decide that Iran is a viable window to wider influence in the Middle East and that its relationships with Arab states are perfectly stable as exclusively bilateral ones. It is only likely to recalculate if it becomes clear that, in the regional polarisation between Iran and the majority of Arab states, it has to choose a clear side.

Raghida Dergham is the founder and executive chairwoman of the Beirut Institute

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”