US president Barack Obama might soon regret his pivot away from the Middle East. Saul Loeb / AFP
US president Barack Obama might soon regret his pivot away from the Middle East. Saul Loeb / AFP
US president Barack Obama might soon regret his pivot away from the Middle East. Saul Loeb / AFP
US president Barack Obama might soon regret his pivot away from the Middle East. Saul Loeb / AFP

US may regret turning its back on the region


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There has been much debate over the USA’s pivot away from the Middle East and toward East Asia. Defenders of president Barack Obama have backed this realignment as necessary. Critics have said Washington’s new priority is unwarranted when the Arab world is in such turmoil.

Neither view is complete. Mr Obama’s focus on Asia is certainly defensible in a global environment defined by the rise of China and the eastward shift of economic power. As for disorder in the Middle East, that is exactly why the Obama administration has moved away. Managing events here has sapped American energies and finances, for little gain.

However, justifiable criticism can be directed at Mr Obama’s methods. When he took office, the US president outlined a change of direction away from a region that, for decades, had become heavily dependent upon Washington. He didn’t realise, or care to realise, that this would create a vacuum and instability that have, in fact, hampered his prioritisation of Asia.

Often the trickiest phases in diplomacy are navigating major transitions. Mr Obama is discovering that now, as he continues the nuclear negotiations with Iran. Radical foreign policy swings affect vested interests, impose new behaviour on bureaucracies, alter the time that presidents devote to particular regions and mean that budgets have to be redirected.

That is why transitions have to be conducted carefully, not only to ensure that they are successful, but to avoid leaving allies in the lurch. In that sense Mr Obama’s pivot to Asia is a textbook case of how not to effect a strategic transition.

For 70 years, the Middle East had been at the centre of American preoccupations. Four presidential doctrines were directly or indirectly aimed at enhancing regional security. Post-war ties with Saudi Arabia, America’s first strategic relationship with an Arab state, were built on a foundation of American protection in exchange for the kingdom maintaining stability in oil markets. To suddenly indicate that the region has lost importance was bound to wreak havoc.

Mr Obama’s main problem is that he has done two things simultaneously that have generated panic. He has disengaged from the region and at the same time sought normalisation of relations with Iran through a nuclear accord. This will bolster Iran’s means to pursue its regional ambitions at a time when Washington’s allies feel they’re on their own.

Mr Obama’s error was that he showed no patience for the diplomacy that should have surrounded his east Asia pivot. He had no appreciation of how a dependent Middle East might respond to a shift in policy that the US never bothered to coordinate with its allies. And if this dependency on the US was unhealthy, the Americans were greatly to blame.

Rather than effect a smooth transition, in which Mr Obama made his intentions clear, then worked with regional allies to create structures to fill the void, the president did nothing. He has visited the region relatively few times and devotes scant attention to its problems. He has carried the foreign policy bureaucracy with him.

The paradox is that when directing its attentions away from a region, an administration often has to spend more time on it in an interim period. Europe was a focal point of American efforts during the Cold War. Yet when the rivalry with the Soviet Union ended, the US remained concerned with Europe, leading to its involvement in the Balkans. A policy of cold turkey, as adopted by Mr Obama, is irresponsible.

Mr Obama may be seeking to create a new balance of power in the Middle East to lessen the burden on the US. However, to regional partners this smacks of abandonment. America’s Gulf allies, not to mention Israel, have regarded American normalisation with Iran as a betrayal.

An opening to Iran might have many benefits. But Mr Obama has never quite explained what he intends. In response to this ambiguity, America’s Arab allies have adopted policies to combat Iran’s influence in Syria, Yemen and Iraq. This has led to a number of crises that paradoxically make it more difficult for Washington to redirect itself away from the region.

Indeed, the Syrian uprising, which became a regional proxy war that Mr Obama neglected, created an environment that permitted the rise of ISIL and drew America back into the region militarily. Similarly, the war in Yemen, while it may illustrate a new initiative on the part of many Arab states, has led to a situation that has allowed Al Qaeda to expand its area of control.

In speaking to backers of the Obama approach, one is often surprised to hear a narrow defence of the president’s attitude. Their argument that America no longer has the financial means and is no longer reliant upon the region’s oil seems justification enough for Washington’s detachment.

But it’s not enough. Inaction has consequences. Mr Obama, by avoiding a managed transition, failed to prepare for the ensuing void, heightening regional volatility and America’s policy confusion. This will haunt the US for years to come.

Michael Young is opinion editor of The Daily Star in Beirut

On Twitter: @BeirutCalling

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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.”