America's long security, defence and commerce history in the Middle East gives it a “clear advantage” over China, whose economic influence is on the rise in the region, a senior US official said on Thursday.
Barbara Leaf, the US assistant secretary of state for Near Eastern affairs, told the Senate that America’s eight-decade history in safeguarding the region gave it an edge over Beijing — and that it should be maintained.
“For decades, we have worked to prevent conflicts and terrorism from threatening the security and stability of the United States and that of our partners and allies, to prevent the proliferation of weapons of mass destruction and to ensure the security of our closest partners, including an ironclad commitment to Israel’s security,” Ms Leaf said.
As Washington assesses China’s “influence today in the Middle East and North Africa, in these areas that matter most to our national security, we retain a clear advantage that [Beijing] is unable to challenge”, she added.
Ms Leaf said the region remains critical for US national security, arguing that its “sea lanes are essential to a secure global supply chain and commerce” and that its energy resources remain vital for market stability and the global economy.
“I would not want to see China pick up the role that we have had for almost 80 years in securing sea lanes and the flow commerce energy,” she said.
“It’s a big job. It's a big responsibility.”
She noted, however, the exponential rise of China’s economic interests and role in the region. Ms Leaf said China's trade activity had risen from $15.2 billion in 2000 to $284.3bn in 2021.
“That dramatic jump was driven in no small part by energy — mainly oil and natural gas — accounting for 46 per cent of the total trade today,” she said.
The US trade with the Middle East during that same 20-year period rose from $63.4bn to $98.4bn.
Ms Leaf pointed to Beijing’s close relationship with Tehran and said Chinese-made drones are being supplied to Iranian proxies attacking Gulf countries.
She argued this is a liability for China's security ties with Arab countries.
“It is an irony. I'm the first to say that those UAVs [unmanned aerial vehicles] to these [Iranian] proxies are Chinese,” Ms Leaf said.
“They're not provided by the state, but the state does not attempt to curtail that flow.”
Ms Leaf warned, however, of the risk Arab states could face in increasing defence relations with China.
Asked about the possibility of Beijing establishing military bases in the region, the senior US official made it clear this would be a red line for Washington.
“This is a kind of issue where we're very clear with our partners: economic relationships are one thing, buying defence articles are another thing, but they will quickly run up against the [US] bilateral defence relationship itself,” she said.
As to China’s 25-year strategic defence agreement with Iran, Ms Leaf said it was not surprising but required more work from Washington to counter its impact.
“The regime in Tehran is itself so supremely isolated and not just because of our sanctions — it’s isolated because of its own actions, its own predatory destructive behaviour within [the country] as well as the larger region,” she said.
Ms Leaf stated that President Joe Biden’s visit to the region last month was aimed at laying the groundwork to counter China's influence and do “the hard diplomatic work, the defence work, the security co-operation, intelligence co-operation [work] with all of those neighbours, but not just the Gulf countries”.
On Iraq and the current stalemate over the formation of a new government, Ms Leaf said that the administration is “leveraging relationships and providing good counsel and above all, counselling these blocks” without becoming involved in the political infighting.
She added that she is likely visit to the country in September.
In numbers: China in Dubai
The number of Chinese people living in Dubai: An estimated 200,000
Number of Chinese people in International City: Almost 50,000
Daily visitors to Dragon Mart in 2018/19: 120,000
Daily visitors to Dragon Mart in 2010: 20,000
Percentage increase in visitors in eight years: 500 per cent
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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.”
