Oil exports to the United States made the fortunes of Arab Gulf states for decades, but times are changing, and nowadays most tankers sail eastward to supply Asian markets. Saudi oil exports to the United States more than halved between 2014 and 2019. Yet the Gulf region continues to benefit significantly from the strength of the American economy.
The Gulf’s sovereign wealth funds have historically been heavy investors in the US market “in all facets,” said Michael Maduell, president of the Sovereign Wealth Fund Institute, listing large investments in bonds, public equities, fixed income, real estate, infrastructure and private equity funds. “They are very active,” he told Al-Monitor.
During the February-April coronavirus-induced stock market crash, Saudi Arabia’s Public Investment Fund (PIF) went on an opportunistic shopping spree, acquiring minority stakes worth over $5 billion in American blue-chip companies such as Boeing, Disney and Facebook. Just a few months later, the sovereign wealth fund closed some of those positions, making “huge profits,” fund governor Yasir al-Rumayyan told Barron's magazine.
“I would say we are heavily exposed to US financial markets, especially after our investment in SoftBank's Vision Fund and PIF being involved there,” Mohammed al-Suwayed, a Saudi asset manager and financial commentator, told Al-Monitor. According to the US Treasury Department, Saudi Arabia also holds $130 billion of US Treasury bonds.
Maduell said he believes the United States will remain an “attractive” destination for Gulf investments beyond short-term uncertainties. In 2020, the United States experienced its steepest quarterly drop since the Great Depression, followed by a record GDP growth rate.
The monetary stability of the Gulf Cooperation Council countries is also closely correlated to the United States' economic strength. Indeed, except in the emirate of Kuwait, currencies in the region have been all pegged at fixed rates to the US dollar since the mid-1980s.
Emerging industries in Saudi Arabia
Ahead of a significant energy transition, Gulf countries look to forge in-depth economic partnerships with US entities to help in reforming their fossil fuel-dependent economies. But for Issam Al Tawari, founder and managing partner of the Kuwait-based economic advisory firm Newbury, the flow of funds goes in one direction only. “I do not really see much of US companies venturing into the region,” he told Al-Monitor.
Earlier this month, former US Ambassador to Oman Marc Sievers told Al-Monitor that Gulf countries should “inform American investors about what the opportunities are.”
In Saudi Arabia, Crown Prince Mohammed bin Salman's reform plan — known as Vision 2030 — strives to attract billions of dollars worth of foreign direct investments to slash the kingdom's reliance on oil revenues and shape a thriving local economy. “American investors should look at sectors that are emerging in Saudi Arabia, for example, entertainment, tourism, the home mortgage industry and the housing sector,” Suwayed said.
An additional vehicle to enhance US-Gulf economic ties could be Islamic finance, said Jamshaid Anwar Chattha, a former assistant secretary-general at the Islamic Financial Services Board and an Islamic finance expert at the Central Bank of Kuwait.
He told Al-Monitor the Gulf’s Islamic banks could find a “perfect market” in the United States and offer halal investment opportunities in the Gulf to American Muslims. “The top American administration has to look into Islamic finance more positively,” he said, expecting a Biden administration to be “kind of more flexible” in this regard.
Much warmer or much colder
Gulf countries are bracing for the possible consequences of a Joe Biden win in the Nov. 3 election. The Democratic presidential nominee declared he would reenter the Iran nuclear deal, end US support for a Saudi Arabia-led war in Yemen and said the Saudi government should “pay the price” for its abysmal human rights record.
On Oct. 2, 2018, a "hit squad" flew to Istanbul from Saudi Arabia killed and dismembered Washington Post Saudi journalist Jamal Khashoggi in the kingdom’s consulate. The crown prince faced a torrent of international condemnations, including from Republican leaders in the US Congress who called for bipartisan support to formally condemn the crown prince.
President Donald Trump, however, refused to hold the crown prince accountable for the killing, and according to American journalist Bob Woodward’s new book said in 2018, “I saved his ass” as well as “I was able to get Congress to leave him alone. I was able to get them to stop.”
The prospect of deteriorating US-Gulf relations under a Biden administration could “raise the risk premia that investors demand to hold Gulf debt,” warned James Swanston, Capital Economics’ Middle East chief economist. Since 2015, Gulf states have repeatedly tapped global debt markets to finance large budget deficits. The credit rating agency S&P Global Ratings expects Gulf Cooperation Council government debt to increase by $100 billion in 2020 alone.
But despite Biden’s promise to “reassess” Washington’s relations with Riyadh, Gulf countries continue to cling to US security commitments to the region. Sources interviewed by Reuters said a Biden win “would not upend decades-long alliances.” Tawari added, “We will always continue to have strong ties with the Americans regardless of who is in the White House; it is just that the relationship can become much warmer or much colder."