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Gulf States Help Defuse South Asia Tensions and Protect Their Economic Interests

7 MINS READMar 29, 2019 | 05:30 GMT
(BRYAN R. SMITH/AFP/Getty Images)
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By Robert Mogielnicki for the Arab Gulf States Institute in Washington

A February 14 attack on an Indian paramilitary convoy in Kashmir by a Pakistan-based militant group led to retaliatory Indian airstrikes and a captured Indian pilot, marking the most serious South Asian military conflict in over a decade. Following an easing of India-Pakistan tensions, U.S. and Pakistani officials praised Saudi Arabia and the United Arab Emirates for their roles in mitigating the crisis between two South Asian nuclear rivals. Saudi Crown Prince Mohammed bin Salman and Abu Dhabi Crown Prince Mohammed bin Zayed Al Nahyan have much to gain from the astute utilization of diplomatic clout: whether helping to avoid a catastrophic military conflict in the Gulf's backyard or garnering international credibility by demonstrating statesmanship. However, the primary lever of Gulf Arab influence in South Asia remains fundamentally economic. Three processes of interregional engagement — labor dynamics, energy cooperation and strategic investments — are crucial for understanding how Gulf Arab states will exercise economic power in South Asia over the coming years.

Labor Dynamics

Labor-related immigration from South Asian countries to Gulf Arab states is the most visible and long-standing of the processes of interregional engagement. South Asians accounted for an estimated 59.4 percent of UAE residents in 2015; Indians represented the largest segment of this demographic group with 38.2 percent of the total. Official population figures from Saudi Arabia rarely reveal the nationality of expatriate residents. Yet Indians, Pakistanis and Bangladeshis consistently rank as the three largest expatriate resident groupings in the kingdom. South Asian residents constitute between 14.6 and 24.5 percent of the total population of Saudi Arabia, which, at nearly three times the size of the UAE's population, makes for a roughly comparable number of South Asians living in Saudi Arabia and the United Arab Emirates.

Balancing the commercial advantages of immigration against the socioeconomic concerns of Gulf Arab citizens poses a persistent challenge for Gulf states. Government efforts to generate employment opportunities for citizens have increasingly relied on policies that reduce the number of foreign residents in a given country. For example, a campaign launched by the Saudi Ministry of Interior in November 2017 led to 1.3 million expatriate arrests and the deportation of several thousand foreign residents from the kingdom. These policies have the potential to profoundly impact South Asian economies that depend heavily upon remittances. In 2018, around $80 billion in remittances flowed into India, 38.5 percent of which originated in the United Arab Emirates and Saudi Arabia. Moreover, the largest sources of remittances to Pakistan after the United States and United Kingdom are from Saudi Arabia and the UAE.

In addition to systemic pressures, governments are keen to prevent the latest South Asian tensions from affecting relations between Indians and Pakistanis in Gulf workforces. Labor-related unrest among expatriates is treated seriously; Gulf Arab governments tend to outlaw protests and strikes. During prior tensions in South Asia, Gulf employers warned expatriate laborers that any individuals engaged in politically oriented protests would be abruptly deported. Expatriate-led protests in the Gulf today, though rare, mainly focus on wages and labor conditions and usually disperse quickly.

Energy Cooperation

Gulf Arab states also view South Asian countries as a means of deepening energy cooperation beyond the exportation of crude oil to the region. Gulf Arab states supply approximately 42 percent of India's oil imports, and Saudi Arabia is India's largest trade partner for crude oil. This level of commercial cooperation places both the UAE and Saudi Arabia in a strong position to provide India with additional crude oil exports if the United States does not renew sanctions waivers allowing India to import Iranian crude oil. However, the chief executive officer of Abu Dhabi National Oil Company, Sultan Ahmed Al Jaber, considers India an arena for "expanding [the] investment portfolio in the downstream sectors, especially in oil refining and petrochemicals." ADNOC and Saudi Aramco are the primary strategic partners in a proposed $44 billion mega-refinery in Maharashtra, the west-central Indian state whose capital is Mumbai.

Saudi Arabia's energy-related interest in Pakistan revolves around plans to develop a $10 billion refinery and petrochemical facility at Gwadar Port, a Chinese-funded, deepwater port in the southwest of the country. Officials estimate that the project will save Islamabad nearly $3 billion in reduced crude oil imports each year. Abu Dhabi is considering setting up oil storage facilities at Gwadar Port as part of a $1 billion investment by the UAE's state-run investment company Mubadala. Moreover, Mubadala's petroleum and petrochemical division is mulling a $6 billion investment related to the planned Pak Arab Refinery in the city of Hub near Karachi; a final investment decision is expected by the end of 2019.

Strategic Investments

Underlying labor, commodity and capital flows between the two regions is infrastructure connectivity, another important area of Saudi and Emirati investment in South Asia. Saudi Arabia is exploring investment opportunities associated with India's National Investment and Infrastructure Fund, a state-run investment vehicle charged with building ports and highways. Abu Dhabi's sovereign wealth fund already committed $1 billion to the fund in 2017 as the first institutional investor. In February, Dubai's DP World launched a hyperloop project in India with the aim of revolutionizing the movement of people and goods in the country of 1.3 billion people.

Saudi and Emirati investor interest in Pakistan's infrastructure sector is shaped primarily by the China-Pakistan Economic Corridor, a $60 billion collection of infrastructure projects stretching from the Chinese border to the Gwadar Port. Pakistani officials overseeing the corridor view Gulf Arab states as third-party partners, especially for those infrastructure projects possessing industrial and energy-related components. With port and special economic zone projects ranking as a high priority for the corridor, companies like DP World will be well-positioned to win associated commercial contracts.

Saudi Arabia and the United Arab Emirates are increasingly willing to pay to play in South Asia.

Indeed, the positive reception to the Saudi crown prince's investment pledges of $20 billion to Pakistan and $100 billion to India during his February tour of South Asia suggests that the power of the Saudi — and larger Gulf — purse remains strong in the region. Emirati officials have similarly discussed wide-ranging investments in India reaching as high as $75 billion over the coming years, and even Bangladesh hopes to capture $35 billion of Saudi investments.

Economic aid from Saudi Arabia and the UAE to Pakistan demonstrates that Gulf Arab states can offer concrete fiscal support rather than nebulous investment agreements and pledges. Saudi Arabia provided a fiscal aid package for Pakistan consisting of a $3 billion direct deposit and a one-year deferred payment facility of up to $3 billion for oil imports, and the UAE offered a similar fiscal support package. This increased financial commitment to South Asia (even if it contains fiscal conditions that ultimately benefit the donors) contrasts with U.S. policies — the administration of President Donald Trump plans to end the special trade agreement between the United States and India.

Saudi Arabia and the United Arab Emirates are increasingly willing to pay to play in South Asia; however, Saudis and Emiratis have little interest in seeing their investments squandered in the event of a drastic escalation of regional conflicts. A strong desire for returns — both fiscal and political — and a tolerance for risk will motivate these Gulf Arab states to leverage comparative economic advantages in order to expand their spheres of influence in South Asia.

Robert Mogielnicki is a resident scholar at the Arab Gulf States Institute in Washington.

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