Little clarity about the financing and private sector participation
By Girish Linganna
Prime Minister Narendra Modi is really hopeful about the India-Middle East-Europe Economic Corridor (IMEC), which he introduced at the G20 summit in New Delhi recently. However, some people think that not all countries in this project see it as something against China's Belt and Road Initiative.
Building a smooth transportation route connecting India to southern Europe through the United Arab Emirates, Saudi Arabia, Jordan, and Israel would increase India's influence and provide another option to the challenging “International North-South Transport Corridor” that goes through Iran and Russia but has faced difficulties in development.
Unlike the previous effort, the IMEC wants to create a new path that connects Israel and the eastern Mediterranean closer to India. Carice Witte, who leads the SIGNAL Group, an Israeli think tank that studies China, explained that just two decades ago, this region was thought to end at the Gulf of Aden, where the Indian Ocean meets the Red Sea. Saudi Arabia and the UAE see IMEC as a way to reach a growing and profitable Indian market. They want to reduce their dependence on oil and find new ways to make money.
In a world where multiple countries have influence, this shows that nations are building different kinds of relationships. This is what Guy Burton, a professor who studies international relations and has written about China and conflicts in the Middle East, is talking about. I don't believe the notion that it will be against China is widely accepted in the Gulf. Even though US President Joe Biden expressed strong support for the IMEC at the recent G20 summit, it was actually India, Saudi Arabia, and the UAE who were the most determined to get the agreement signed, not Washington.
Riyadh, especially, views this new corridor as a means to transform its role on the global stage. Instead of mainly exporting oil, Saudi Arabia aims to become a major center for tourism, investment, and logistics. This perspective comes from Aziz al-Ghashian, who is a Saudi political analyst and foreign policy expert. Saudi Arabia and the UAE, countries that primarily sell fossil fuels, are particularly enthusiastic about the new corridor because it aligns with their plans to make their economies more varied. So, it seems like a logical move for them.
The IMEC isn't only about trading goods. It also focuses on making supply chains work together better. The goal is to encourage both government and business collaborations in countries along the route to create things together. They also plan to have power cables and pipes next to the proposed ports, railways, and roads. These would carry renewable electricity and green hydrogen from Saudi Arabia and the UAE to India and the European Union. Green hydrogen is considered a more eco-friendly substitute for natural gas, and it's generated by large solar projects in these sunny countries.
They've also suggested building a really long fibre-optic network that would make the internet connection better between the areas in this project. During an event at the G20 summit this month, Indian Prime Minister Modi praised the new agreement, saying it lays the foundation for future generations to have even bigger dreams. Shortly after that, he had a private meeting in Delhi with Saudi Arabia's de facto leader, Crown Prince Mohammed bin Salman. During their discussion, they decided to speed up the process of bringing $100 billion in Saudi investments into India. This investment plan was first made in 2019 but got delayed due to the pandemic.
Around $55 billion of this money is planned to be used for building a massive new refinery and petrochemicals complex on the west coast of India. They also intend to create a strategic oil reserve in India in partnership with Saudi Arabia and the UAE.A group of companies from the UAE, which includes DP World, a company that manages ports and free zones, has already started working on building a logistics and distribution network worth $7 billion for a planned food corridor between India and the Middle East.
Trade between India and the Gulf Cooperation Council, which includes countries like Saudi Arabia, the UAE, Qatar, Kuwait, Oman, and Bahrain, has seen a significant increase. In the financial year 2021-22, it reached $154.7 billion, which is a 77 percent increase compared to the previous year. During the same period, China engaged in trade worth approximately US$180 billion with the region in both directions.
A clear geopolitical obstacle to the implementation of IMEC is the absence of formal diplomatic relations between Saudi Arabia and Israel. While the two nations do not share a land border, they are set to be linked through a proposed railway funded by Saudi Arabia, spanning across Jordan. Jordan, which established a peace treaty with Israel in 1994 and maintains a strong alliance with Riyadh, plays a pivotal role in this connection.
Israeli Prime Minister Benjamin Netanyahu expressed his enthusiasm for IMEC, describing it as a significant cooperation initiative that marks a new era of regional and global integration and collaboration, unlike anything seen before in terms of its size and significance.
Despite not having official relations, the plan can still move forward because, as Israeli analyst Witte pointed out, Israel and Saudi Arabia have been doing business quietly for years without formal normalization. The IMEC can also be accomplished in the present situation, and it doesn't push for normalization or demand it.
According to Saudi analyst al-Ghashian, the economic corridor doesn't necessarily mean an immediate normalization of relations between Jerusalem and Riyadh, which is currently being discussed in three-way negotiations with the US. Instead, it could make the process of normalization smoother when it eventually occurs in the future.
When dealing with a project of this magnitude, extensive scope, and intricacy, it demands a continuous and unwavering commitment from political leaders, as emphasized by Carice Witte, Executive Director of SIGNAL Group. It's not only the tense relationship between Israel and Saudi Arabia that has the potential to weaken the project.
According to Witte, the diverse objectives and viewpoints of each nation will contribute to the difficulty. Given the immense scale, wide scope, and intricate nature of the project, a persistent and robust political determination is essential.
She emphasized that it's crucial for Israel that the IMEC extends collaboration with India beyond the realm of strong defence ties and ventures into the realm of multilateral connectivity among middle-power nations. This expansion would create various prospects in terms of business, investments, and trade. Israeli companies have already made significant contributions by providing technologies to enhance crop productivity in the water-scarce regions of the vast South Asian nation.
For President Biden, the IMEC forms a crucial component of his Partnership for Global Infrastructure Investment, which is commonly viewed as Washington's response to China's extensive Belt and Road Initiative, aimed at expanding global trade through infrastructure development.
International relations expert Burton suggested that labelling the new corridor as a geopolitical response to Beijing is likely a viewpoint more aligned with the perspectives of the US and New Delhi, rather than the Middle Eastern countries involved.
During the IMEC memorandum signing ceremony, the US president displayed a notable degree of cordiality towards Saudi's Salman and UAE President Mohammed bin Zayed al-Nahyan. This marked a sharp departure from the tensions that had persisted among the three nations in recent times.
Their disagreements have covered a wide spectrum, including questions about the extent of Washington's dedication to defending the Gulf monarchies against Iran and its regional allies, the robust strategic economic ties Riyadh and Abu Dhabi have cultivated with China, and Saudi Arabia's refusal to abandon an OPEC-plus oil production agreement with Russia amid the conflict in Ukraine.
Diplomatically, the situation took a negative turn in the early stages when Biden, during his 2020 presidential campaign, urged for Saudi Arabia to be treated as an “outcast” due to the 2018 killing and dismemberment of journalist Jamal Khashoggi at the Saudi consulate in Istanbul. Crown Prince Salman has consistently denied any connection to the incident, and the security agents convicted by Saudi courts for the murder of Khashoggi are currently serving prison sentences.
According to Saudi analyst al-Ghashian, the IMEC memorandum “indicates a positive shift in personal relations between the two leaders, but I wouldn't characterize the situation as fully resolved.”Both the Saudis and Americans have come to the realization that they will prioritize the areas where they share agreement and strong mutual interests, rather than allowing the conflict in Russia or the personal tensions between their leaders to be the deciding factors in their relationship, he explained.
According to al-Ghashian, the United States also has its goals, but it recognizes that it cannot fulfill many aspects of its regional vision without the support of Saudi Arabia, considering the kingdom's substantial size and political influence. India also seeks to be a part of this equation. Over the past decade, as China initiated the Belt and Road Initiative, India has faced challenges in establishing alternative trade routes to Europe. This effort aims to prevent dependence on a network of Chinese-controlled ports established in nearby South Asian nations and the Middle East.
As of the conclusion of 2021, the Middle East and North Africa had received over $123 billion in investments from China's Belt and Road Initiative. The progress of Delhi's envisioned International North-South Transport Corridor, which aims to link India to Europe through Iran's Chabahar Gulf port, landlocked Central Asia, and Russia, has faced significant obstacles due to Western economic sanctions against Tehran and the conflict in Ukraine.
Regarding the IMEC, there is currently uncertainty about which private companies will participate, the nature of the projects they will be tasked with, and the framework of the public-private partnerships that will need to be established. Many aspects in that regard remain uncertain,” mentioned Burton, the author who also serves as an adjunct professor of international relations at the Brussels School of Governance. Even though a two-month working group has been established to address some of these issues, he believes it will be difficult because the success of this initiative heavily depends on private capital.
According to Burton, companies interested in participating will have to assess both the potential risks and profits before making a decision. This approach differs significantly from the geopolitical considerations made by their respective governments. He added that relying on a private sector-led approach may face challenges, not only financially but also from a geopolitical perspective.
(The author is a Defence, Aerospace & Political Analyst based in Bengaluru)
