Rebellion and war threatens the success of the Gulf logistics economy

The war in Syria and Iraq is devastating logistics in the north of the Middle-East. It is not just the truck routes between Turkey and the Gulf that have been affected. Beirut’s aspiration to resurrect its trade have been set to nought, although for the moment the like of Haifa are benefitting, with Reuters reporting a four-fold increase in traffic from Israel to the rest of the region. However, it is the wider and long-term implications which are even more serious.

The Arabian Gulf has seen a transformation in its economy in less than two decades, yet this change is possibly more fragile than it seems. From being sparsely populated exporters of oil, the Gulf Emirates and, to a lesser extent, Saudi Arabia have aggressively diversified. Now the region owns assets of global importance in sectors such as airlines and container ports.

What is central is the logistics assets. Airports underpin the Gulf airlines, container terminals Dubai role as a physical trade hub, chemical terminals up-stream production of bulk chemicals. Logistics is also fundamental to the ambitions that Saudi Arabia has to enter car production and other areas of engineering.

The imperative to invest is driven in great-part by the need to turn revenue streams into capital assets although in the case of Saudi Arabia this is combined with the need to create jobs for its population. The need to facilitate cheaper consumption is also important.

The Gulf Co-operation Council (GCC) economy that is emerging is increasingly integrated both with global trade but also- slowly- with itself. Roads, railways as well as ports and airports offer the prospect of trade growth between the different states of the GCC and with global markets.

The big weakness is politics. The level of cross border trade is already hampered by poor quality customs as well as the desire to defend favoured economic interest groups. However, by far the major threat is war and revolution. Indeed the commitment of GCC states to continued heavy investment is strongly influence by the need for the Gulf Monarchies to keep their populations contented through sustained economic growth whatever the price.

Yet it is the hostility with Iran that poses the greatest threat. Syria and Iraq are both consumed in what is in part a proxy war between the Suuni powers of Saudi Arabia, the Gulf and Shia Iran. If this spreads it will be a physical threat to the ports of the Gulf as well as the attractiveness of the huge investments along its southern coast. Conceivably it could threaten major business such as the container ports and airlines, businesses more vulnerable to a loss of confidence than the oil and gas operations in the area.