At the CFA Institute Middle East Investment Conference held in Dubai on 20–21 March, Peter Zeihan, an expert in international politics, economics, and energy gave us his insights on geopolitical factors emerging on the global stage. In particular, Zeihan focused on the United States, which he believes could have a direct and substantial impact on investment strategies for the Middle East.
A central theme in Zeihan’s thesis was a perceived shift in U.S. foreign and economic policy based on the gradual realisation that through the United States’ energy supply chain in Canada, and its increasing production of shale oil, North America has the capacity to become energy self-sufficient by 2020.
Statistics shared with an increasingly intrigued audience included:
- 50% of all natural gas as produced in the United States is from shale oil
- Texas supplies 25% of Mexico’s natural gas and this will rise to 50% in the next five years
- New York has moved from zero natural gas usage a year ago to using nine billion cubic meters today — in the space of 12 months (a consumption greater than Belgium’s)
Zeihan stated that as a result, “Americans are on the cusp of realising that they have accidentally changed their world.” Clarifying the significance of this energy supply shift, Zeihan unpacked what he saw as the standard American outlook, explaining that “the United States has not thought of itself as being separate from the rest of the world since 1938.” But he said change is coming.
Zeihan argued that for the last 60 years a common understanding in U.S. policy formation has been that ensuring trade is a key path to protecting security and that protecting energy routes is a key part of protecting trade. But with the demise of the historical Russian nemesis, a European bloc vastly different from the 1930s, and a Chinese economy unable to consume all it produces, a shift in economic and foreign policy is inevitable. This trend is compounded by the advent of an energy self-sufficient North America, still home to the largest military force in the world. He predicts that in the years ahead, we will witness a United States that strives less to engage with the international community economically and adopts more of an isolationist stance.
In light of the Arab Spring and the potential impact of such a shift in U.S. policy for the Middle East, Zeihan urged Middle Eastern countries to reconsider their investment priorities from a political point of view, not just a financial one. He told the audience: “You need to find someone who can provide the strategic coverage required in an era where the United States is out to lunch.”
A new destination for Middle East investments?
Reviewing potential candidates with whom Middle Eastern countries may wish to forge major strategic alliances, Zeihan highlighted Turkey as a potential front runner for consideration, despite some concerns over higher levels of corruption when assessing investment credentials.
Europe, India, and China were ruled out as key strategic partners because of either the lack of any major military might or the ability to mobilise it effectively. Instead Zeihan suggested that not only is Turkey the only rising power in the region with the possibility of having a regionally active military, but its historical trade links with the region also provide an opening for potentially lucrative dialogue that Middle Eastern countries should not ignore.
Furthermore, while the current circumstances in Turkey may not class it as an ideal, ready-made partner, Zeihan stated that on closer inspection, the country does in fact meet key criteria that warrant further analysis, namely: an industrial sector, existing markets, trade routes, and an established trade profile. Perhaps the biggest advantage for potential investors, may be found in the fact that while Turkey’s political establishment seeks to enhance its expertise in international trade, there is a significant lack of capital to facilitate the change they wish to bring about. That is where the real opportunity lies for prudent investment, he added.
With Turkey at the forefront of his recommendation for potential investment consideration, Zeihan shared his views on potential scenarios facing a range of Middle Eastern countries on the back of the Arab Spring. He also highlighted potential investment opportunities in perhaps less obvious destinations, such as Morocco and Algeria; should some of the manufacturing that these countries lost to poorer European countries begin to return as a result of the eurozone crisis. In his closing comments, Zeihan drew attention to Lebanon as a country to be monitored for possible investment, as he believes the crisis in Syria provides an opportunity for it to revise its status as the primary import–export facility in the Levant.