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High oil price and Gulf growth unlikely to fall with new US president

By Anthony Harris


A presidential election is always a political crossroads, but the making of the president 2008 comes at a time of great significance for the world’s only superpower.

With its huge deficit and runaway costs of the war in Iraq, the US economy is in a bad way. The Federal Reserve has made large cuts in interest rates and pundits worry whether the economy is heading into recession.

As far as the Gulf is concerned, the answer, fortunately, is that the economic fortunes of the US are not as significant as they were. The rise in economic power of China and India, and the weakness of the dollar, mean there is no longer one global engine of growth. The Gulf, and the UAE in particular, can benefit from huge markets opening up in the east.

President Bush seems determined to stay the course and leave the mess to his successors. He has announced a budget with higher defence spending and a $400bn (Dh1.4 trillion) debt.

Which of his successors will be equipped to deal with a sick economy, which can still damage other economies, particularly those that are being adversely affected by the falling dollar? Whose policies are likely to benefit the Gulf?

There are three main candidates for the presidency: John McCain, Barack Obama and Hillary Clinton. The votes in 24 states on Super Tuesday have left McCain as the strongest Republican.

McCain has been sticking to much the same foreign policy line as Bush. This would mean keeping up the pressure on Iran, planning to stay in Iraq and projecting US power, particularly military, to defend US interests.

Paradoxically, this might please the Saudis, who are keen to contain the influence of the Shias in Iran and Iraq.

A prolonged period of tension will also keep up the price of oil. This hurts the US economy – Bush’s recent visit to the Gulf was intended partly to ask the Saudis to increase production and push the price down – and adds to the US deficit.

McCain’s platform is tough on America’s enemies and ready to intervene militarily in Iran, Afghanistan and even Pakistan. The Gulf countries are not happy with the prospect of continued tension in the region. Their economies are growing as they act as bridges between east and west.

The UAE is a safe haven when instability affects its neighbours, but in the long term, growth will benefit from a reduction in military activity, free trade and closer political relations between the states of the Gulf.

On the Democrat side, I detect marked policy differences between Clinton and Obama. Clinton is likely to use many of her husband’s former advisers, who did a good job reducing the former Republican deficit.

However, she has been a supporter of the war in Iraq and favours increased military spending. Her principal foreign policy adviser, Richard Holbrooke is a hard-liner. He has described Iran as an enormous threat to the US and has likened President Ahmadinejad to Hitler.

Obama’s advisers, on the other hand, include some who worked with Zbigniew Brzezinski, National Security Adviser to President Carter, and are among the more enlightened members of the Democratic Party. Chief among these are Joseph Cirincione, who has argued against the Iraq war, and Larry Korb, who has raised concerns about the human and financial costs of a lengthy war in the Middle East. There is a clear distinction between Obama, who has argued for engagement with Middle East states and the need to observe international law, and Clinton who is likely to react strongly to perceived threats, ignore advice from allies and override the international law.

Obama’s advisers are inclined, for example, to give the threat from Iran a much cooler assessment.

Obama has also stressed the importance of “soft power”, human rights and international development in his relations with the rest of the world.

Once they get into power, each may have to change their views. McCain may find it necessary to back off his hawkish attitudes and reduce military expenditure.

Clinton may likewise have to find a way out of the Iraqi maze and cut defence spending to fund social programmes. Obama may find that it is not so easy to leave Iraq. However, any sign that the US is re-examining its relations with Gulf states and tackling the budget deficit will reduce tension and the price of oil.

Economic growth will continue in this region, and inter-state trade will increase, if the threat of outside military intervention is removed.

- Anthony Harris is former British ambassador to the UAE and currently head of Robert Fleming Insurance Brokers in Dubai. These are his own views.