Saudi Arabia’s Crown Prince and Prime Minister Mohammed bin Salman (L), Indian Prime Minister Narendra Modi (C) and US President Joe Biden attend a meeting as part of the G20 Leaders’ Summit at the Bharat Mandapam in New Delhi on September 9, 2023.
Ludovic Marin | Afp | Getty Images
NEW DELHI — Even for those accustomed to the ebb and flow of U.S.-Saudi relations, the sight of President Joe Biden shaking hands with Saudi Crown Prince Mohammad bin Salman at the recent G20 summit in New Delhi was quite a turn-on. .
After all, Biden warned of “consequences” last October after Saudi Arabia’s OPEC oil cartel decided to cut oil production and raise prices amid Russia’s war in Ukraine.
After about a year, Saudi Arabia is not only one of the six newly invited to the Chinese-dominated BRICS coalition, but also a signatory to the Biden-led pact. ship-railway economic corridor India’s connectivity with Middle Eastern countries and the European Union unveiled on the sidelines of the G20 summit – conceived as a counter to China’s decade-old Belt and Road initiative.
Saudi Arabia’s twin dips underscore the range of economic and strategic opportunities that abound for the various economies between rival US and China as they build their own alliances and spheres of influence. The US and other major Western countries are seeking to “de-risk” their economies – rather than separate – from China for national security reasons.
This also in turn leads to the fragmentation of the world economy as protectionism and nationalism hinder global trade and at the same time give rise to a complex matrix of relationships in a multipolar world that are not always straightforward as nations pursue their own interests.
“We are not headed for a BRICS vs G7 world,” Ian Bremmer, founder and president of political risk consultancy Eurasia Group, wrote in a note last Monday. G7 refers to the Group of Seven Advanced Industrial Economies, while BRICS refers to the Group of Leading Developing Economies – both subgroups within the G20.
“China scored a major victory at the BRICS summit, securing the invitation of six other countries to join the group – despite significant concerns from Brazil, India and South Africa,” he said.
“But almost all BRICS+ are opposed to the idea of a China-led organization and do not want BRICS membership to limit their existing – and in most cases growing – diplomatic and economic ties with G7 members,” Bremmer said.
In fact, greater risk and opportunity cost may now come from any exclusion.
“We say there is no corridor without Turkey,” Turkish President Recep Tayyip Erdoğan said he reportedly said reporters on the sidelines of the G20 leaders’ summit in Delhi — after it emerged his country had been kicked out of the Biden-backed new economic corridor.
The lure, especially for the world’s developing economies, is the promise of investment to fill infrastructure gaps in low- and middle-income countries. This, in turn, would secure regional supply chains, strengthen trade links and economic activity – all similar to the goals behind China’s Belt and Road Initiative, a global infrastructure investment strategy launched by Beijing in 2013.
“The problem with ‘against (China’s Belt and Road Initiative)’ is that it’s an American story, while local stories are almost always about multiplication/addition, not subtraction,” said Evan Feigenbaum, a former U.S. diplomat and current vice president for studies at the Carnegie Endowment for International Peace, he said on X, formerly Twitter.
French President Emmanuel Macron, Indonesian President Joko Widodo, Indian Prime Minister Narendra Modi, Brazilian President Luiz Inacio Lula da Silva and US President Joe Biden (L-R) pay their respects at the Mahatma Gandhi memorial at Raj Ghat on the sidelines of the G20 summit in New Delhi on September 10 2023.
– | Afp | Getty Images
Led by Biden, this initiative will consist of two separate corridors, the Eastern Corridor connecting India to the Middle East and the Northern Corridor connecting the Middle East to Europe. It will include a railway that will complement the existing cross-border sea and road transport routes between India, the United Arab Emirates, Saudi Arabia, Jordan, Israel and Europe.
“This is a big deal. This is a really big deal,” Biden said in Delhi at launch.
Biden also announced a partnership with the European Union in extension of the new railway line on the green field build the Lobito Corridor connecting the southern part of the Democratic Republic of the Congo and northwestern Zambia to regional and global trade markets via the Lobito port in Angola.
China’s BRI offers a glimpse into Biden’s ambitions and perhaps what his infrastructure pact will run up against.
Since its launch 10 years ago, Beijing’s BRI now has 148 countries as partners, it says record of Fudan University in Shanghai. The BRI is likely to increase global GDP by $7.1 trillion annually by 2040. 2019 study by the independent Center for Economic and Business Research in London.
The value of acquisitions and investments by Gulf companies in China is on track, climbing more than 1,000% year-on-year to $5.3 billion, according to data collected by Bloomberg.
China’s growing involvement in political and security issues is evidence of this growing influence over its partners in the Persian Gulf. The Saudi-Iranian normalization agreement, for example, was brokered in Beijing.
Biden’s infrastructure pact cutting through the heart of the Middle East is one way the US is trying to reassert its influence in the region.
Even then, China’s ten-year lead offers some cautionary lessons for Biden’s global infrastructure pact.
BRI agreements between China and various partner countries typically involve a set of loans either with multilateral banks, which Beijing has a lot of influence over, or with Chinese state-owned or political banks. with an interest rate of about 4-5%. — which is usually higher than the IMF, where loans are sometimes made to low-income countries to zero percent.
BRI deals also typically involve construction and equipment by Chinese companies, which are mostly state-owned.
“Debt issues aside, large-scale infrastructure projects tend to be high-risk. Moreover, returns tend to be realized over a longer time horizon and may not even be credited to the original investor,” said Chong Ja Ian, an associate professor of political science at the National University of Singapore.
“That’s why it’s usually public money that finances large-scale infrastructure because it doesn’t make commercial sense for private firms that are concerned with profits as well as quarterly or even annual results,” he added. “This is particularly true for projects that the PRC (People’s Republic of China) has invested in as part of the BRI. The lack of investment has previously been linked to weak commercial reasons for investment.”
According to the Rhodium Group, a New York-based consultancy, about loans amounting to 78.5 billion dollars issued by Chinese institutions to finance infrastructure projects around the world were renegotiated or written off between 2020 and the end of March this year.
The International Monetary Fund and the World Bank were involved in some of these negotiations, pointing to marginal shift on China’s willingness to involve multilateral banks in debt restructuring negotiations.
“25% of emerging market debt is treading in dangerous territory,” IMF Managing Director Kristalina Georgieva told CNBC on the sidelines of the G20 leaders’ summit in New Delhi.
The matter has become so important that US Treasury Secretary Janet Yellen put it high on her agenda with her Chinese counterparts on her visit to Beijing in July and again in this G20 meeting in Delhi.
“I think you can say that Washington and Delhi are trying to present an alternative,” Chong said.
“The corridor seems to focus more on connecting existing ports and rail lines, supplemented by energy grids and telecommunications cables,” he added. “It appears to be a lower risk approach and may even take advantage of the infrastructure already paid for and built under the BRI umbrella.”
More details on Biden’s India-Middle East-Europe infrastructure plan will be available after the meeting of the countries involved, but his plan is already seen as a smart maneuver around increasingly nationalistic sentiment that limits further US trade liberalization.
“Many countries would like access to the US market, but US domestic politics seem to make such developments difficult at present,” said Chong, an associate professor at NUS.
“Emphasizing connectivity and investment is a way for the United States to overcome the challenges it currently faces domestically with trade liberalization,” he added.
The Rise of the Middle Powers
Meanwhile, Biden’s solution and the building of a coalition of allies gives Indian Prime Minister Narendra Modi the space to emerge as a leader of the developing world, choosing the term “Global South” as a reference.
In a banner year for Indian diplomacy, when the world’s most populous nation also assumed a rotating presidency The Shanghai Cooperation Organization, Modi seized the opportunity to turn the normally quiet rotating G20 presidency into a branding tool to highlight India as a key global player defending the interests of the Global South while serving as a partner with developed countries.
“Partly this is a response to most (G20) countries being angry with the United States (and to varying degrees the wider West) for unilateralism and a lack of policy fairness in the economic, pandemic, climate and security spheres,” said Bremmer of Eurasia Group.
He added that many countries are also angry with China because of “lowered expectations in the Belt and Road and an overly transactional and aggressive approach to commercial leverage.”
The unexpected consensus at the G20 summit, with Modi ahead of the launch of Biden’s global infrastructure initiative in Delhi, underscores the growing partnership between India and the US in a broader Indo-Pacific strategy aimed at containing China.
Despite the apparent calls for “One Earth, One Family, One Future” at the Delhi summit, the reality is more fragmented as supply chains adjust to shifting global geopolitical lines – when the desired outcome for greater prosperity for all would involve greater collaboration.
“In a world where we’ve learned from Covid and the war in Ukraine that supply chains need to be strengthened, they need to be diversified, that connectivity matters immensely,” the IMF’s Georgieva told CNBC.
“The important thing is to do it for the benefit of everyone and not to the exclusion of others,” she said. “In this sense, I would encourage all countries that cooperate with each other to do so in the spirit of an integrated economy.”