how will president trump impact the gcc?
TRANSCRIPT
How will President Trump impact the GCC?February 2017
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The early days of the Trump presidency already indicate a profound shift in US policy towards the Middle East.
The administration’s immigration crackdown and refugee ban targeting seven Middle Eastern and North African countries prove to be early tests in diplomatic relations between the US and regional powers. In following through on his ‘America First’ pledge, President Trump is implementing bold policies that may very well change the world order.
The GCC will not be spared, as the region’s governments try to make sense of an untested leader entering at a particularly turbulent time. Yet for all of Mr Trump’s controversy, GCC governments remain tepidly optimistic about his arrival.
At the heart of this relationship are security and economic cooperation. As former US Vice President Joe Biden noted on a visit to the UAE last year, bilateral trade between the US and UAE alone surpassed US$25 billion in 2015. Defense ties also run deep, as the GCC proved to be one of the largest purchasers of US defense technology in recent years.
While many of Mr Trump’s policies remain to be seen, the president’s remarks on key security and economic issues, such as trade, energy and international cooperation suggest a
new attitude towards the UAE and the wider GCC.
This briefing outlines where that optimism comes from and the hidden challenges that the region may face.
Visa and travel restrictions for Middle East nations
The Trump administration sent shockwaves through the world with the signing of an executive order impacting travel to the US for many from the Middle East and North Africa region. Citing security concerns, the order is a far-reaching measure, which is already impacting countries and companies in the region. The order imposes a 120-day suspension of the US refugee programme and indefinitely bans admission of Syrian refugees. Additionally, the order implements a travel ban on individuals traveling into the US from seven Muslim-majority nations – Iraq, Iran, Syria, Yemen, Somalia, Sudan and Libya (with certain exceptions).
The order has been met with controversy both in the US and abroad, as politicians, heads of state and business leaders have reacted to the new measure. Legal resistance within the US, and Trump’s firing of the former US Attorney General Sally Yates for not enforcing the executive order, further add to public scrutiny.
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“The GCC will not be spared, as the region’s
governments try to make sense of an untested
leader entering at a particularly turbulent time. Yet for all of Mr Trump’s controversy,
GCC governments remain tepidly
optimistic about his arrival.
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An additional controversy is the fact that many Middle East nations in which Trump has business interests – Egypt, Saudi Arabia, Turkey and the UAE – do not face any new travel restrictions based on the executive order, a sensitive accusation for the administration when considering that President Trump’s latest tax returns (and the exact nature of his overseas holdings) have not yet been disclosed.
Still in its very early days, the order is already having a moderate effect on GCC businesses, as UAE airlines have been forced to change their pilot and crew rosters for inbound flights to the US.
The executive order will have a profound impact on the wider region and the seven Muslim-majority nations directly named; however, given that many regional powerhouses are currently exempt from travel restrictions, this measure may only have a nominal direct impact on the GCC. Regional businesses and governments will be watching closely as the legal battles related to this action play out in US courts.
Stronger GCC relations at the expense of Iran…
For the GCC, Mr Trump’s greatest promise is his pledge to renegotiate the nuclear deal with Iran, a central issue of contention the Gulf states had with the Obama administration.
The Joint Comprehensive Plan of Action (JCPOA), better known as the nuclear deal between the P5+1 and Iran, lifted international sanctions in exchange for Iran eliminating its stockpile of medium-enriched uranium, cutting its stockpile of low-enriched uranium by 98%, and reducing by nearly two-thirds the number of gas centrifuges for 13 years. For the next 15 years, Iran will only enrich uranium up to 3.67%, essentially halting any nuclear weapons efforts for that time but not dismantling the programme.
During the presidential campaign, Mr Trump repeatedly bashed the nuclear deal, saying that dismantling it would be his ‘number one priority’. Lieutenant General Michael Flynn, his nominee for national security adviser,
and Mike Pompeo, his nominee for CIA director, have both taken a hard line on Iran as well. That is music to the ears of Gulf leaders, who felt that the Obama administration had given Iran free reign to meddle in the region, emboldening the country to extend its influence across the Middle East and beyond. The lifting of sanctions and a cash transfer of US$1.3 billion as part of the deal would provide Iran with the resources to potentially increase its support of groups like Hezbollah, and the Houthi rebels of Yemen, with whom the GCC states are fighting a pitched battle.
Yet analysts warn that while Trump could nullify the nuclear accord, he would risk isolating the US from the international community as well as hamper a possible rapprochement with Russia. The sheer mechanics of unwinding the deal, analysts say, could also make it a non-starter.
…but will the US maintain defense support?
Trump also singled out America’s allies, who have not paid their agreed share in NATO and other alliances. In stark terms, he warned, “We’ve defended other nations’ borders while refusing to defend our own and spent trillions and trillions of dollars overseas while America’s infrastructure has fallen into disrepair and decay. We’ve made other countries rich while the wealth, strength and confidence of our country has dissipated over the horizon.”
The message was aimed at European states, as well as South Korea, Japan and others; however, Trump has also been critical of US financial and military support in Middle Eastern affairs.
In a 2016 interview with the New York
Times, then-candidate Trump gave a similar criticism of US support for Saudi Arabia for the Kingdom’s role in the global fight against ISIS, stating, “We are not being reimbursed for the our protection of many of the countries…including Saudi Arabia.”
For GCC countries, this rhetoric only underscored long-held fears that the US may be turning away from security guarantees.
The GCC has been one of the largest defense spenders in recent years, as most have reinforced their militaries and begun to cultivate new alliances in the event that the US defense support wanes. His message may have confirmed their concerns.
Building on trade
President Trump’s campaign promises centred on the reinvigoration of US industry and countering the influence of multinational institutions, and his speech reconfirmed his intention to ‘buy American and hire American.’ For countries that have embraced globalization, that could spell newfound turbulence.
The UAE may be one of them. US trade with the UAE stands at about 33.5% of the total trade with GCC nations. From 2010 to 2015, US exports to the UAE increased by 97%, exceeding US$22 billion. 2015 also marked the seventh consecutive year that the UAE was the largest export market for US goods and services in the region. This trend continued into 2016, as the US Department of Commerce states that trade between the UAE and the United States reached $12.84 billion in the first half of 2016, compared with $11.9 billion over the same period in 2015. In addition to trade, more than 1,500 US organisations have a presence in the UAE, with an estimated 50,000-60,000 US citizens living in the country.
As the relationship between the US and UAE is largely driven by US exports, Trump’s threats of enacting import tariffs on foreign manufactured goods may have only a nominal impact on bilateral trade with the UAE. Meanwhile the dirham peg to the US dollar will fuel continued demand for US products and services in the country.
From 2010 to 2015, US exports to the UAE
increased by 97%, exceeding
US$22 billion.
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As a result, it is unlikely that a move by the new administration to curb imports (and the risk for potential trade wars with other countries) would directly impact the business interests of US and Emirati organisations in the near term.
Oil and energy
A cornerstone of the Trump campaign was a pledge to lead a resurgence in US industry, especially in the energy and manufacturing sectors.
The US energy renaissance of the past decade made possible by fracking has presented a dramatic new challenge to the GCC. The technology has changed the global supply dynamics, turning the US – historically dependent on imports of oil – into a self-sufficient producer, and more recently, an exporter.
President Trump has pledged to create ‘complete energy independence’ for the US. This pledge includes a variety of strategies to increase US oil production through changes to regulations and environmental policies, as well as implementing measures to encourage investment in US shale companies to increase exploration and production activities. The confirmation of former ExxonMobil CEO Rex Tillerson to the position of Secretary of State only underscores Trump’s determination in this area.
An increase in US production could impact an already over-supplied global oil market, with a potential increase in production driving global oil prices lower, impacting GCC government revenues even further.
Another more dramatic scenario would be Mr Trump’s pledge to ban US imports of foreign oil. The US imports approximately 16 per cent of its oil from the Persian Gulf, and – while a ban on imports may reduce oil production globally, causing prices to potentially recover – it would have profound economic consequences and political implications on the region.
A Trump-induced disruption to the global oil market would create further uncertainty in a region already facing the challenges of over-reliance on
hydrocarbons.
Business interests and potential conflicts of interest
A controversy surrounding the new administration is the potential for conflicts of interest related to President Trump’s business dealings in the region. While the president has pledged to hand over his commercial interests to his family, creating what has been referred to as a ‘half-blind’ trust, his ties in the UAE and elsewhere remain under scrutiny.
Trump’s business interests in the region include ties with a luxury property developer with whom Trump partnered to develop an 18-hole golf course described as the ‘Beverly Hills of Dubai.’ Trump enjoys a longstanding relationship with that company’s chairman, who was recently Trump’s guest at his New Year’s party, in which Trump publicly praised him as a good friend and business associate.
The property developer has expressed interest in expanding its business relationship with the Trump brands. Shortly before his inauguration, Trump announced that he had declined a US$2 billion deal with the company, describing it as a potential conflict of interest.
Despite this specific deal not materialising, the company’s chairman expressed hope that the election of Trump will benefit his business, telling journalists in January, “Naturally, I think we will benefit from the strength of the brand going forward.”
President Trump maintains that there is no law or US Constitutional requirement barring him from having business interests while serving as president. As legal and ethics experts will look into Trump’s business interests, it is clear that the organisation’s international assets will remain a source of controversy, in both the UAE and elsewhere.
Ultimately, the unlikely rise of President Trump may prove a mixed blessing in the GCC. He promises the region a key change on its most central issue, but he may also
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In addition to the policy implications for the
region, the president has already used the bully pulpit (via his Twitter
account) to attack brands and organisations that he disagrees with, and in turn has changed the global communications
landscape.
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introduce new challenges that might have a notable effect on the region’s economies. As the world works to determine what elements of Mr Trump’s campaign rhetoric will transform into actual US foreign policy, the region’s leaders will cautiously begin to navigate this new geopolitical climate.
Communication implications
In addition to the policy implications for the region, the president has already used the bully pulpit (via his Twitter account) to attack brands and organisations that he disagrees with, and in turn, has changed the global communications landscape.
Tweets and remarks complaining about the costs associated with government contracts are recent examples of the unprecedented reputational risks organisations face as a result of direct and unprovoked confrontation from the new president. In the case of one Fortune 500 aerospace company, Mr Trump publicly criticised the company’s costs for government contracts via Twitter,
resulting in shares in the company falling immediately. While the decline was only temporary, it was enough to cause market uncertainty.
Trump’s similar attack on US automotive companies for outsourcing automotive production - and his threats of implementing a ‘border tax’- created a similar controversy, which played out in the public domain.
In an issue that hit closer to home in the GCC, in 2016, then-candidate Trump stated his public support for the US Justice Against Sponsors of Terrorism Act (JASTA), commonly known as the ‘9/11 bill’.
The act passed the U.S. Congress in September 2016, and allows US citizens to directly sue foreign governments and entities for damages resulting from acts of terrorism.
The legislation was met with a swift negative response from Saudi Arabia (home to 15 of the 9/11 hijackers), which has threatened to liquidate the country’s estimated US$750 billion in
total U.S. assets.
As the controversy plays out between both governments, a harsh tweet or remark by President Trump could have profound commercial consequences for organisations in the US and GCC.
In a new communications era where one man’s social media presence can move markets and impact global commercial decisions, both US and GCC companies must consider the reputational risks associated with being on the wrong side of the new administration.
As the GCC is home to a number of individuals, institutions and governments with complex and controversial relations with the US, it will only be a matter of time before President Trump turns his criticism towards organisations within the GCC.
When that day comes, businesses will need to be ready to respond quickly and appropriately.
Hassan Fattah is with the Abu Dhabi office of Brunswick, and James Allan is
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BrunswickGroupBrunswick is an advisory firm specializing in critical issues and corporate relations.
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The Authors
Our Partners Rupert YoungPartner, Head of Brunswick Gulf Dubai
Jeehan BalfaqaihPartner Dubai
Alex Blake-MiltonPartner Dubai
Heather SalmondPartner Dubai
Will AndersonPartner Abu Dhabi
Hassan FattahPartner Abu Dhabi
James AllanAssociate Dubai
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