JEDDAH, 18 December 2005 — With China becoming the second largest trading partner with the Gulf Cooperation Council after the US, the significance of Asia as an economic ally is increasing for Gulf economies. Two major factors point toward this shift. First, the resurgent Gulf economies are flush with money from oil sales and need fresh pastures to invest and diversify. Secondly, the increase in Asia’s oil consumption with both energy-starved China and India needing the fuel to boost their growth engine.

According to the Gulf Research Center, Asia consumes 30 percent of world’s oil. GCC oil exports to Asia are two-thirds of its output, which in all probability could increase as the Asian economies seek to attain a better development plateau. The GRC predicts that Asian oil consumption will more than double by 2020. Additionally, the center estimates that more than half of total GCC exports go to Asian countries while a third of GCC imports are from Asia.

Clearly, economic integration between Asia and the GCC is increasing at a fast clip and the Asian market is becoming a major target for GCC oil exports. Vikash Yadav, professor of political economy at American University in Cairo, however, believes the more interesting question is whether Asian countries will look toward the GCC as a major market. For him, the answer is no. Yadav points to the fact that none of the major countries of East Asia or Southeast Asia count the Gulf as their top five trading partners for either exports or imports.

Asia is a significant export market for GCC, but with the exclusion of oil and gas, the trade relation between Asia and GCC becomes insignificant. “The data is not surprising,” said Yadav, “when one considers that the composition of exports is heavily weighted toward petroleum, natural gas, and mineral products.”

Surprisingly, WTO trade statistics placed Asian economies over the United States as leading export markets for the GCC. The US ranked second for exports from Bahrain, Kuwait and Saudi Arabia. Data from the World Trade Organization show that Saudi Arabia’s leading Asian export market is Taiwan, where one-third of Saudi exports go.

Japan comes third, after the US, in the trading equation with 14.8 percent of total Saudi exports. For Kuwait, Qatar and United Arab Emirates Japan is the top export market. Statistics from the WTO illustrate that 20.3 percent of Kuwait’s total exports go to Japan, while Qatar’s exports to Japan reached 28.9 percent. The Economic Intelligence Unit estimated the UAE exports to Japan at 27 percent of its total exports. Taiwan and India are the third and fourth top export markets for Bahrain, according to the WTO.

Turning toward imports, the GCC relies on Asia for its imports but the region is an insignificant export market for Asia. “Almost all of the Gulf countries import heavily from Japan and China as one might expect,” said Yadav, “since these are powerhouse economies.”

Japan is the second source of import for Bahrain, the third for Saudi Arabia, Kuwait and Qatar. In contrast, China is the largest source of imports for the UAE, the fourth for Saudi Arabia and the fifth for Kuwait. The reason for the insignificance of the Gulf market for Asia is that Asia remains “a very dynamic region that is mainly oriented to trading within its own region and the United States,” Yadav said. “The Gulf constitutes a tiny market given the small number of people who can actually afford to purchase durable goods.”

“Only India and Pakistan carry on extensive import and export trade with the Gulf,” adds Yadav. Quoting IMF trade statistics, Yadav said that the UAE is becoming more important for Indian exports than the UK, and that “it is nearly on par with India’s rapidly rising exports to China.” The UAE’s trade significance to Pakistan is no less than it is to India. The UAE is the third largest market for Pakistan’s exports and imports.

Yadav attributes this odd trade configuration to the triangular trade between India and Pakistan that passes through the UAE. Due to political tension between Pakistan and India, the UAE served as middle trader between the two countries. Another reason would be the presence of a large South Asian population in the Gulf, Yadav said.

Understanding the trade relation between the two trading blocs is essential for GCC countries, as Asia’s need for energy is increasing. The Gulf Research Center is conducting a two-day workshop on Jan. 4 to discuss the future of the dynamic alliance between the two regions and how this alliance can be strengthened. The workshop will also examine the effects of Asian political tensions (India-Pakistan, China-Taiwan, and the Koreas) on GCC-Asia relations. In addition, it will discuss the economic role of Asia in GCC oil and non-oil sectors.