China’s rise to the center stage of world affairs has been much faster and more multifaceted than anyone expected.
The Chinese themselves seem to have been taken aback by their new-found might, and although prophesies about China’s future dominance should be taken with a whole spoonful of salt (a lot can still go wrong), a deep confidence is permeating the country. And it seems like the rest of the world is finally taking note.
I wrote a short piece in October 2008 for the Finnish Business and Policy Council (EVA) about what I thought would be the geopolitical ramifications of the financial crisis, in its very early stages at the time. America, as the epicenter of the crisis, was shocked into a state of socio-political and economic self-denial and panic that was given tangible expression in last week’s midterm elections. In many of the individual races the anger and vitriol was directed at the great ‘new’ menace- China. In the meantime a real and perceived shift to the East has taken place. It is only beginning to take shape, but its effects are already being felt.
Dubai has celebrated the opening of the world’s tallest skyscraper, the Burj Dubai, with a spectacular – not to mention costly – fireworks display. But the 10,000 fireworks did not blind us from the fact that the city and those who have put their hopes and money into Dubai are hurting. We all know who the main losers are:
The all-too-credulous investors willing to give cheap loans to Dubai World and Nakheel assuming their loans were guaranteed by the governments of Dubai and Abu Dhabi: A significant amount of this debt is believed to be bad debt (read: not backed by viable assets) – Moody’s has put the figure at about USD25 billion.
The city of Dubai itself, whose debt load – depending on whose estimates you are referring to – amount to between 100 and 200 percent of Dubai’s USD82 billion GDP: And it is not over yet – real estate prices in Dubai are expected to decline even further in 2010 as investors are abandoning their construction projects.
Dubai’s political independence within the UAE’s loose federation: Dubai has been enjoying special sovereign rights, such as control of customs, over parts of the judiciary and of its stock market. The UAE’s oil-rich capital Abu Dhabi’s offer to partially bail out its broke neighbor will most likely come at a political price. It is likely that Dubai will have to relinquish some of its sovereign powers to federal authorities.
Yet another loser, less talked-about but most significant in geopolitical terms, could be Iran.
Some banks have been accused by the US government of indirectly doing business with Iran through Dubai-based institutions. Vice versa, Tehran has been accused of circumventing sanctions by doing business through Dubai based front companies.
Abu Dhabi has long resented Dubai’s ties to Iran. The UAE fears Iran’s regional ambitions and nuclear program, and it still has a territorial dispute over three UAE islands currently occupied by Iran. Besides, Dubai’s closeness to Iran is an embarrassment to the UAE in its close relationship with the US.
Dubai’s financial crisis is putting Abu Dhabi into the enviable position of being able to attach strings to its bailout offer. Although the US has kept mum about it in public, no doubt Washington encourages Abu Dhabi to make bailout money dependent on Dubai severing commercial ties with Iran.
And as Dubai is tightening its belt, Iran may find it just a little harder to circumvent international sanctions.