James Watt CVO served as British Ambassador to Egypt, to Jordan and to Lebanon. He has dealt with the major issues and conflicts affecting West Asia and the Arab world and has extensive commercial experience in those markets.
The G20 Summit in New Delhi saw the announcement of the India Middle East Corridor – IMEC – the most ambitious in the series of US-led measures to counter the challenge of China’s growing role in the Gulf Region, and part of the Western response to the Belt and Road Initiative. IMEC is intended to facilitate trade and data connectivity between India and the region and beyond it to Europe, using the port of Haifa on the Mediterranean. While the political case is clear, the economic one is less so.
The G20 Summit in New Delhi on 9-10 September saw an eye-catching new announcement in the existing narrative of the International Partnership for Global Infrastructure (IPGI), the US-led initiative launched the previous year. Billed as a major US plan to mend frayed ties with the Gulf countries, and to counter growing Chinese influence, the India Middle East Corridor (IMEC) also serves the diverse national purposes of the several other countries involved in it. IMEC envisages the transportation of goods, major new data connections and a hydrogen pipeline.
Some IMEC members are involved both territorially and strategically: India, the UAE, Saudi Arabia, Jordan, and Israel. Others as investors and strategic backers: the US, Japan, the EU, France, Germany and Italy.
Announced on the same occasion, was a commitment to a Trans-African Corridor (TAC), described as linking the Zambia copper belt and Katanga Province in the DRC to the port of Lobito in Angola. African development has long been a top priority for Europe, and is increasingly important for the United States. The simultaneous announcement of the TAC, embryonic though the plan appears to be, seems to have been intended to reassure African countries that they are not being forgotten amid the excitement over IMEC.
IMEC – the politics
The Biden Administration’s overarching strategic concern is to compete on a global scale with China, and to make up for lost advantage during the period of China’s rapid expansion of trade and investment worldwide under President Xi Jinping. Access to commodities including hydrocarbon fuels and raw materials essential to future industries is a major part of the argument, and so too are hydrogen production and control of the massive data networks intended to serve the future economies of entire regions. The Administration has been courting India as the emerging third superpower, one which has every wish not to become strategically dependent on Chinese-controlled infrastructure.
For India, then, IMEC makes a lot of sense, building on already close ties economically with the wealthy oil states of the Gulf, and helping preserve India’s freedom of action. For both India and the Europeans, the prospect of a cheaper, faster transport system for exporting consumer goods to each other is attractive. It also serves European strategic interest in helping India retain its freedom of action in the face of Chinese ambitions. India had already entered into a framework relationship with Israel, the UAE and United States (I2U2) in April this year.
The United States has a further political objective for IMEC: to create and strengthen economic ties between the Israel and the Arab states of the Gulf, cementing Israel’s security in the face of Iran’s expanding control of Syria and Lebanon, and its undiminished influence in Iraq. For Israel, naturally, this is the top objective, with attention focused on reaching an agreement with Saudi Arabia that replicates the Abraham Accords with the UAE and Bahrain. The UAE, for its part, has offered to fund the final leg of IMEC across Jordan to the port of Haifa. For Jordan, popular hostility towards Israel means that in present conditions, without a significant improvement in Israel’s treatment of the Palestinians, any such plan would carry a degree of political risk.
For Saudi Arabia the political as well as economic advantages of IMEC are clear. Along with the UAE, it would gain considerable leverage as one of the essential transit countries for the Corridor, while in no way having to reduce its engagement with China (or indeed Iran). The ambitious security partnership Saudi Arabia is pursuing with Western countries (not only the United States) would be enhanced by the key geographical role it would be playing.
IMEC – the economics
IMEC is a political project with an unproven economic basis. The headline claim that moving goods between India and Europe would be 40% faster and at 30% of present costs needs close examination. Transhipment costs (port-rail-port) would have to be considered, as well as the investment cost in the new railway, its running cost and its carbon cost. Egypt could respond by reducing its high transit fees for the Suez Canal, altering the business calculation. The Iraq-Türkiye plan to develop a Development Road from Al-Faw, at the head of the Gulf, to the Mediterranean might also prove a nimble competitor, connecting to Türkiye’s own industrial capacity. In Europe itself, existing transport networks are planned around the high capacity of northern ports such as Rotterdam for seaborne trade: for large cargos these would remain strongly competitive.
The data capacity aspect of IMEC appears to have the strongest business case, aiming to increase multiple times data connections from India to the Middle East, Africa and Europe. The added advantage would be reducing the risk inherent in the present concentration of almost all east-west cabling running through Suez and Alexandria. The large data operators such as Google have long earmarked substantial investment sums for diversification of this kind.
IMEC ‘s hydrogen component is the least clear in economic terms. Saudi Arabia intends to become a major producer of hydrogen, either green from planned renewables capacity or blue from natural gas. Both India and Europe might be potential markets, in their drive to reduce their carbon emissions. Opinion is divided, however, about the proper uses of hydrogen fuels. The case for powering industrial plant and shipping is more convincing than the one for domestic heating/cooling needs or for vehicles. The debate needs more time to identify what the investible opportunities might be.
The further economic implications of IMEC are even harder to discern. Egypt may emerge as one loser, relatively, as its Suez advantage is eroded. More generally, the large amount of capital required to implement IMEC (one estimate is $20bn) could cause an investment drought elsewhere. This could diminish funding for the UN-sponsored Green Transition Fund, infrastructure plans in Africa including the newly announced TAC, and the Iraq Development Road to Türkiye, all too seeking unprecedented funding levels from multilateral agencies such as the World Bank and IMF, as well as from the private sector. Western governments are currently hampered in meeting the financing demand. The cash-rich sovereign wealth funds of the UAE and Saudi Arabia would play a decisive role, allowing them to prioritise investment choices, as well as take significant long-term stakes in the infrastructure created.
Belt and Road
China’s Belt infrastructure plan, launched in 2013 to traverse Central Asia, was joined a year later by a maritime equivalent (confusingly called Road), with the aim of securing Chinese interests on both routes, as well as of stimulating activity for Chinese construction companies. Funded by lending from the four state banks, the BRI’s reputation has been tarnished by a major corruption scandal in Malaysia, by the failure to deliver planned outcomes, and by crippling debt imposed upon the countries taking part in the scheme, notably Sri Lanka, but also affecting Kenya with the building of the Mombasa-Nairobi railway. This has led to accusations of “debt trap diplomacy”, and China has been slow to ease the debt terms. Reliable figures are not available, but new BRI investment appears to have slowed sharply since 2019, and with credit conditions tight in China the slowdown is likely to continue.
Despite these failures, China’s policy of engaging producer countries in commodity export investment deals is sufficiently active to alarm its Western competitors. The latter have studied the mistakes made in executing the BRI: unsustainable debt burdens, and poor economic choices made by central planners. The solution is being sought through involving the private sector, alongside the multilateral funding institutions, in choosing and executing viable projects on a financially sustainable basis.
Private sector-led investment has its undoubted advantages, but it is still no magic solution for all the complex and long-term choices that need to be made. It also reduces the say that governments have in what remains their political initiative. Nor can it avoid the geo-political consequences of change, including the possibility of conflict in disputed areas.
To the extent that IMEC succeeds, it risks entrenching the hostile dividing line between Israel, backed by the United States, and Iran, backed by Russia. That would not be in the best long-term interests of any country in the region. Instead, a conscious effort needs to be made to ensure that IMEC serves the strategic purpose of bringing genuine peace as well as prosperity.