Part 1: The New Gulf Moment
Flowing Capital in the Center of the World
In May 2017, following an unholy whirlwind tour of a greater Holy Land, then President Trump returned to a predictable media frenzy in the United States. He had vividly begun his trip in Saudi Arabia, where he had been feted à la sword and dazzled with orbs. The famed/feigned Obama pivot to Asia seemed to be a distant memory with a return to a Middle East, now Gulf-centric, foreign policy in the spotlight. Years of turmoil, regional intrigue, and the cementing of new Gulf leaders followed this trip, with the Trump administration seen as an adjunct player.
Although the United States began turning very inward across the board in the late 2010s, under President Joe Biden, the U.S. finally turned the focus to two global geographic spheres that represent the only real external threats to its influence: Russia and China (perhaps with the military, post-Afghanistan, finally free of 20 years of quagmire). The Gulf has appeared to be out of sight and out of mind. It would seem to be fading from its prime position…
While American politics has shifted, the Western economy has never been as integrated with the Gulf as it is today. Gulf liquidity – is a dominant institutional force across the board. All the while, Gulf leaders are balancing in a changing global economic order. Today’s New Gulf Moment is characterized by three factors:
Increased political maturity
Broader institutional depth
Outsized liquidity
This year – 2023 – we will witness a supercharging of Gulf integration into markets, venture, operating businesses, and beyond. How can the Gulf and its leadership ensure they are not exposed to undue risk? And how can those seeking to attract capital do so intelligently, aligning with their interests and values?
The First Gulf Moment
The first Gulf Moment – coined by Abdulkhaleq Abdulla – came amidst the Arab Spring a decade ago. In the vacuum of the Arab world where previous powers - Syria, Iraq, and Egypt - once dominant were eviscerated, there was no substantive political and military force to be found. With neighboring Turkey and Iran filling the void, the Gulf decided to step up. They took the helm of the Arab League. They convened management of the region’s files. But they also took a (para-)military role for the first time in a concerted way across the region. In Libya. In Syria. In Yemen. This was a different Gulf.
With the Obama Doctrine promoting greater leadership from countries it once saw as dependents and the Iran Deal creating relative discomfort, D.C. acquiesced to the rising Gulf. The precipitous fall in oil prices in 2014 may have led to economic tightening, but it did not slow the momentum, at least at first. Even the prickly rise of Saudi’s Crown Prince, Mohamed bin Salman – and a series of, let’s say, unfortunate events – did not slow the Gulf’s Moment.
By 2017, and Trump’s still celebrated visit (in the region), the Gulf Moment had started to falter even though it was just reaching its zenith. Its leadership’s investments were not paying dividends in Yemen, Syria, and Lebanon. Externally, despite U.S. pressure, Iran seemed no weaker. And the economics of political manifestation in everything everywhere in the Middle East was not sustainable. Internally, Gulf countries turned against each other. The United Arab Emirates and Saudi Arabia, on one side, and Qatar, on the other, had a cataclysmic falling out. The other three countries of the Gulf Cooperation Council (six in total), Oman, Kuwait, and Bahrain, were caught in the middle. The rest of the region tried to line up accordingly, with Turkey from outside squarely backing Qatar.
Despite the [sovereign wealth fund Public Investment Fund’s $100 billion gambit with Softbank] Vision Fund’s fanfare, Saudi Arabia was moving from one crisis to another. And even Masayoshi Son’s star investment, WeWork, in 2019 had an infamous near-collapse episode. Then COVID hit. And oil prices tanked, with some futures going sub-zero. The Gulf Moment, almost in tatters, was now extinguished.
Strangely, COVID and the last several years offered a needed reprieve for the Gulf. Billionaires found refuge in Dubai. Oil rebounded gently. The petro-economies received a climate reprieve due to the Russian invasion of Ukraine. Qatar, Saudi Arabia, and the UAE mended fences. The UAE rebalanced its foreign policy and solidified its leadership. Yemen became relatively quieter. And inflation made many reassess ‘cash is trash.’
The Gulf could soon sit on one of the largest cash stockpiles in modern economic history.
The New Gulf Moment
Thus, we have entered the New Gulf Moment. If the prior Gulf Moment was regional and political, today’s is global and economic. In some ways, it is politics through private economics. Today’s Gulf is unlike the 1970s, when following the boom in oil prices, countries – and weak assets – looked to the Gulf for handouts of literal cash. In the leading centers of Doha, Abu Dhabi, Dubai, and Riyadh, there is a greater depth of institutions to meet with. It is also not an expatriate-run oasis. Instead, the expertise is local, multi-layered, and confident. If you are pitching for cash, you are competing with the world’s best in class, and you better come prepared. And be prepared to hear no.
And prepared they have come, in the thousands. The Crypto/Web3 pseudo boom didn’t help, and the AI hype-loop will only make things worse. Venture (some not all) is, unfortunately, the new management consulting, and all sorts of intelligent people will dress up pages with mildly amusing graphs and pitch buzzwords for money. At the same time, you can’t just knock on a door (well, you can) without taking a pause. Take Abu Dhabi, for example: ADIA, Mubadala, ADIC, IHC, Alpha Dhabi, ADIO, and beyond. Is it the same house? Can you talk to one institution at one time? In each country? Who is the private sector? Who is the public sector? Is there another Abraaj or NMC around the corner?
In the rush and relish for deals and influence, we will see tremendous opportunity but also significant risk, unfortunately, realized. Yet, those who underestimate the New Gulf Moment do so at their peril. There is no liquidity crunch like in 2008, but the price of cash went up by a factor of 3 in less than a year. There is no current competition to Gulf finances if you are looking for financing deal flow. Pension funds and endowments are smarting and will be more risk-averse. The only cash escaping from China will be cash that truly is escaping. And yes, there are family offices – but the leading ones are also situated in the Gulf these days.
Consequently, as soon as travel post-pandemic opened back up, there has been no stranger in the past year to the Gulf. Dalio, Dimon. SBF, CZ. Musk, most of all. Behind every sizable venture entity, there is Gulf money (lower tickets than $10m and probably more like $50m is a different story). Even Trump hangers-on like Mnuchin and Kush-Kush come to sing for their supper. And the institutions are not always familiar, and not necessarily even native to the Gulf. Who is Vy capital?
In this Moment, it will be beneath the pageantry that the actual tapestry of Gulf investment will be woven. Likely, there will be significant infrastructure and real estate investments across America to a degree never seen in prior cycles. It will have a tremendous impact beyond the beltway and the primary centers of Gulf influence in Houston, Wall Street, and Northern Virginia. Overall, there is much uncertainty in Europe (regulatory-wise), China (all sorts-wise), and Russia (Putin-wise). For all its faults, America is the closest thing to a sure thing in the world, and the lion’s share of safe capital will flow there; it will look for places of stability and where government outreach is less.
Further Afield and Looking Ahead
The portfolio of Gulf investments can deploy actively and intelligently further (in conventional terms) afield to Africa and South Asia. But as the Adani story shows, cowboys are not the best bets on the frontier. Likely the capital will flow to investments in these countries that are semi-state aligned. Unlike in the past, that capital will not be allocated as budget support or interest-free loans but to commercial loans and, more often, equity stakes in hard industry and infrastructure. The longer the interest rates stay high, the more deals that will come the Gulf’s way in its broader neighborhood will be very attractive. Stories of liquidation will start to emerge very soon.
The economics of the New Gulf Moment will result in unprecedented underground influence in the emerging World Order, which will be less driven by formal global institutions and strong governments and more by network interest alignments. It will be something to watch very closely.
How should you navigate this?
That comes in Part 2.