Political economy of the ME policy

It was agreements and protocols galore – eight to be precise – during the high-profile visit of Crown Prince Mohammad bin Salman (MBS), the first in line to the Saudi throne, to Islamabad.

Riyadh will invest $20 billion, mainly in the energy sector including setting up a $10 billion oil refinery in Gwadar, into cash-strapped Pakistan. Already the Saudis have announced, and partly released, $6 billion credit line for Islamabad, including $3 billion as balance of payments support and an equal amount for purchase of oil on deferred payment. In 2017, Pakistan bought $1.3 billion worth of oil from Saudi Arabia, which accounted for more than half of its total imports from the latter.

The sumptuous pageantry which marked the visit – the prince and the prime minister being driven together in a slow-moving chariot surrounded by the guards, conjuring up images of the Subcontinent’s royal era of yore, was its high point – only demonstrates the tremendous importance that Pakistan attaches to its relations with the holy land.

The high-level visit from Saudi Arabia coincided with Iran asking Pakistan to crack down on militants it says killed 27 of its elite revolutionary guards in an attack near the border, or face military action by Tehran against the culprits. In the same statement, the Iranian general also sent out a warning to Saudi Arabia and the UAE. Are Islamabad’s deepening relations with Riyadh at the expense of Tehran?

A country’s foreign policy represents an interplay of three sets of factors: the current international, including regional, environment; the power mix (military, economic, soft) that it has relative to others; and the inclinations and preferences of policymakers. In a world of scarcity, every decision and every policy choice entails an opportunity cost. The same holds good for foreign policy. The decision to ratchet up relations with one ally or neighbour may not go down well with another when the two are at daggers drawn. An independent or neutral foreign policy may deprive a country of valuable economic or security-related assistance.

Pakistan’s Middle East policy is born of the region’s power dynamics and its own strengths and weaknesses. The Middle East is a Sunni majority region where a substantial Shia population also resides. Iran and Saudi Arabia, representing Shias and Sunnis respectively, have historically competed to control the region. In countries such as Iran, Bahrain, and Iraq, Shias have been in majority. However, until the ouster of Saddam Hussein in 2003, Iran was the only Shia majority country in the region where the government was in the control of the adherents of that sect. Syria stands out as a special case where Shias despite being in minority have been at the helm since 1970. The sectarian schism, therefore, has been a principal driver of conflict in the Middle East.

The breakout of civil war in Syria in the wake of the 2010 Arab Spring, exacerbated Iran-Saudi, with Tehran and Riyadh going all out to support and bring down respectively the Assad regime. The war in Yemen also saw the Iranians and Saudis putting their money on opposite sides.

The rise of Daesh, which sought to put in place an all-encompassing, transnational caliphate and by implication pull down the Gulf monarchies put the Gulf kingdoms in a dilemma. Either they made common cause with Iran in crushing the cataclysmic organisation or they take on Tehran with the support of Daesh. The kingdoms resolved the dilemma by setting up a 34-nation military alliance avowedly against Daesh and other militant organisations. Iran, Iraq and Syria were not invited to become part of the alliance; their exclusion was understandable in the context of Iran being accused by Saudi Arabia of being a state sponsor of terrorism. Daesh has largely been subdued but the military alliance is still there, thus strengthening Tehran’s suspicions that the alliance was directed against it.

Islamabad has been walking a tight rope in its attempts to strike a balance in its relations with Tehran and Riyadh. The re-imposition of US sanctions on Iran has dashed any hope of revival of Pakistan’s commercial relations with Iran. Primarily economic considerations, therefore, have made the Pakistan government tilt towards the Saudis.

Saudi Arabia is the single largest source of remittances to Pakistan, which leans heavily on these inflows to bridge a massive current account deficit, rack up purchasing power of the people, and keep the wheels of the economy moving. During 2017-18, Saudi Arabia contributed $4.85, which makes up nearly a quarter of a total of $19.62 billion worth remittances that Pakistan received from all over the world. Saudi Arabia’s strongest ally, the UAE, contributed $4.33 billion.

In the first seven months of the current financial year as well, Saudi Arabia has remained the largest source of remittances for Pakistan accounting for $2.97 billion out of the total figure of $12.77 billion. In 2017-18, Pak-Saudi bilateral trade was $3.53 billion including $303 million exports from Pakistan and $3.23 billion imports from Saudi Arabia. In July-January 2018-19, the bilateral trade was recorded at $1.96 billion including $179 million exports from Pakistan and $1.79 billion imports from Saudi Arabia. By contrast, the Pak-Iran bilateral trade was only $398 million in 2017-18 including $21 million exports from Pakistan and $377 million imports from Iran.

Historically, Saudi Arabia has not been a major investor in Pakistan, as it used aid as the major economic instrument of driving the bilateral relations. With the Saudis set on diversifying their economy, the country is shifting from aid to trade and investment. But for sure, it isn’t a one-way relationship.

Islamabad’s strong defence capability can prove an asset. Islamabad had earlier not taken any military part in the Yemen conflict, since such a move would amount to taking sides and Islamabad’s stated position is that it will not take sides in the Tehran-Riyadh conflict. In fact, Pakistan has fruitlessly mediated between the two countries. Pakistan itself has been one of the spectacles of the proxy war between Iran and Saudi Arabia, which sharpened the sectarian schism in the country. So it has been highly in order for Islamabad not to take sides in the Tehran-Riyadh conflict wherever it is played out. However, Islamabad has made it clear that it would always be ready send its troops to protect the holy land if such need were to ever arise.

Pakistan and Saudi Arabia are on the same page on the current Afghan peace process, which has also forced Washington to redefine its relations with Islamabad. As Tehran and New Delhi have had warm relations with the Ashraf Ghani government in Kabul – of which the Chabahar Port is a potent symbol – a likely change in Afghanistan is seen by both Islamabad and Riyadh to be in their strategic interests.

The writer is an Islamabad-based columnist.

Email: hussainhzaidi@gmail.com

Twitter: @hussainhzaidi