US-Gulf Relations on Energy Infrastructure and Fuel Sources [Gas Expert Insights]
The new Trump administration will face many pressure points in its engagement with the Gulf Cooperation Council (GCC) states. For the United States, a key policy decision pivot is likely to occur, namely, surrendering its leadership role, along with traditional partners in multilateral development banks and Western financial institutions, as a development finance facilitator and supporter of clean energy infrastructure in emerging markets. The Gulf states and their sovereign investment funds stand to gain from this the most, in terms of access to opportunities in the deployment of energy infrastructure and their appetite for risk in places where private capital and US-backed projects have traditionally sought more assurances for rule of law and rights of investors. The Biden administration was drawn to the Gulf states as partners and investors to amplify US efforts to provide and support clean energy infrastructure in emerging markets, particularly in countries that possess critical minerals or lean as democratic counters to Chinese development models, or map as alternative trade pathways to China’s Belt and Road Initiative. In future, the decisions of who to partner with and why may be less in the hands of US policymakers and led more by the visions of Gulf leaders and their aspirations as middle powers. It is a traceable and empirical example of a deglobalization and multipolar trendline in global political economy.
From a return to maximum pressure on Iran, to OPEC+ production decisions, to preserving the ceasefire and ending the war in Gaza, to engaging with a new Syria led by Islamists with past ties to terrorism, to challenging and opportunistic engagements on AI and nuclear technology, it will be a diplomatic ropes course for the Gulf states to balance their own domestic economic and security concerns with their need for a strong bilateral relationship with the United States. The Gulf states come to the table with a set of impressions formed during the first Trump administration, viewing the president as transactional in nature, apathetic to their security concerns after the 2019 attack (claimed by the Iran-backed Houthi movement but linked by the US to Iran) on oil processing facilities in eastern Saudi Arabia, wary of deploying American military forces in the Middle East to achieve shared strategic interests, and intent on increasing US fossil fuel dominance in a competitive global market.
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Fate of Infrastructure Initiatives
While the Gulf presents the US with these immediate challenges, the fate of a set of global trade and clean energy infrastructure strategies that the Biden administration put in place to foster development and connectivity across the globe may be of longer-term consequence to US interests. The Trump administration will need to decide whether to continue these plans or cede them to regional states. The associated projects, which would build power plants and transport infrastructure, deliver critical minerals, and facilitate clean energy supply chains, currently involve the Gulf states as nodes of connectivity between emerging markets and the West and as investors. The Lobito Corridor, the India–Middle East–Europe Corridor (IMEC), and the PACE program—each resting under the larger G7 Partnership for Global Infrastructure and Investment (PGII) initiative (2022)—all serve US strategic interests to counter China’s development infrastructure initiatives and/or the Belt and Road Initiative. The decision on these strategies will be based on whether the new administration sees connectivity through infrastructure and energy projects led by the Gulf states as fitting into its strategic approach to countering China, and the promotion of clean energy access in emerging economies as forwarding US national interests. The ceding of leadership within a global development and energy for development framework would mark a pivotal change after more than 75 years of US post-World War II multilateral leadership, providing an opening for the Gulf states to shape a new set of power relations between poorer countries with infrastructure and energy needs and sovereign funds and rulers willing to meet them.
To briefly describe these infrastructure initiatives, the PACE program predated the PGII but served as a blueprint for engaging the United Arab Emirates as a partner to the US to serve American clean energy investment needs and purportedly those of emerging economies as well. The program sought to catalyze $100 billion in financing and investment toward deploying 100 gigawatts of clean energy by 2035 globally to advance the energy transition and climate goals. In practice, most of the announced investments by the UAE were deployed inside the United States, including the UAE state-owned energy company Masdar acquiring a 50 percent stake in Terra-Gen, and the UAE national oil company ADNOC acquiring a 35 percent stake in ExxonMobil’s Texas low-carbon hydrogen and ammonia business. One example of the limited investment deployed abroad is the UAE government AI firm G42 partnering with Microsoft to invest in a $1 billion data center in Kenya.
The Lobito Trans-Africa Corridor includes US-backed investment in new rail infrastructure in central Africa that will serve as an economic corridor and facilitate the export of critical minerals from the region. The project has received more US private and publicly funded support than PACE, but it also rests on an expectation that Saudi Arabia’s quest to build a mining industry at home and become a mining stakeholder globally can be a source of capital. Early discussions in 2023 between the US and Saudi governments focused on the synergy of Saudi investment in African mining with US strategic interests in countering Chinese mining interests on the continent. The US interest is to encourage Saudi state investment in mining operations that compete directly with China and serve as a source of critical mineral exports more friendly to US markets.
IMEC is a Western political imagining of the multipolar global system, with more states on its side of the balance sheet than on China’s. The IMEC provides something for all, including China. The Gulf (and the UAE in particular) is already the most important re-export source of Chinese goods in the Middle East; increasing trade from India to the UAE through a new trade agreement has facilitated Emirati investment in India’s green energy projects, high tech computing, and solar manufacturing supply chains, while elevating state-privileged Indian conglomerates such as the troubled Adani Group. A rail corridor by land through Saudi Arabia would only facilitate that existing capacity from Jebel Ali in the UAE onward to Haifa in Israel and then by sea to Europe.
One of the key limitations of these initiatives has been a somewhat mythical understanding of how private finance would blend with multilateral finance to meet the clean energy needs of developing countries. This is what Alan Beatti describes as a “magic pony” problem of private investment in global infrastructure, which peaked in 2012 at $150 billion and declined to just $71 billion by 2023, with low-income countries receiving only 10 percent of that investment. Institutional investors are not active in infrastructure investment, with just 3 percent of global infrastructure allocations coming from pension funds or major institutional funds. The opportunity for Gulf sovereign funds is clear, but so too is the risk of a future in which the power needs of low- and middle-income countries across the Global South are met by state-owned investors and developers from the Gulf. (The new Gulf Renewable Power Tracker at CGEP specifically maps this development.) The policy priorities of the PGII depend on an active role for private infrastructure investment, but they likely underestimate the volume of potential deployment and how these investors evaluate risk.
Level-Setting on Energy Demand, Sources
In some ways, the new Trump administration has an opportunity to level-set (perhaps inadvertently) expectations about the energy transition and the role that oil and gas producers in the Gulf will continue to play in meeting global energy demand. Expected US pro-oil and gas production policies will mean a rhetorical reprieve to competitor Gulf producers who see their own longevity as more sustainable, and having a lower carbon footprint, than US oil production. The new administration will also be aligned with an Arab Gulf state view to prioritize an “all of the above” strategy of energy for development in emerging market economies over clean energy deployment. Global energy transition challenges, from both a climate and a financing perspective, are subsumed under a larger development challenge that has often been lost in the debate over equity in the energy transition. Poorer countries do need affordable and clean electricity generation, but equally or more importantly they need to address debt management, poor governance, weak legal systems, inadequate social service delivery, and lack of access to clean water, food, and skill-training opportunities.
The level-setting involves a more realistic understanding of future energy system demand and the mix of legacy and renewable fuels that will meet it, along with a clearer picture of how to pay for meeting those needs. That would represent a dramatic shift in the global discourse on development finance and climate goals. It would also help refine US policy priorities toward connectivity and infrastructure initiatives in the Middle East, distinguishing the trade-offs of encouraging state-owned infrastructure investment by Gulf partners along with a concern for China’s role as a global development actor. But in exchange, new Gulf leadership in defining an energy for development paradigm will have its own set of strategic priorities, privileging some partners and allies over others, and working with China in ways that will surely test US tolerance for shared technology and co-investment.
Originally published by Center on Global Energy Policy at Columbia University
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