Sec A – Group 2Arani Das (10A)

Lekha Kamath (23A)Saman Nayyar (40A)Soham Gandhi (50A)

Vishwadeep Mishra (55A)

International Trade Logistics – Term Paper

Introduction (Lekha Kamath – 23A)

Just over two centuries since Napoleon's arrival in Egypt heralded the advent of the modern Middle East -- some 80 years after the demise of the Ottoman Empire, 50 years after the end of colonialism, and less than 20 years after the end of the Cold War -- the American era in the Middle East, the fourth in the region's modern history, has ended. Visions of a new, Europe-like region -- peaceful, prosperous and democratic -- will not be realized. Much more likely is the emergence of a new Middle East that will emerge as one of the key regions playing an important part in world trade. All the eras have been defined by the interplay of contending forces, both internal and external to the region. What has varied is the balance between these influences. The Middle East's next era promises to be one in which outside actors have a relatively modest impact and local forces enjoy the upper hand -- and in which the local actors gaining power are radicals committed to changing the status quo. Trade and logistics of the region is impacted by a number of factors, some of the most prominent ones being Geopolitics, Government Regulations, Foreign Relations, World Economy, Infrastructure Development, Skilled Workforce, Secured Supply Chain, etc. The impact of each of these factors on trade of Middle East has being examined in detail in the subsequent parts of this paper.

World Economy (Lekha Kamath – 23A)

The economy of the Middle East is very diverse, composed of Bahrain, Cyprus, Gaza Strip, Egypt, Iran, Iraq, Iraqi Kurdistan, Israel, Jordan, Kuwait, Lebanon, Oman, State of Palestine, Qatar, Saudi Arabia, Sudan, Syria, Turkey, United Arab Emirates, and Yemen. Collectively, the region is best known for producing and exporting oil. The oil industry significantly impacts the entire region, both through the wealth that it generates and through the movement of labor.

In the Middle East, growth is expected to remain flat at 2.2% in 2015, according to the June 2015 issue of Global Economics Prospects. The plunge in oil prices is a particular challenge for oil-exporting countries, most of which also have severe security challenges (Iraq, Libya, and Yemen) or limited economic cushioning (Iran, Iraq). For oil-importing countries, the potential positive effects of lower oil prices are partially offset by spillover effects from more fragile countries in the region, including through lower remittances and security risks. Long-standing structural constraints present a chronic obstacle to faster growth in the region. The expected regional growth rebound to 3.7% in 2016-17 is predicated on improving external demand, strengthening confidence that boosts investments in some oil-importing countries (Egypt, Jordan).

According to Middle East Consumer Confidence Index Research, March 2015 close to a quarter (24%) of respondents believe that their country’s economy has improved relative to the past 6 months, while over one third (35%) think it has gotten worse. Those in Syria were the most negative about their country’s economy with 83% of them thinking it has receded as compared to 6 months prior. 38% of respondents expect the economy in their country to improve in the next 6 months, while a quarter expect it to get worse. Half of respondents expect business conditions in their country to improve in the next year. Respondents from Syria tended to be more pessimistic about future business conditions with about half of them (49%) thinking it will get worse.

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International Trade Logistics – Term Paper

Government Policies (Arani Das – 10A)

Middle Eastern countries, being substantially open economies, face the brunt of increasing protectionism during economic crises and their world trade as a result is considerably affected. UAE is faced with the highest number of discriminatory trade measures, followed by Saudi Arabia, Iran, Oman, Jordan, Kuwait, Syria, Lebanon, Bahrain, Qatar and Iraq. Moreover, the nature of discriminatory measures further confirms the increasing protectionism across the world, which could considerably hinder the Middle East's world trade in the near future. Apart from trade distorting measures such as export restrictions, export subsidies, tariff measures, non-tariff barriers, technical barriers, and trade defense measures, Middle East countries also face negative investment measures undertaken by the rest of the world.

While Middle East countries in general are confronted with an increasingly discriminatory trade environment in the aftermath of the global economic recession, they are not undertaking substantial counteractive measures in relation to international trade. Middle East countries need to reorient their trade strategy to address the increasing proliferation of trade discriminatory measures across the globe. In this respect, Middle East countries should take the lead in projecting a collective face at the various multilateral forums, such as the G-20 and WTO, urging better surveillance, monitoring and a more enabling multilateral trade regime. Moreover, countries should also intensify economic integration at the broader pan-regional level in the Middle East, which could provide greater bargaining power at the global level. While trade diplomacy in the region is still at its infancy, multilateral bodies such as the WTO should also help to improve capacity building in the region.

Infrastructure Development (Arani Das – 10A)

Middle East has had top notch infrastructure development in terms of development of roads, rail networks, airports, sea ports, cities and trade hubs. Some of the important initiatives have been:

Mashreq Trade Corridors Cairo-Dakar Highway Euro-Asian Road Links through Middle East Euro-Asian Rail Links through Middle East

Dubai today is the most favored trade destination handling a bulk of direct and indirect trade due to superior port and other trade facilities developed through superior infrastructure.

Foreign Relations (Arani Das – 10A)

The U.S. MEFTA initiative started in 2003 with the purpose of creating a U.S. Middle East Free Trade Area by 2013. The U.S. objective with this initiative has been to gradually increase trade and investment in the Middle East, and to assist the Middle East countries in implementing domestic reforms, instituting the rule of law, protecting private property rights (including intellectual property), and creating a foundation for openness, economic growth, and prosperity. The single largest hurdle to MEFTA is the inclusion of Israel. Additional complications exist in getting agreements between the US and nations like Iran and Syria. Complications could still exist in getting trade with Lebanon and the Palestinian Authority given continuous Israeli control of occupied territories, and the actions of militant groups such as Hamas and Hezbollah.

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International Trade Logistics – Term Paper

Geopolitics (Saman Nayyar – 40A)

Conflict in Yemen

Saudi Arabia launched air strikes against rebels attempting to increase their power in the government of neighboring Yemen. This conflict has the worrisome potential of escalating into a full-on regional war between Sunni and Shia Muslim factions – which could spiral into a wide-ranging war without borders.

Oil prices jumped 5%, the day the airstrikes began. Since then, oil has shed about 7% over the 3-day period leading up to the deadline in the Iran nuclear talks.

Iranian Nuclear Deal

The so-called "P5+1" nations (U.S., Britain, France, Germany, Russia, and China have only recently reached an understanding with Iran’s negotiators. It is known as the Joint Comprehensive Plan of Action.

Iran has the potential to bring more oil production onto the world’s markets, lowering the price of crude oil. Estimates range from 500,000 barrels per day within 6 months, to 1.2 million within 18 months.

Iraq Conflict & Rise of ISIS

The rise of jihadis in Iraq and Syria is disrupting trade routes across the Middle East as trucks queue at borders, food and energy prices increase and exports falter.

Because of fighting in Iraq, and neighbouring Syria, where ISIS also holds territory, many Turkish exports to the Gulf have been diverted to roll-on roll-off ferries from the Mediterranean port of Iskenderun and onward to Egypt or through the Suez Canal to Saudi Arabia. A few also disembark at the Israeli port of Haifa to access the Jordanian market, although this route gives only limited access to the Gulf, where imports passing through Israel are banned.

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International Trade Logistics – Term Paper

Skilled Workforce (Soham Gandhi – 50A)

The large scale international movement of manpower is one of the most dramatic effects of the oil price rise about a quarter of a century ago and the related events thereafter. Today Middle East is characterized by immense workforce issues, namely:

Labour migration first took place within the region but today mainly comes from other developing countries, namely South and East Asia

It is composed of both skilled and unskilled labour Labour movement is temporary in nature, generally from one to four years It is generated and maintained by underlying economic and political forces that create the

incentives for movement and the regulations for controlling the flows The migration dynamics incorporate decisions made by different stakeholders, namely

individuals, industrial firms and government The supply and demand of labour place pressure on respective governments for policy

responses to regulate and facilitate the movement of labour across national boundaries

Supply Chain (Soham Gandhi – 50A)

For those businesses that are operating in a subdued economic environment in their home market, the Middle East region could offer significant opportunities across a range of sectors. Middle East has a secured supply chain, bolstered by several national governing bodies and chambers for promotion of trade through supply chain management. This coupled with high level of infrastructure development, transport connectivity and port facilities have helped in smoothening out the supply chain. The focus is now slowly shifting away from oil trade and as such reliance on supply chain security is increasing in other sectors like construction, retail and food and drinks. All stakeholders are adequately integrated giving rise to a well maintained supply chain and this has facilitated trade further in the Middle East.

Future Outlook (Vishwadeep Mishra – 55A)

According to an HSBC survey, Trade Confidence Index, which gauges views of traders, jumped 9 points to 141, the highest in the Middle East since 2009 ( Any score above 100 indicates positive outlook and the global average is 113)

83% people expect trade volumes to pick up in next 6 months, while 49% anticipate immediate pickup in trade

While oil trade will be crucial in determining Middles East’s trade position, infrastructure, construction, tourism, retail and government investment in technology will be main drivers for growth of Middle Eastern trade

India and China will remain the Middle East’s fastest growing trade routes till 2030; By 2030, India will overtake Japan as UAE’s leading export destination

Dubai’s successful bid to host Expo 2020 will help in infrastructure growth in the region; Turkey and Saudi Arabia will become increasingly important players in the Middle Eastern trade front

China, India and South Korea will remain Middle East’s top export destinations; India would continue to be Egypt’s top export destination until 2030, with the USA, Turkey and Saudi Arabia remaining significant trade partners in the days to come

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International Trade Logistics – Term Paper

References

1. https://www.foreignaffairs.com/articles/middle-east/2006-11-01/new-middle-east 2. Global Economic Prospects June 2015 (World Bank Publication) 3. Economic Recession and the Middle East’s World Trade: Recent Policy Trends and

Implications – Samir Pradhan, Gulf Research Centre, Dubai4. Infrastructure Investments in the Middle East and North Africa – UFRGS Model United

Nations Journal5. https://en.wikipedia.org/wiki/U.S.–Middle_East_Free_Trade_Area 6. https://is.cuni.cz/studium/predmety/index.php 7. Geopolitics of the Middle East – Global Connect, University of California, Irvine 8. http://web.mit.edu/polisci/nchoucri/publications/articles/

A10_Choucri_Migration_Middle_East.pdf 9. https://globalconnections.hsbc.com/uae/en/articles/truly-dynamic-region

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