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06/04/18

The Foreign Policy Implications of Kuwait's Vision 2035: Closer Economic Ties with Iran and Iraq

By Nader Habibi

Kuwait's Vision 2035 economic development strategy will have important implications for its diplomatic relations with its Persian Gulf neighbors.  It will compel Kuwait to give a high priority to economic diplomacy in its international relations and invest more diplomatic resources in containing the Iran-Saudi tensions and maintaining good relations with Iraq and Iran. The reason lies in a key component of Vision 2035, called the Northern Gulf Gateway.


Kuwait's Vision 2035 

The Northern Gulf Gateway (NGG) is a collection of several infrastructure mega-projects that are intended to transform the relatively underdeveloped northeastern coastal region of Kuwait into a major commercial, tourism, and logistics hub. Two main components of the NGG are the Silk City Project and the Bubyan Island container port project. The scale of these two projects in Vision 2035 is so large that the NGG economic zone is intended to serve not only the Kuwaiti economy but also Kuwait's large northern neighbors.

The Silk City project (with an estimated cost of $130 billion) will house up to 700,000 residents and its economic viability is based on the expectation that it will serve as a major business, entertainment and tourism magnet for the gulf region. Since it is close to Iran and Iraq, tourists and businesses from these two countries are the most suitable target group for Silk City. The government of Kuwait is actively trying to attract private investors to this project and work is also underway on the 36 km long Sheikh Jaber Causeway across the Bay of Kuwait, which will connect the Silk City to Kuwait's capital, Kuwait City. A short distance from  the Silk City, the Bubyan Island container port (with an estimated cost of $16 billion) is projected to handle up to 3.6 million TEUs (20' container units) per year.

While the completion of the Silk City and Bubyan Island economic zone will take several years, Kuwait has to demonstrate a commitment to a moderate and trade-oriented regional foreign policy while the project is under construction in order to attract private investors. Vision 2035 calls for an active role for private investment, and private investors will be reluctant to participate in any NGG projects if they worry about underutilization and low profitability of these projects because of geopolitical tensions.

Good relations with Iraq will have an added significance for Kuwait because of the Iraqi government's plans to construct its own commercial and container port in Al-Faw Peninsula, which is separated from Bubyan Island by a narrow waterway. Similar to Kuwait, Iraq also plans to develop the Al-Faw commercial port with a large capacity to serve as the country's main container port. If Kuwait and Iraq both develop their container ports without any coordination and according to their projected plans, both projects will suffer from over-capacity and underutilization. Political instability and struggle against the Islamic State has distracted the Iraqi government from moving forward with the Al-Faw project until now, but the recent success of Iraq's central government in defeating the Islamic State and asserting more control over the autonomous Kurdish regions has allowed it to pay more attention to large-scale development projects such as the Grand Faw Port project.

Ironically, the Iraqi government presented this project to potential private investors in the Kuwait International Conference for Reconstruction of Iraq, which was held in Kuwait City in February 2018. In a positive development, Kuwait and other GCC countries have shown an interest in supporting Iraq's reconstruction efforts if the Iraqi government scales down its relations with Iran. This policy stands in sharp contrast with earlier policy of GCC countries which centered on empowering the Sunni opposition groups against the shi'ate dominated Iraqi government. This GCC-Iraq rapprochement will give Kuwait more opportunities to expand its economic relations with Iraq and achieve better coordination in development of Bubyan Port.

Maintaining good economic relations with Iran is more significant for the economic viability of Silk City than the Bubyan Port.  Iran's Shahid Rajaee container port  (in the Strait of Hormuz) has a 3.3 million TEU capacity but the government is also developing another large commercial port  in Chabahar, with financial backing from India. Chabahar's capacity is projected to reach 2.5 million TEU in its final stage of development.  It is intended to serve as the main seaport for the North-South Transport Corridor, which will connect Central Asia to the Gulf of Oman and Indian Ocean.

These port development projects in Iraq and Iran will pose a serious competition to Bubyan Port for logistics services but their development is likely to face many risks that do not threaten the Bubyan project. Political instability can cause delays for these mega projects in both countries and Iran's geopolitical tensions with the United States can pose even more serious risks to it's plans for the Chabahar port. As long as the hostilities between Iran and the United States continue, the U.S. is likely to pressure India to delay its investment commitments in the Chabahar project.    

Kuwait's Silk City can serve as a tourism and investment hub for Iraqis and Iranians in the absence of diplomatic tensions between these countries and Kuwait. Citizens of Iran and Iraq frequently travel to nearby destinations such as Dubai and Istanbul for vacation and access to a diverse range of entertainment opportunities. Since the Silk City's development plan includes a major cultural and tourist zone, it can offer many attractions to Iranians and Iraqis as an alternative to other regional tourist destinations. Furthermore, the Silk City will be easily accessible from Iraq and Iran by land and sea transport, which will be less expensive than air transport to more distant destinations.

The Iranian and Iraqi investors will also be attracted to Silk City if, similar to Dubai, it is managed as an economic free zone with an efficient regulatory environment - something that so far has been lacking in both countries. It appears that Kuwait is already moving in this direction and plans to manage Silk City as a free economic zone with an efficient and pro-investment regulatory regime for attraction of foreign investors.    

Hence, Kuwait's success in attracting private investment for the Northern Gulf Gateway project and the economic viability of this project upon completion, will demand good diplomatic relations with Iraq and Iran. This will not be an easy task in the turbulent geopolitical environment of the Persian Gulf. The ongoing Iran-Saudi rivalries, and Kuwait's strategic and security alliance with the United States can create tensions between Kuwait and Iran. At the same time, as Kuwait invests more resources in the NGG project, it has a strong incentive to encourage the Iraq-GCC rapprochement, intensify its regional de-escalation efforts and try its best to remain neutral in the Iran-Saudi proxy war.  

In this context the outcome of Iraq's May 2018 parliamentary election, in which the factions that advocate better relations with GCC countries performed well, must be welcomed by Kuwait. Since strong economic ties between Kuwait and its northern neighbors is in Iran's geopolitical interest, Iranian policymakers must also welcome the potential for better relations between Iraq and Kuwait. If Kuwait develops more economic interdependency with Iran and Iraq, it is more likely to resist Saudi Arabia's efforts to isolate Iran. 

 

About the author: *Nader Habibi is a faculty of the department of economics in Brandeis University with concentration on the economics of the Middle East. He is also affiliated with the Crown Center for Middle East Studies in Brandeis University. 

... Payvand News - 06/04/18 ... --



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