Ports and Politics: Sinking US-UAE Relations

Article excerpt

The attempted takeover of six US port terminals by Dubai Ports World (DPW), based in the United Arab Emirates (UAE), has strained the historically amicable US-UAE relationship. The future looks grim: a recent Gulf News poll reported 64 percent of readers claimed the deal's dismissal "changed their opinion for the worst" regarding investing in the United States. The rejection of the ports deal was based largely on vote-garnering political moves, and the economic barrier imposed by the US Senate does not bode well for future business and political relations with the UAE and other foreign investors.

DPW's expansion is an indication of the UAE's recent economic growth. Middle Eastern countries have managed to take advantage of global oil price hikes to produce an expected US$320 billion in oil and gas revenues in 2006. This period of sustained economic growth is starkly different from the region's last: in the oil boom that lasted from 1973 to 1985, much of the resulting revenue was saved in foreign banks. These banks in turn lent the funds to Latin American governments that could not repay their debts. As a result, the UAE's windfall oil revenues were effectively lost in the process. However, this time around, investors benefitting from the high price of oil in the UAE chose to avoid the low return of bank loans and instead placed their funds in more risky and lucrative investments. As a result of investing in capital markets in the Middle East, these investors provided for a period of sustained growth in the UAE and other Middle Eastern countries. Middle Eastern stock markets have produced soaring gains, with a 770 percent gain in Dubai's Financial Market Index since 2002. The booming economy and the diversification of UAE investor funds are fueling the sort of worldwide acquisitions that have recently thrust DPW into controversy.

When the US news media began reporting on DPW, US Congressmen and citizens were up in arms against the prospect of a UAE company owning US port terminals through their purchase of previous operator British P & O. In reality, foreign operation of American ports is hardly anomalous--the majority of US ports are foreign owned. In Los Angeles, for instance, only 20 percent of port terminals are domestically operated and managed. This seems to be a commonly overlooked fact, as US Senators Hillary Clinton and Robert Menendez have suggested a ban on foreign ownership of port terminals. Their proposal does not seem to provide a clear argument that DPW represents a threat to national security.

US politicians have regarded DPW's ports deal as politically significant. Senator Chuck Schumer even ventured to ask, "Should we be outsourcing our own security?" in order to simultaneously play on US citizens' fear of outsourcing of jobs and opening a port for terrorists. …