THO Interview with Prof. Nader Habibi

Nader Habibi is the Henry J. Leir Professor of the Economics of the Middle East, in the Crown Center, and Senior Lecturer in the Department of Economics. You can read more about Prof. Nader Habibi here.

THO: I would like to talk about the recent report that you have written on economic relations between Turkey and the Gulf States. 

Prof. Habibi: This report is about ‘how the Turkish policy during the Qatar Crisis has affected its economic relations with the other Gulf States with a specific focus on Qatar, Saudi Arabia and the UAE.’ What I ask is whether the political tensions between Turkey and Saudi Arabia have lead to  a significant amount of decline in their economic relations or not? During and after the assassination of Khashoggi. Ever since the AK Party came to power the economic relations between Turkey and the Arab states have expanded greatly. This has been good for everyone. While I was writing this report I have looked at tourism, investment and trade.  

The findings are that although the diplomatic and political relations are tense between Turkey and Saudi Arabia and Turkey and UAE economic relations haven’t displayed serious sharp declines. The number of Saudi tourists in Turkey have increased in 2017-2018. Although the foreign direct investment numbers have declined in 2017-2018, we would have expected a much more significant break, but we don’t see that.  Also businessmen on both sides are interested deeply in doing business. This is quite a surprise. We don’t see much of that in 2018. Foreign direct investment to Turkey dropped but when it comes to Saudi interest in real estates in Turkey we don’t see too much of a decline there. However, when we look at trade rates between Turkey and UAE the decline is more sharp. Turkey was using UAE as re-export center, just like China and other countries, the trade volume there was 9 billion in 2016 and it sharply declined to 3 billion in 2017.

However, in 2019 because of these tensions between the Saudi Kingdom and Turkey, Saudi government has started a negative campaign against trade, travel and investment in Turkey. Many reports came out in the media that stated that Saudi citizens those have purchased real estate in Turkey were tricked and the media discouraged buying real estates in Turkey. Saudis are revising their textbooks that the images of Ottoman Empire is shown much more negative than before. There are many negative campaigns on social media by ordinary Saudi citizens boycotting Turkey and it still continues. Recently, Saudi Arabia and the UAE have showed strong reactions against Turkey’s northern Syria operation.


THO: If the free trade agreement signed between Turkey-Syria-Lebanon-Jordan in 2010 wasn’t interrupted with the civil war in Syria what could have happened now?

Prof. Habibi: The zero problem policy was a good thing. The regular annual meetings between Turkey and these countries were productive. The trade in Gaziantep expanded so significantly. This could have been very significant for creating broader economic influence ad integration in the region. But of course this is hypothetical but everything is disrupted with the Arab Spring and Syrian civil war. 


THO: How do you see the future of the region?

Prof. Habibi: Unfortunately the foreign interventions are likely to continue, they are not going to serve stability, contrary the foreign interventions increase the instability. Another thing is neither the regional powers nor the great powers see any incentives to end these calamities going on in Syria and Yemen. These ongoing conflicts have no direct costs to the EU or the USA. 

It is not resulting in any direct confrontations among the great powers. So, I don’t see any major incentives for Western powers to involve. The more interesting thing is now we are witnessing the new conflicts, new internal tensions in the region. Given what is going on in Iraq and Lebanon where sectarian divides are deep and divides the power in hands. 


THO: You mentioned economic incentives. In that respect, what the US got out of Iraq and Afghanistan wars?

Prof. Habibi: I don’t think these wars were motivated with any sort of economic incentives, they were more political incentives and geopolitically oriented military operations. But economically these wars were extremely costly. There was a sense after 9/11 to punish those who are against the US interests in the region. The regional powers, Saudi Arabia, Turkey were all against the operation in Iraq. If you are removing a Sunni oriented power in a country that has 60 percent Shia population, afterwards in any kind of democratic elections Shias will come to power and they will dominate the politics. The Bush administration believed that they can remove Saddam and create a democratic regime in favor of the West. But the outcome of invasion is a sectarian civil war. Iran has gained influence. 


THO: I want to ask about the energy security in the Persian Gulf. The policymakers in the West concern about Iranian blockade of the Strait of Hormuz that would hit the world economy greatly by rising oil prices drastically. Do you believe such a scenario can happen?

Prof. Habibi: No, I don’t think so. Iranians can not do such a thing. They know very well that the US military power is so greater than the Iranian presence in the region, and the US and the international community will end the blockade. This could lead to a major military defeat for Iran. This could have serious consequences for the Islamic regime even put the regime at risk. So, they are fully aware that military power of the US is far superior to Iranian military power in the Gulf. They may block it for a week or two but no, nothing serious they can do. They can't block the Strait of Hormuz for a long time. Another thing is may be even more important if the Iranians block the Strait of Hormuz, it primarily will harm the Asian economies, particularly  China which is an ally of Iran. The US is self-sufficient in oil, even now exporter. Therefore, that means for Iranians is that they would experience a harsher opposition to such an act from Asia. As a defensive response, if the country is invaded, they may do it. They make the claim but it is not serious. The concerns in the West is exaggerated. The consequences for Iran would be far worse.


THO: Many studies show that oil will be depleted in a few decades in many Middle Eastern countries. How the political transitions will take place afterwards? How will those undemocratic regimes survive?

Prof. Habibi: The amount of oil reserves varies from country to country. Some of them are likely to run out of oil faster; Bahrain and Oman. Saudis still have significant amount of oil reserves. However, they are all aware that not only the fact that they will run out of oil, but that because of the environmental concerns the demand for oil may decline. Therefore, the revenues will decline significantly. Because of this awareness they all are working on economic diversification programs. Saudi’s Vision 2030 which involves developing all kind of industries to reduce the dependency on oil revenues. To what extent it may be successful that is doubtful. The cost of production in these countries are relatively much higher. They all are dependent on outside sources. Manufacturing is not as efficient as Asian countries, so it would be hard to compete globally in production and manufacturing.