ARTICLE: “Asia Finding Rich Partners In Mideast,” by Heather Timmons, New York Times 1 December 2006, p. C1.

Fascinating bit showing how Asia’s increasing resource pull on the region is changing everything. Still our blood, but now both their oil and their petrodollar recycling. Nothing speaks to the reordering of the global economy more than this, because it shows how the rise of the New Core has effectively shoved it between the oil-rich states and their usual target for petrodollar recycling--the Old Core West. What was traditionally shopped around in London and New York in terms of public offerings of Chinese companies is now quite often offered up exclusively to the Saudis and other Middle Eastern investors. It starts, this relationship, at the top:

While China has long sought to cultivate closer ties with Saudi Arabia and other Persian Gulf countries because of its need for oil, a tour of China, India and other Asian countries this year by King Abdullah of Saudi Arabia and a state visit to Riyadh by President Hu Jintao in April have done much to encourage nonoil financial transactions between the countries.

HSBC calls this new flow “east-east” transactions, or from “mid” to “far,” I say. So now the oil-rich Middle East recycles through the New Core East and the New Core East, in turn, recycles its trade surplus with the Old Core West. In short, we’ve been disintermediated. Not a bad thing. In fact, a rather nifty expression of the “economic reformation” dynamic I described in BFA (plus a Knoxville column way back when; plus a staple slide in my current brief) that links the “lead geese” in Islamic Asia to the local replicators in the Middle East (one thinks naturally of Qatar, starring in the role of “Singapore”). It is estimated that the Middle East will buy upwards of $20-30 billion dollars of Asian assets next year, compared to just $3.2B of U.S. assets this year (excluding the “nefarious” private equity firms). Quick, somebody tell Michael Moore his soda-straw view of global energy finance is now both wrong and hopelessly outdated! What’s interesting it that this east-east stuff is actually increasing Western banks’ profile in both ends of this dyad: they want to be more present in the Middle East to get in the way of this money flow and in the Far East to do . . . well . . . the same:

… bankers who work in the Middle East and Asia say they are looking at a promising pipeline of pending mergers, and negotiations are just beginning on dozens of others. “We’re definitely seeing a big jump in terms of deal flow between the Middle East and Asia, and Southeast Asia and China in particular,” said Georges Makhoul, president at Morgan Stanley for the Middle East and North Africa.

No secret as to why this flow picks up:

The Middle East’s oil and gas is vital for China, Japan and all the fast-growing markets in the Asia-Pacific region. And the Middle East’s capital and liquidity generated by all that oil wealth is searching for investments with high returns, rather than low-return government bonds like United States Treasury securities.

Quick! Somebody tell Tom Friedman that China is funding both sides of the war on terror! “Yes,” says the Chinese magnate years later, “your point is both true and completely irrelevant.” I say again, lock in China at today’s prices. In the end, this growing connectivity between Asia and the Gap Middle East is good and welcome and inevitable. The thicker the ties, the better the connectivity.

A number of countries in the Persian Gulf and the Gulf Cooperation Council have developed an Asia strategy that looks far beyond energy trade, noted the former OPEC director of research, Adnan Shihab-Eldin, in a report prepared for an International Monetary Fund meeting in Singapore this September. Already there are several free trade agreements pending between the gulf council and China, India and other Asia countries. They are expected to be signed long before a free trade agreement between the gulf and the European Union, he said. Trade between the Middle East and Asia more than doubled from 2000 to 2005, reaching $240 billion last year. That number reflects rising oil consumption and prices, but it also includes a tripling of exports from China, India and Pakistan to the gulf. Asian countries, particularly China and India, have made their own strategic plans clear in the Middle East as well …

As I have said many times before, the U.S. alone cannot possibly hope to connect the Middle East to the world, even as the Big Bang strategy of shaking things up grabs most of the headlines and--yes--even pushes it a bit as our aggressive approach in the region surely drives the Chinese toward closer ties to what they consider to be the most stable regimes in the region. So yeah, the Middle East is joining the world, and the more it interacts with Muslim emerging markets in Asia, the better the positive influence these “lead geese” have on the region’s evolution.