Western powers unveiled the new India-Middle East-Europe Corridor (IMEC) at the recent G20 summit as a major cross-border initiative for trade infrastructure, but also electricity, data, and hydrogen connectivity.
Backed by the United States and European powers, the initiative challenges China’s dominance both in South Asia and the Middle East, not least by seeking to position Saudi Arabia and the UAE more squarely in the western camp.
Energy will likely be the primary pillar of the initiative, but increased connectivity can yield significant other benefits on food security, supply chains and tourism. Saudi Arabia’s ambitions in particular go far beyond energy trade.
Implications for International Business
European businesses will benefit from increased connectivity to the Arab Peninsula and the business prospects of a vibrant region, as they can participate in infrastructure development and enjoy improved energy security. However, Indian manufacturers with their favorable access to the Gulf Cooperation Council (GCC) market will provide strong competition for European firms.
Despite the project’s geopolitical intentions, Chinese manufacturers are unlikely to be shut out of the Middle East anytime soon, not least as Saudi Arabia and the UAE continue to rely on them for advanced weaponry and nuclear energy.
State of Play
More than countering China’s ambitions
At the G20 summit in New Delhi in September 2023, world leaders announced an ambitious project to better link the Indian subcontinent to Europe via the Arab Peninsula. The India-Middle East-Europe Corridor (IMEC) aims to enhance connectivity and economic integration through a cross-border ship-to-rail transit network stretching from India via Saudi Arabia, the UAE, Jordan, and Israel up to Greece and Italy. While enhancing existing maritime and road transportation routes, the initiative will also build rail connections as well as new electricity, data, and hydrogen infrastructure. The multimodal transport and energy project is backed by both the United States and the EU, including France and Germany.
After the global infrastructure investment scheme “Build Back Better World” launched by the G7 in June 2022, this is the second US-led vehicle to counter China’s Belt and Road Initiative (BRI). The latter, now in its tenth year, has begun to suffer from fewer funds on the Chinese side and meager results on the recipients’ side. Still, the rationale for connecting world regions via the IMEC goes beyond a simple anti-China plot. Termed a “green and digital bridge across continents and civilizations” by European Commission President Ursula von der Leyen during the signing ceremony, the project is set to advance the United Nation’s sustainable development goals, in particular the green transition and digital connectivity. At the same time, it aims to boost economic cooperation between India and Europe as much as between the Gulf states and Israel. The Middle East in particular is conceived as a hub for economic activity, between Asia and Europe but also among its often-antagonistic neighbors.
No announcement on financing has been made yet. Instead, a working group of participating countries will develop more detailed plans, including on timelines and funding, over the next two months. As of yet, it is still only a Memorandum of Understanding between a diverse group of states.
Key Issues An economic initiative centering on the Middle East…
On the surface, IMEC can be seen as a response to the geopolitical and geo-economic challenge that China poses to the West. Some Middle Eastern countries, including Saudi Arabia and the UAE that are typically considered to be in the Western camp, have increasingly become economically reliant on China. By strengthening India’s relations with the Gulf and by tying the latter region to Europe in areas beyond hydrocarbons, IMEC could, in the medium term, undercut Beijing’s ability to project its influence there and reduce Europe’s exposure and reliance on China as well. The initiative also appears to serve other objectives. For one, it seeks to economically integrate Israel with its Arab neighbors from Jordan down to the Arabian Peninsula, which would in itself be a game-changer. Following up on the 2020 Abraham Accords, it should help to create an economic and infrastructure environment to advance the possibility of regional peace.
More substantially, IMEC reflects the deepening integration and rising power of the initiative’s main players, India, Saudi Arabia, and the UAE. It recognizes, and possibly formalizes, India’s ambitions to become a global power that can act as a counterweight to China, especially in Asia and the Middle East. IMEC also strongly positions Saudi Arabia and the UAE. Part of the BRI, both have rejected the idea of the multipolar world and do not subscribe to the idea of having to choose between the United States and China. Each will try to maximize their benefits from both sides, including by approaching China to provide goods and services where the West may not be forthcoming, such as advanced weapon systems and nuclear reactors. Their recent admission into the China-led BRICS group is a case in point. At the same time, Washington recently expanded restrictions of the export of semiconductors to a number of Middle Eastern countries. In the long-term, Saudi Arabia will especially benefit from its role as a major logistics hub, which it believes has been a major limitation in attracting manufacturers. IMEC will also benefit Jordan and Israel as transit countries. From a political perspective, increased trade integration could serve to stabilize the region and increase interdependence, both beneficial to Israel. However, such an outcome largely rests on a just and acceptable resolution to the Palestinian question. Jordan, in contrast, will find the project difficult to implement, given popular sentiment against any cooperation with Israel.
Other countries have been quite unpleased with the proposal. Turkey, the gateway between Asian and European markets in its own conception, immediately renounced the initiative. Pakistan, whose strategic importance to the GCC has been in decline for several years, most likely shares the sentiment but has been less vocal. Both also figure centrally in the BRI and very much depend on its economic success. Qatar has also been completely side-stepped in the initiative, and its isolation will be further exacerbated if natural gas becomes included in IMEC. Each of these countries, and others like China, will be tempted to undermine the initiative in their own ways. One major unknown is how IMEC will impact Egypt and the Suez Canal and whether IMEC will offer the country any benefits in return for a possible diversion of trade to other routes.
…that could shake up trade routes and markets
The initiative’s ambitions are comprehensive and forward-looking, with the possibility to change trade patterns at global level. Energy will be its main pillar, at least in the short-term, from the export of clean energy to the laying of undersea cables and by linking energy grids to expand reliable access to electricity. Europe as well as India are major customers of the region’s oil and gas, but adding hydrogen to the equation is set to open new markets. Europe, in particular, will benefit from increased connectivity and energy security through IMEC. In addition, participating nations envision to expand existing trade and manufacturing to spur the creation of quality jobs while strengthening food security and supply chains, Establishing telecommunication lines to connect communities across the corridor to a secure and stable Internet will boost both business and people-to-people ties. Once implemented, IMEC is likely to increase connectivity, trade, and tourism at large.
Ultimately, the initiative’s prospects clearly rest on how much – fresh – funding it can mobilize, including from the private sector, and how quickly it can progress. If IMEC takes off at the moment that BRI loses steam, it could further bifurcate international trade and investment into competing blocs, reflecting the multipolar world emerging after decades of US-led globalization. Such a future could see a Chinese sphere of influence in Central Asia and Africa, where it is already quite well established, and an American-led one in South Asia and Europe. Regions like the Middle East and Southeast Asia will likely be contested regions that will try to please both sides.