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2024 was an especially turbulent and eventful year for the Middle East, even by the region’s notoriously volatile standards. The attacks of October 7th proved a catalyst for a chain of events that has seen the region engulfed in conflict, Iran’s ‘axis of resistance’ severely weakened, and the Al-Assad dynasty fall in Syria.
Despite the upheaval, key regional economies remain largely insulated from conflict in 2025, with Gulf states continuing to invest heavily at home and abroad to diversify their economies. Oil markets have priced in the geopolitical risk premium, shrugging off the prospect of regional wars and the disruption of key oil shipping lanes. Oil income (and a borrowing spree) have allowed Saudi Arabia to sustain lavish government spending on giga-projects and made the Public Investment Fund (PIF) one of the most acquisitive sovereign investors in the world.
While hydrocarbon exports remain the bedrock of government revenue, Gulf states are accelerating their investments in the non-oil sector, with a focus on renewables, high-tech, and infrastructure. The sheer fiscal demands of greenfield projects in regional economies, particularly Saudi and Egypt, require the attraction of foreign capital and expertise. Emerging Asia’s growing significance in advancing Gulf national visions has prompted a strategic pivot by the Middle East towards Asia. Unlike in the West, where a pivot to Asia often implies a more confrontational military and foreign policy towards China, in MENA, it reflects a focus on fostering deeper economic and strategic cooperation between the region and China.
As the US shrinks its security footprint in the MENA, with the withdrawal of US forces from Iraq, Syria, and Afghanistan – coupled with America’s focus on countering China’s rise – the Gulf has sought to diversify its economic and geostrategic alliances. Long reliant on a US security guarantee that seems increasingly called into question, the Gulf seeks closer ties with China and other Asian powers as a counterweight to US influence. The admission of the UAE and Egypt to the China-dominated BRICS+ group, as well as Saudi’s pending invitation to join the group, reflects this policy.
The Middle East pivot to Asia rests on the Gulf’s importance to Asian energy security, with the Gulf accounting for half of Asia’s oil imports. The proceeds from Gulf energy exports to Asia, in turn, help finance economic transformation plans at home. However, the Gulf-Asia nexus is moving beyond oil. Asian greenfield FDI in the Gulf, in projects ranging from new smart cities to solar parks, reached $26bn in 2023, dwarfing the figure from the US ($7bn). China alone accounted for nearly $18bn of last year’s total FDI into the Gulf. On current trends, Gulf-China trade will overtake Gulf-West trade in 2027, midway through Donald Trump’s second presidential term.[1]
China’s growing diplomatic role in the region, as demonstrated by Beijing’s success in brokering the normalisation of ties between Iran and Saudi last year, has meant that geostrategic ties have kept pace with the economic dimension of Asia-Gulf relations.
As the Gulf seeks to move from consumer to producer of technological breakthroughs, it has pursued greater high-tech cooperation with its Asian partners. This has not been without its geopolitical complexities. Cooperation between the Gulf and China on sensitive technology, especially AI, has drawn scrutiny from the US. Closer Gulf-China ties have fuelled US suspicions that Gulf states could help China circumvent US chip export curbs by serving as backchannels for China’s access to advanced US chips. Unlike in cloud and broadband, areas where the Gulf has been able to procure technology from both sides, US-China tensions over AI are creating pressure for the Gulf states to choose sides. The US national security community’s concerns over Microsoft’s $1.5bn investment in G42, the UAE’s premier AI firm, is a case in point – given the company’s history of cooperating with Chinese firms on AI research.
In the context of the US-China rivalry, the Middle East will become a focus of Chinese investment and economic diplomacy in 2025 and beyond. The Gulf, meanwhile, will need to walk a tightrope as it seeks to diversify its alliances and oil-reliant economy, while preserving the US security guarantee. In many domains, however, Asia-Gulf engagement will continue unhindered, allowing corporates and investors to benefit from one of the fastest-growing partnerships in the world.
Ahmed explores the Gulf states' strategic balancing act:
[1] Asia House, the think tank, projects that Gulf-China trade will grow from $225bn to $325bn by 2027, surpassing Gulf trade with Western economies.
The views expressed in this research can be attributed to the named author(s) only.