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Jennifer Nix

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Unconventional Wisdom on Dubai

Posted: 09/16/09 01:23 PM ET

Most progressives view the Dubai Ports World uproar as one of the only times the Bush Administration bent to the will of the people, backing down from allowing the Emirate-owned business to take over management of several major ports along the U.S. eastern seaboard.

A new book, City of Gold: Dubai and the Dream of Capitalism paints a very different picture of the events and politics leading up to the nixing of the Dubai deal, and most squarely lays blame for anti-Arab hysteria surrounding the deal at the feet of two Democrats: Sen. Charles Schumer and Secretary of State Hillary Clinton (both were New York Senators at the time).

While this argument is likely to draw fire from HuffPost readers, this unconventional wisdom is worth a read, particularly as the U.S. seems poised to begin talks with Iran, and to repair relations with Arabs and Muslims after the Bush debacle in Iraq. It appears the United States could learn much from the way Dubai is able to have strong, symbiotic relationships with the U.S, Iran and even Israel, through a diplomacy of tolerance (both public and private) and a belief that business can sometimes achieve what politics cannot.

The book is a lively and meticulous take on Dubai's "wild ride" from small desert village to the cosmopolitan "City of Gold" inhabited by two million residents from two hundred countries, and a place often touted as a blueprint for a more stable Middle East.

Written by Jim Krane, a former Persian Gulf correspondent for the Associated Press, the book brings Dubai's successes, failures and many contradictions to life, and this reader was both delighted and disgusted by what Dubai has accomplished -- what Krane calls "a journey that was more exciting than anything the Arabs had done in seven hundred years."

With face-to-face talks between the U.S. and Iran (and five other nations) now looming on the horizon, Krane's chapter on Dubai's ties with the U.S. and Iran is particularly timely. Krane reveals that the CIA has long run a spy operation targeting Iranians who present themselves at the U.S. consulate in Dubai to apply for visas. "The Iranians are pumped over and over for sensitive information on their government and military -- and anything deemed interesting - with the prospect of a visa held out in return for cooperation," Krane told me by email.

"The CIA operation became so lucrative, in fact, that the agency stepped in to save the Dubai U.S. consulate from closure. The State Department tried more than once to shutter the consulate, mainly for budget reasons. But with hundreds of Iranians coming every day to be monitored, interrogated and, sometimes recruited into spying on their own government, the CIA argued that cuts needed to come elsewhere."

Krane spent several years in Dubai. He movingly evokes what life is like and introduces the reader to business titans, prostitutes and rulers, the rare Dubai natives and the nearly-slave-labor immigrants who are building the city's flamboyant skyline. Krane's reporting is even-handed and complex -- which is exactly why his telling of the Dubai Ports World story made me stop to think.

I sent a few questions to Krane in Cambridge, England, where he's now studying. His answers appear below.

HP: I was surprised to learn that Dubai's oil boom is over. How have they financed such astronomical growth?

JK: Dubai's modest oil deposits, discovered in 1966, were a shot in the arm for its economy. The ruling Maktoum family used the oil to overbuild the city's infrastructure -- ports, roads, bridges, airport, airline -- to prepare itself for the future. Dubai diversified because it had to. Its oil deposits were too small to support it for very long.

The emirate's reserves are nearly dry. Oil exports provide less than 5 percent of GDP. Dubai is thus the first post-oil economy in the Middle East. Much more important is tourism, worth about a quarter of the economy; real estate and construction, which, before the crash, were also about a quarter of the economy; then comes trade, and business and financial services.

The city is a prime destination for foreign investment, and has grown totally dependent on the global economy. When that global economy moves into recession, as it has now, Dubai's engine stalls. And Dubai may be nearly out of oil but it isn't as independent of oil as it likes to think. The city's fortunes are still linked to Gulf oil and its selling price, and so its vaunted diversification is of limited use. When oil prices are high, the surplus cash in Saudi Arabia, Kuwait, Qatar and Iran gets plowed into Dubai real estate and other ventures. When the price drops, the surplus dries up and Dubai falters. The cyclical boom and bust typical of oil export economies still plays out in Dubai.

The book is full of the vast contradictions that Dubai represents. Can you share those that strike you most?

Dubai is probably the world's most cosmopolitan city, and it sits in the least likely region for such a polyglot place.

Ninety-five percent of its residents are foreigners and they come from pretty much every country on earth. Nearly 75 percent are men. They live amid a remarkable atmosphere of tolerance, with broad social freedoms. Prostitution is tolerated, alcohol is freely available, and Christians, Hindus, Buddhists, Jews and others are able to live and worship freely.

Yet it is a Muslim-ruled city in Islam's heartland, one of the least democratic and most conflict-prone places on earth. The countries surrounding it are some of the world's most conservative. Across the border in Saudi Arabia, women are kept strictly separate from men, veiled and banned from driving. In Iran, across the Gulf, headscarves and segregation are mandatory as well. That Dubai can survive while utterly rejecting -- even flouting -- these conventions, strikes me as a brave and lonely stance.

Dubai also exhibits one of the widest wealth and education gaps on the planet. Children of illiterates have PhDs. People who grew up in palm shacks and pissed in an outhouse grew up to be billionaires, zipping off to shop in London by private jet.

Dubai's leadership, in fact, is made up of men who grew up in extremely primitive conditions. Even Sheikh Mohammed, the ruler, was raised in an old coral-and-mud fort without running water or electricity. It is remarkable that these men, the product of ancient Bedouin traditions that are utterly non-urbane, have concocted a city that can attract the likes of Paris Hilton and Robert DeNiro.

One way of thinking about the magnitude of this is to imagine that the American Indians or Aboriginal Australians had built a city that rivaled London back in the 1600s or 1700s.

There are plenty of other contradictions: Much of the ostentatious wealth that frames the city's image stems from Robber Baron-style labor abuses that look much like slavery. The men building Dubai live in squalor and discomfort, toiling in the world's fiercest heat for a few dollars a day. Dubai is utterly unkind to these men. Far too many die on the job. Those maimed for life may not even get a disability payment. These men get none of the recognition for their feats that, say, the New York City ironworkers did in the 1920s. When their shifts end, they are shunted to out-of-sight camps in the desert. The abuses of these laborers allows local property barons, including members some of Dubai's wealthiest families, to keep labor costs so low that they earn inordinate profit margins that would be impossible elsewhere.

You write that this "world's fastest city" and UAE have the worst per capita ecological footprint in the world. And that, ironically, one of the world's most energy-rich nations is short of power. Can you shed light on this dichotomy? Are there ways the U.S government can push Dubai toward being more responsible energy users?

The average resident of Dubai produces more strain on the environment than even the average American. It takes incredible amounts of energy to support human life in Dubai. The fact is, it's a terrible location for a big city, about as unsustainable as it gets. Dubai can't exist without water or air conditioning. Both require vast amounts of energy. Nearly all of its fresh water has to be distilled by boiling seawater. This requires huge amounts of natural gas. And every structure, even curbside bus shelters, has to be air conditioned most of the year to be rendered usable. If that weren't enough, the government subsidizes energy so much that people waste it.

Since the government is a tribal autocracy that doesn't allow its citizens the right to vote, it seeks their support by offering a cushy lifestyle. Part of that deal is cheap -- or free -- energy. But Dubai's squandering of energy has led to demand increasing so quickly that even the vast hydrocarbon resources of the Persian Gulf aren't enough to keep it running. There now isn't enough natural gas available to meet peak power demands. Already, new malls and apartment buildings can't be connected to the overburdened grid. Dubai and its neighbors are looking for new sources of energy. Coal, the only fossil fuel not found in Arabia, is one. Nuclear power is another.

The USA -- which, after Dubai and the UAE, is the world's No. 2 carbon emitter -- can help. The UAE has asked Congress to approve sale of US nuclear technology. Rather than turbo-charging the UAE's squandering of electricity and water, Congress should hitch the nuclear deal to an energy conservation regime that pushes Dubai to reduce its carbon emissions. Energy conservation advice may sound ridiculous coming from the world's largest overall polluter, but there it is.

What has been the effect of the global financial meltdown on Dubai?

If there was ever a symbol for the overindulgent era we just left behind, Dubai is it. In 2002, the city was the size of Milwaukee. Over the next six years it sprouted fanciful skyscrapers, islands and malls, quadrupling in area and doubling in population. By the time it crashed late last year, Dubai had reached the size of Houston.

The crash has brought good effects and bad. On the good side, the city has finally earned some breathing space to digest the huge array of new neighborhoods and to get them linked in a coherent fashion that resembles a functioning city. The crash also halted some of the most ridiculous projects ever concocted: The desert snow dome, artificial islands as large as Manhattan, the new entertainment district with dozens of hotels and mega-theme-parks.

But it has also launched a cascading series of bankruptcies and lawsuits that have spotlighted Dubai's immature legal system. The city lacks the courts and laws to deal with complex international property disputes. So it simply locks people up until it can sort out their cases. Sometimes this takes a year or longer. City jails have become debtors' prisons. It's going to take a long time to sort through this mess. A lot of people made a lot of money on the boom that ended in October. But it will take years to deal with those left holding their hot properties when the banks seized up.

The crash also revealed the weakness of Dubai's economic diversification. Its economy is dependent on foreign investment and decisions - or economic conditions - outside its control. When things get bad in Europe, for example, things get bad in Dubai. There's nothing the sheikhs can do about it.

Where does Dubai figure in the terrorism equation? How do they balance the violence and warfare in their neighborhood -- and al-Qaida's wrath -- with their tolerance of non-Muslim ways and coziness with the West?

Dubai sits on both sides of the terrorism equation. It's been described as a logistics center for al-Qaida -- the airport and financial services center of choice -- and as a likely target for terrorist attacks. Both descriptions are slightly off the mark. Terrorists use Dubai's services not because the government turns a blind eye, but because the city's services sector is the best in the Middle East. Most people need no visa to get in. It's an open city. It attracts smugglers, hucksters, missionaries, refugees, quick-buck-chasers and yes, terrorists.

And Dubai is also a terrorist target. But not necessarily because of its tolerance of Western ways. Rather because of its hosting of the US military. Dubai is the US Navy's largest overseas port -- bigger than any other in the world. This is the type of target that could lure an attack by al-Qaida, not Fuddruckers and bikini beach babes. Bin Laden may not like Fuddruckers but its presence isn't as offensive as that of the USS Nimitz. If you look at al-Qaida's statements -- as I have -- you'll see that this is true.

I was surprised by your reporting about how the Dubai Ports World controversy went down. You were in Dubai at the time, and it's interesting to read how it was seen from their perspective. Over here, there was a sense that the Bush Administration had ginned up fear of Arabs and Islamic Jihad in taking us to war with Iraq, and then the president was suddenly trying to turn management of our ports over to a Gulf Arab country, which most Americans had never heard of. With two of the 9/11 terrorists coming from the UAE, the American public was not very receptive to the ports idea. You see how that all went down very differently, right?

Yes, I can see that the Bush administration, aided by Hollywood and the press, was using fear tactics to herd Americans to war in the Arab world. So, it isn't surprising that the ports deal -- one of the few things Bush got right -- fell apart because Congress stoked that same fear of Arabs. For people like Chuck Schumer and Hillary Clinton, it was all a cynical political play.

The fact that two 9/11 terrorists came from the UAE was a canard. It'd be like Japan blocking a trade pact with the United States because two US Marines in Okinawa had raped Japanese women. The Japanese are not hysterical enough to believe that the actions of a few wayward Americans should block the economic aspirations of an entire nation playing by the global rules. But Americans could not make the same judgment. It was OK for a British company to run the ports but Arabs were too dangerous to be trusted. Racism won. America was tarnished. I found the whole episode disgusting.

You write that Dubai and the UAE moved toward having elections because it's fashionable to the outside world, but that most citizens of Dubai like how their government works and are not clamoring for the right to vote. Can you address why democracy is not seen in the same idealistic light as it is here and elsewhere?

In the Middle East, democracy means chaos. Elections in the region have polarized societies and brought extremists to power. Look at Lebanon with Hezbollah in government. Look at Israel with Avigdor Lieberman and Netanyahu elected to office. Next door, Hamas was voted into office. Elections in Iraq look like they're promoting the breakup of the state. Ahmadinejad was just re-elected in Iran.

Leaders in Dubai and the Gulf rule by the world's oldest formula: tribal autocracy. The UAE has never, in its entire history, known anything else. Dubai has been run by the same family since 1833. Stability has been rock solid. There hasn't been a single assassination or coup in all those years. In America, during that same period, four presidents were assassinated. Dubaians are happy with their system. Why should they change it?

Can you tell us about the complicated, multifaceted relationships Dubai has with both Iran and the U.S.? What do they make of Obama? Did Dubai officials play any role in brokering what we learned this week -- that the U.S. and Iran will soon initiate formal talks, ending a 30-year standoff?

Dubai's management of its foreign affairs is calculating and deft. It manages to be great simultaneous friends with Iran and America. This feat is one of the reasons Dubai has grown rich, but it isn't easy. The leadership has come under enormous pressure from Washington to trim its lucrative trade ties with Iran. At the same time, Dubai's powerful merchant class wants to expand those ties.

No other Arab state maintains such a close friendship with Iran -- although Iraq is warming to the task. Dubai's ties with Iran date back to the early 1900s, when the city fathers coaxed Iranian merchants to cross the Gulf and settle in Dubai to avoid Persia's new tax regime. Many key Dubaians still speak Farsi and travel back to the "old country" in the manner that an Irish American might take a vacation in Dublin.

Nowadays, with around 400,000 Iranian residents, Dubai is Iran's lifeline to the world. American politicians like to bray about Iran's ties to Syria, Iraq and Hezbollah, but it is Dubai that keeps the ostracized nation functioning. "Dubai is the most important city on earth to the Islamic Republic of Iran, with the exception of Tehran," says Saeed Leylaz, who edits the Tehran financial newspaper Sarmayeh.

Iran also keeps Dubai afloat. Iran is Dubai airport's top destination, with more than 300 flights per week. The UAE is one of Iran's largest trading partners, responsible for about one-seventh of Iran's $100 billion international trade. Dubai is also the main destination for capital flight from Iran, much of which has been plowed into Dubai real estate.

But the UAE also needs America, even more than it needs Iran. The country's defense ties with America are nothing short of existential. Without a protector, the UAE, with its oil riches and tiny native population, might be gobbled up by a larger neighbor.

As ties between Dubai and Washington have tightened amid the US-Iran nuclear showdown, the city-state's friendship with Tehran has become a problem. Washington can't really put the screws to Ahmadinejad without Dubai's help.

And so, at last, Dubai has been taking painful steps to trim its ties, steps that cost it money every day. It has made it tougher for Iranians to travel to Dubai and to open companies in the emirate, and it has stopped allowing firms to import Iranian workers. Dubai branches of international banks like HSBC and Citibank have even asked Iranians to withdraw their deposits and have closed their accounts. At the same time, the huge Iranian community in wide open Dubai makes a rewarding spying target.

On Obama: The US president is as enormously popular in Dubai as he is throughout the Arab world. His election was seen as a remarkable "only in America" feat where a country that had gone so far off the rails in the wrong direction had dramatically redeemed itself through the ballot box.

That, at least, is the popular view. Among the executives running the Dubai Ports -- and in the ruler's offices -- the view is different. Obama acted hostilely when he was a senator, voting to force Dubai to sell off its purchase of US port operations. Worse, he appointed Hillary Clinton, one of the chief orchestrators of the anti-Arab hysteria, as his secretary of state. There is a reason Mrs. Clinton didn't stop in Dubai on her Middle East trip. She'll need to apologize before she is welcome.

I doubt Dubai authorities brokered the upcoming landmark talks between Iran and the US. That could have been done in many other much easier ways. But the direct talks, and the (albeit far-off) prospect of normal diplomatic relations and an end to the US embargo, would ironically diminish Dubai's value as a go-between. A US-Iran rapprochement stands to upend the niche business Dubai has built as Iran's offshore service center.

 

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