US Treasury Secretary Timothy Geithner this month made his first trip to the Arabian Gulf to beat the drum for investment in the US economy. But with the region now immersed in the global economic downturn and the price of oil less than half its value of a year ago, will Geithner's calls fall on deaf ears?
When us treasury secretary Timothy Geithner touched down on Gulf soil this month to drum up support for investment in the ailing US economy, wary Arab investors could have been forgiven for protesting they'd heard it all before.
Geithner's first visit to the region since his appointment under US president Barack Obama's new administration was aimed at offering reassurances the US and its dollar remained an island of stability amid the choppy waters of the financial crisis.
Analysts see a significant difference in tone between the visits by Geithner and Paulson.
A little over a year earlier his predecessor under the Bush administration, Henry Paulson, made the same visit to the region with the same contention, that despite a severe slowdown, the US economy remained a safe haven for Arab money.
This argument has not been entirely borne out. Gulf sovereign wealth funds (SWFs) have seen the value of their holdings cut by roughly $100bn to $1.1 trillion between the end of last year and last month, according to US consultancy firm RGE Monitor.
Furthermore, in the 13 months that followed Paulson's visit not only has the global financial crisis deepened and widened to the shores of the Arabian Gulf, but the price of oil - the principal revenue for the hydrocarbon-reliant region - has more than halved.
However, despite the immersion of the Gulf in the crisis, the region's value to the US economy is undiminished.
"The Gulf has now become a traditional stop that key US financial officials are making, that is a change in relationship to a couple of years ago and that has to do with its financial clout," says Rachel Ziemba, an economic analyst at RGE Monitor.
Not only is the Gulf the largest international investor in US stocks but publically announced direct investment in the US from the region has topped $25bn.
Gulf nations are among the world's largest buyers of US government bonds.
With five of the six Arab states that comprise the GCC - Saudi Arabia, the UAE, Bahrain, Qatar and Oman - pegging their currencies to the dollar, the region is a big buyer of US dollar-denominated assets. The sixth, Kuwait, uses a basket heavily weighted in dollars.
The first leg of Geithner's visit was to Saudi Arabia for meetings with Jeddah Chamber of Commerce and Industry and officials including King Abdullah.
Saudi, the largest economy in the GCC, holds $400bn in foreign reserves; most of it believed to be in dollar-denominated assets.
Geithner also became the first senior US official since Obama's election to visit the UAE, where in Abu Dhabi he met foreign trade minister Sheikha Lubna Al Qasimi and central bank governor Nasser Al Suwaidi, in addition to officials from SWFs Abu Dhabi Investment Authority (ADIA) and Abu Dhabi Investment Council (ADIC).Geithner stressed the US government's desire to maintain a strong dollar policy.
Paulson made similar noises about the strength of the dollar in his trip last year, which have not held up entirely.
Although the dollar has performed well against the euro, its value has slid against the Japanese yen and the Chinese yuan. With most GCC currencies pegged to the dollar, this has hiked the cost of imports from Japan and China, two of the region's key trading partners.
Nevertheless, Geithner received reassurances from GCC officials that the dollar would remain the region's main reserve currency, despite calls, which reached a peak last year, by some economists for states to drop their dollar peg to curb inflation and commodity prices.
"Moving away from the dollar peg as a policy tool is off the table," says Ziemba. "They (GCC states) didn't break when they were under the most pressure last year and in 2007 and because of that policy these countries are going to be limited in their ability to move away from dollar assets.
"At a time of financial crisis, currency stability is a priority and in that environment they value that stability more than monetary independence and autonomy."
Sticking to dollar assets has cost the GCC dear. ADIA has seen its assets fall from around $490bn at the end of 2007 to about $300bn, according to Ziemba.
The holdings of ADIA, the world's largest SWF, include a $7.5bn stake in Citigroup made in November 2007 when the US bank was struggling during the meltdown in subprime mortgage markets.
"There's no secret that those who were holding substantial dollar-denominated reserves have suffered capital losses because of the exchange rate weakness of the dollar, and that came on top of losses in the values of equities, bonds and real estate so this is a real concern," according to Ala'a Al Yousuf, chief economist at Gulf Finance House (GFH) in London.
"The US dollar is the undisputed reserve currency and will remain so for as far as one can see, but the question is is it losing some of its market share to the euro? It's in the interests of surplus economies to diversify their reserves and portfolios to protect their values."
Geithner used his visit to stress US's "openness to investment from around the world", drawing a line under a reluctance in the past by some lawmakers at Capitol Hill to see US assets snapped up by foreign investors.
"The attitude of US lawmakers towards foreign investors in treasuries, real estate, banks, corporate has shifted since before the crisis broke out two years ago," notes Al Yousuf, who believes the financial crisis has created a more welcoming investment environment in the US.
Geithner made clear that security issues which blocked the investment by DP World into US ports in 2006 had been addressed.
At the time of the deal, some US lawmakers objected on national security grounds and Dubai government-owned DP World eventually transferred the operation of the terminals to an American entity.
"Since the controversy surrounding the Dubai Ports deal in early 2006, our government has put into place a series of reforms designed to safeguard national security, while providing more clarity, predictability and transparency to investors," Geithner told a room full of businessmen during an address to Jeddah Chamber of Commerce and Industry.
Geithner invited more Arab investment in the face of moves by some investors to divert their funds closer to home to shore up creaking regional economies.
Saudi Arabia is estimated to have sold off around $48bn in assets between November last year and the end of May to fund a massive government investment programme aimed at sustaining its economy.
Across the GCC, foreign holdings have fallen by around $300bn, a move which is likely to have played a part in weakening the strength of the dollar.
Investors will have asked Geithner about the steps the US administration is taking to boost the US economy, while also expressing concern about the country's swelling budget deficit, which has topped $1 trillion in the first nine months of fiscal 2009.While Geithner made a point of praising the size of the economic stimulus package unveiled by Saudi's government, he remains sceptical about the need for further stimulus programmes in the US.
The treasury secretary will also have been quizzed about the US government's plans to overhaul its financial system to guard against a repeat of the crisis.
"Many investors in the Gulf and elsewhere have seen their investments [in the US] pretty much halve in value since they went in a bit prematurely, so it's important that the US, which is the largest debtor and recipient of capital flows, as well as the surplus economies like the Gulf have an understanding on the need to coordinate economic policies and ensure there aren't any barriers to the flow of investment," says Al Yousuf.
The challenge for Geithner of rallying support among the Gulf countries for investment in the US is likely to be made even tougher by the price of oil being less than half the value it was during Paulson's visit, leading to governments scaling back the amount of oil revenues ploughed into foreign investments.
A yo-yo in the price of crude over the past year saw it reach a record high of $147 per barrel in July 2008, then collapse to $32, before surging to between $60 and $70.
With the US the biggest consumer of oil, Geithner's meetings included discussions on ways to try and ease price volatility and steps to bring greater transparency to energy and commodity markets.
"If they're too high there's a worry high energy prices could choke off the economic recovery, resulting in reduced demand and lower revenue," warns Ziemba.
"More transparency in the financial market and from the producers is one way to contribute to stability."
She says international commodity trading regulators were considering a number of legislative changes which could limit speculation, blamed for the turbulence afflicting the oil market.
Geithner is also likely to have used his trip to follow up Saudi Arabia's pledge at the last G20 meeting to lend more funds to the IMF to aid other countries struggling from the financial crisis, according to Al Yousuf.
Iran, the troublesome neighbour of the GCC, may also have featured as a topic of discussion in Geithner's various meetings in the region.
"Saudi Arabia and the UAE are becoming more important as the US tries to move forward on increasing sanctions against Iran," says Ziemba.
Analysts see a significant difference in tone between the visits by Geithner and Paulson, reflecting a desire by the Obama administration to put relations with the Gulf on a more even keel.
While Paulson delivered a lecture to businessmen and officials in Abu Dhabi, Geithner, the former president of New York's Federal Reserve Bank , opted instead to spend his time in the UAE capital in private meetings with key investors.
"They're as different as chalk and cheese," asserts Al Yousuf, on the economic policy approach to the Gulf of the Obama and Bush administrations.
"This administration is as different to the Bush administration as you could possibly imagine in terms of listening and showing a degree of humility and taking the rest of the world as partners in solving problems as opposed to underlings to be dictated to.