Arab financial offensive on US companies concerns Analysts

And the concern is about Israel

As US shares continue to fall and the American economy reverberates with fears that a subprime-mortgage driven recession has begun, affluent Gulf states are seizing the opportunity to increase their control of financial companies and other branches of the US economy.

That development is leaving some analysts concerned over the prospect of Arab financial prowess manifesting itself in a political agenda, withnegative consequences for Israel.

“There is concern that the purchase of strategic assets provides the ownerswith the ability to intervene politically, ” Prof. Gerald Steinberg, chairman of the Political Science Department at Bar-Ilan University, told The Jerusalem Post on Sunday.

He stressed, however, that those concerns were “based on a worst-case scenario,” adding that countries such as Abu Dhabi “do not have a track record of political intervention. “

“Although this could change, at this time it’s more a matter of watching than feeling threatened,” Steinberg said.

Should those fears materialize, he added, there would certainly be “a strategic impact on Israel. There has been increased Arab investment and control - but these are two different things. The problem is not investment, but control. You could start to see subtle aspects of a boycott [of Israel], even though that is illegal under American law. You might find that some of these firms [that have been heavily invested in by Arab states] place obstacles to deals with Israel,” Steinberg said.

Arabs sovereign wealth funds in six Persian Gulf countries, including Kuwait, the United Arab Emirates and Qatar, have now amassed $1.7 trillion, positioning them for attempts to control major banks and securities firms in the U.S. The crisis in mortgage-backed securities has created a need for new capital to enter financial markets after major financial institutions such as Bear Stearns and Carlyle Capital Corp. failed over the weekend. The crisis is an opportunity for sovereign wealth funds that have prospered as the price of oil has soared over $110 a barrel.

The U.S. Treasury is struggling with how to handle any political or Islamic ramifications as Persian Gulf sovereign wealth funds look to make substantial investments in capital-poor American banks and securities firms.