Interesting times for the Gulf Arab monarchies

By DR DAVID B ROBERTS

With its double meaning, the Chinese proverb ‘may you live in interesting times’ aptly describes the current mood in the Arab Gulf monarchies. These states (Saudi Arabia, Kuwait, Bahrain, Qatar, Oman, and the United Arab Emirates) are going through a period of intriguing flux. A range of long-held assumptions across the political, economic, and military sectors are being reassessed. Analysis needs to catch up quickly if it is to keep pace with the atypically quick changes currently cascading around the region. And, more to the point, with some of the region’s political ‘sacred cows’ being deeply challenged, it is interesting to reflect on what other ‘certainties’ and aspects of received wisdom are, perhaps, subject to change.

Among the most notable changes in the region are in the economic sphere. For the seven years prior to December 2014 the average price of a barrel of oil was around $89 whereas from January 2015 to May 2016 it fell over 50% to $46. This had profound effects around the region. All of the region’s monarchies remain reliant on the hydrocarbon industries and thus the price of oil is crucial for their revenues. Even Qatar, the richest state on earth per capita, saw its budget revenues plunge 40% from July 2014 to July 2015. Unsurprisingly, the region’s states shooting from budget surplus to deficit has led to consternation in the financial press. Particular concern is reserved for Saudi Arabia, by far the largest and in many ways most important state in the region, whose income and expenditure looks to be massively at odds in the near and medium term.

The reaction from the states has been striking. Aside from budget trimming across numerous sectors, new forms of indirect tax have been mooted. A region-wide VAT tax is provisionally set, for example, to be introduced by 2018. Similarly, states have found other ways to extract money from their citizens with subsidies being cut. The interesting thing about these revenue streams is that, as mundane as they may seem in a western context, in the monarchies, the nature of the ruling bargain is different. Though the realities certainly differ across the states, the notion of ‘no taxation for no representation’ is a basic assumption as to the modus operandi of state-society relations in the region. To see such a basic understanding come under some kind of challenges is interesting.

Moreover, one of Saudi Arabia’s reactions to this fiscal crisis has been to endorse and launch yet another consultancy-led project to revamp the state’s economy. The likes of McKinsey have been writing these reports for decades and they have had, overall, vanishingly little impact on the core change: meaningfully shifting the economy away from its hydrocarbon dependency. This latest project is perhaps more far-reaching than others, but it is the accompanying announcements of the part-privatization of Saudi Aramco, the national oil company, that is a remarkable step forward. While in a western context, again, this may sound like another mundane reaction, in Saudi Arabia, where the oil company has been the font of the nation’s wealth, so sacrosanct that until last year Royal family members were kept out of senior Aramco decision making circles, to nationalize even a small part of the behemoth company is extraordinary.

It must not be forgotten, however, that this is not the first time that these states have suffered from vacillating oil price. A serious crash in the price in the 1970s and 1980s induced a range of lay-offs and budget cuts. Such historical contextualisation is often forgotten by the press in their alarm. So the states have survived moments where the ruling bargain has been challenged, and the governments have demanded more from their subjects. But, of course, just because they have survived before does not automatically mean they could survive again.

Serious-looking crises and changes are not confined to the economic sphere. Politics in the Gulf region is also going through an era of profound change with new, often younger leaders coming to the fore. In recent years this has happened in Qatar, to a degree in the UAE, and also in Saudi Arabia. Indeed, in the Saudi Kingdom a new Prince has arisen who has hoovered up a variety of critical portfolios. Mohammed bin Salman al-Saud, a thirty year old son of the King, has effectively carved out enough roles to make himself arguably the most important man in the state. In a country that has endured such elderly leadership in recent generations, the shift to this dynamic youngster is a jarring, fascinating development. Perhaps only someone as taboo-breaking as Mohammed bin Salman could have led the privatization of Aramco or, indeed, launched such an unprecedented war (in terms of scale, ambition, and troop deployment) in Yemen in conjunction with another regional hawkish leader, Mohammed bin Zayed al-Nahyan, the de facto leader in the UAE.

In terms of international politics, the Iranian nuclear deal has deeply concerned the Gulf Arab monarchies. When sanctions are ultimately released, they feel that that will allow Iran to grow stronger economically and ultimately militarily and it will then continue its various campaigns supporting its proxy forces around the region (e.g. Hezbollah, the Assad regime) with even more resources. Moreover, since 1979 American-Iranian relations have been frozen. Yet they will now thaw, albeit slowly. Nevertheless, the Gulf Arab monarchies have long feared this kind of ‘grand bargain’ – that the US will, in their desire to make sure that Iran cannot develop nuclear weapons to safeguard Israel’s future, effectively abrogate their role as a de facto protector of the Gulf Arab monarchies as a price worth paying.

It will be fascinating to observe how new, often inexperienced leaderships respond with policies of change and continuity to the regional and international challenges they face in a more constrained fiscal climate. With a taboo-breaking announcement, event, or policy every few months, predicting the direction of travel is fraught with danger. History suggests that the states are more resilient than they may first appear; their downfall has been predicted for decades, yet still they march on into ever more interesting times.

Image: US Secretary Kerry Sits With Gulf Cooperation Council Members Before Meeting in Saudi Arabia. Courtesy of Wikimedia Commons.

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