Gulf Countries Shape a New Political Order

With its financial leverage and soft power, the Gulf has become an important orchestrator of the pace and direction of change in the Arab world.

Barack Obama and Saudi Crown Prince Mohammed Bin Nayef Bin Abdulaziz Al Saud at the Arab Summit, Washington, DC, May 13, 2015. Manuel Balce Ceneta/AP/Corbis

This week, President Barack Obama is hosting representatives from Gulf countries at a summit at Camp David. The meeting is a show of the United States’ commitment to the Arab countries, especially in light of recent U.S.-Iran nuclear negotiations—but also a sign of the growing strength of these countries in the world order. Today, the Gulf is the only stable region in the Arab world. Gulf states do not suffer internal armed conflicts; acute polarizations between major political actors, like secularists and Islamists; and apart from Saudi Arabia’s ongoing military operation in Yemen, Gulf countries do not confront rebel groups operating in the Arabian Peninsula.

Gulf soft power has never been stronger. Hydrocarbon revenues in the last decade exceeded four trillion dollars, allowing Gulf states considerable financial leverage. They underwrite the basic economic needs of several Arab countries, and are the key providers of investment capital across the region. Gulf-owned satellite channels have the largest audiences and the strongest brands among Arabic-speaking communities worldwide. Abu Dhabi, Dubai, and Qatar have become the key centersfor funding, collecting, and promoting modern Arab art. Meanwhile, success has become associated with the Gulf: development of cities into world-class business and entertainment hubs, the colossal growth of Gulf merchant-family-conglomerates; and, for tens of millions of young Arabs, the escape from their difficult lives in North Africa and the Eastern Mediterranean to the region’s new land of plenty and promise.

The Gulf’s ascendancy has not been merely a result of financial windfalls. Since the early 2000s, a new generation of leaders has taken charge of decision making in all key Gulf emirates. Educated in and well exposed to the West, supported by armies of advisors and specialists, and with a sense of the influence that immense wealth bestows, this new generation of leaders has led transformative urban and economic projects in their countries. Several of them promoted a culture of innovation and risk-taking, which led to admirable dynamism and significant changes within their states. In Saudi Arabia, the late King Abdullah affected a generational change within the ruling family that brought relatively young, and highly assertive, princes to the fore. Though King Salman, who ascended to the throne in January 2015, reshuffled the cabinet, he has maintained the rise of the younger generation.

The Gulf’s ascendancy is underscored by the relative decline of traditional Arab centers of commerce, culture, and entertainment. Many of Egypt’s education, art, and media institutions, for decades the largest and most influential in the region, have descended into shocking levels of incompetence and intellectual decay. Since emerging from the ruins of its civil war (1975-1990), Lebanon has remained hostage to debilitating sectarianism, and the political and financial influence of Gulf states and Iran.Corrupt regimes have politically, economically, and culturally ravaged Syria and Tunisia. Meanwhile, Morocco has been increasingly looking towards Europe for inspiration and economic opportunities, and to Africa for markets and influence, while reducing its connections to the Arab world.

Global economic trends have also served in the Gulf’s favor. The swelling of Russian, Chinese, and other Asian middle classes gave rise to significant investment capital and spending power, benefiting the Gulf’s booming real estate sector, off-shore investment zones, and consumer centers. Sanctions on Iran incentivised many Iranian merchants and businesses to channel funds to their Gulf neighbours. The opening up of several African markets gave the Gulf’s well-capitalized airlines opportunities to connect European and Asian capitals with these countries, enlarging their market shares in the strategically important aviation industry and boosting their countries’ logistical hubs. Meanwhile, the instability from the Arab uprisings have prompted scores of wealthy Arabs to substantially increase their investments in the Gulf’s comparatively stable economies, particularly in real estate and capital markets.

Regional Responsibilities
The Gulf’s ascension in the region, however, comes with responsibilities. The socio-political polarization in countries following the Arab uprisings have dismantled the political order that had governed the Arab world since the end of the Second World War. Already, several Arab countries have fallen into chaos and anarchy. Gulf states, and especially Saudi Arabia, have responded by mobilizing their military, political, economic, and media resources to, in some cases, salvage the old order, and in others, to shape the emerging one. There is often little consensus among all Gulf countries: Saudi Arabia and Abu Dhabi have repeatedly clashed with Qatar’s strategies, and Oman has consistently carved for itself an independent route. Still, the Gulf has become an important orchestrator of the pace and direction of change in the most troubled parts of the Arab world.

These responsibilities raise strategic threats. For the first time since their emergence as modern political entities, the Gulf states are confronting major upheavals and relying primarily on their own resources without the full backing of a world power. In the 1950s, the Gulf states entered the world arena with support and guidance from Britain. From the 1960s to the mid-1990s, the United States’ strategic backing helped the Gulf states stem, initially, the revolutionary wave of Arab nationalism, and later, that of Iran’s Islamism. Today, the United States is increasingly becoming energy self-sufficient and willing to engage with Iran on various strategic dossiers. The strategic change in the western powers’ needs and priorities have compelled Gulf states to assume security responsibilities on their own. The Gulf’s military interventions, in Bahrain in 2011 and in Yemen in 2015, are examples of this strategic coming of age.

The Gulf is surrounded by fires from all directions: a sectarian Iraq; no central authority in Syria; jihadist groups in the Eastern Mediterranean; and Yemen’s descent into a full-blown war. As the Gulf intervenes in these fraught conflicts, it is losing the detachment that has allowed it, for decades, to deflect the Arab world’s problems. Not only will this involvement strain resources, it is placing acute and unprecedented pressures on decision-making centers in the Gulf.

These interventions are also pitting the Gulf, particularly Saudi Arabia, more starkly against Iran. Irrespective of a United States-Iran nuclear deal, Iran and the Gulf states have asymmetrically different interests in the region. Iran is widening its sphere of interest to areas it sees as historically linked to Persia or Shiism: central and southern Iraq, the Shiite and Alawite parts of Syria and Lebanon, and almost all of Bahrain and northern Yemen. This expansion flies in the face of Arab identity, Sunni Islamism, the ascendancy of the Gulf, and the leading role that Saudi Arabia has played in the Arab and Islamic worlds. Iran comes to this confrontation armed with experienced military and its powerful regional proxies, as well as with its demographic weight, cultural influence, and the confidence driven from being heir to one of the world’s most sophisticated civilizations. This confrontation will prove exacting for Iran’s opponents in the Gulf.

For the last few years, Saudi Arabia and the United Arab Emirates have been assembling a wide regional alliance, primarily to bolster their position against Iran, and secondly to confront forces, such as political Islam, that they deem perilous to their interests. This alliance is frail. After briefly toying with the idea of admitting the two non-Gulf Arab monarchies (Jordan and Morocco) to the Gulf Cooperation Council, all Gulf states determined that this will result in movements of labor that wide sections of their societies would find disruptive. Instead, they implemented various financial support programs to the two countries. But generous as these may be, fiscal support and direct investments do not forge strategic links.

The Gulf has also tried to build an alliance by drawing from large Sunni Islamic countries that boast sizable military capabilities, such as Egypt, Pakistan and Turkey. Egypt and Pakistan are among the largest recipients of Gulf financial aid, which is the decisive variable in their economic stability in the short term. But this dependency won’t alter the strategic fact that neither Egypt nor Pakistan has high enough stakes in the Gulf’s confrontation with Iran to merit large and sustainable involvement in this conflict. As for Turkey, the Sunni link is hardly strong enough to balance Turkey’s ambitions for cannibalizing Saudi’s hegemonic role in the region. Moreover, Turkey has more important historic, trade, and cultural links to Iran, than to any Arab country.

These geo-strategic responsibilities come at a time when Gulf states are facing serious internal challenges. Gulf economies remain acutely dependent on hydrocarbon revenues, which generate over three quarters of their total incomes. This has consistently stifled entrepreneurialism and eroded incentives for hard work. There is serious inequality in all Gulf countries, among social classes and regions, which will be exacerbated by the irreversible decline in the long term trajectory of oil prices—a function of slowing marginal growth in demand, improving technologies in fracking and alternative energies, and dismal coordination within the Organization of the Petroleum Exporting Countries. Gulf governments will find it difficult to sustain many of their social welfare systems. Despite the Gulf’s colossal currency reserves, financial pressures are already mounting. Saudi will have a budget deficit of over $30 billion in 2015, equal to nearly 5 percent of its GDP.

Demographic Burden
That over two-thirds of all Gulf populations are under thirty years old, is touted as a blessing, but it could also be a burden. For over a decade now, most Gulf states have introduced programs to decrease the alarming rates of youth unemployment in their societies. Saudi Arabia has launched admirable initiatives to build scientific research centers. But a significant percentage of the jobs generated for Gulf nationals, especially in the civil services, are disguised unemployment. Moreover, a dramatic skills gap between those who study in the West and the majority of those who graduate from the countries’ educational system, renders large segments of young Gulf nationals uncompetitive in today’s global job market.

Demographics pose another threat. In most Gulf states, expatriates constitute around two-thirds of the populations. In the United Arab Emirates, the ratio exceeds seventy-five percent. The presence of such huge foreign majorities, a significant percentage of them is already second generation “guest workers”, affects social traditions, harmony, and identity. Beyond foreign laborers, Gulf states have absorbed hundreds of thousands of westerners and mobile middle classes with vastly different ways of living and value systems. Arab countries house large enclaves that are reminiscent of Singapore and Hong Kong, and that share almost nothing with the Gulf’s heritage.

Diversity is an asset. It makes societies more creative, tolerant, and adaptable to change. Whereas a few decades ago, Gulf societies were known for their cohesiveness around conservative tribal values, and relatively high homogeneity, today, these societies are contending with segments with vastly different social and economic preferences and aspirations. This is a testament to the impressive developmental leap that Gulf societies have made in the last few decades. But political systems have barely changed to reflect such societal shifts. Countries continue to lack genuine political representation, checks and balances, and any real separation between wealth and authority.

Gulf political leaders are cognizant of these challenges. Two strands of thinking are emerging. The first calls for gradual, but substantial, political and economic reforms: strengthening state institutions (primarily the judiciary), the sovereign government ministries, and the public sector; allowing the Gulf’s nascent civil society to grow, detached from the state’s controls; taking progressive steps to reduce Gulf societies’ economic dependency on state largesse; and overhauling the region’s educational system. These steps are envisioned to slowly but steadily dilute power concentration in Gulf politics, result in sustainable political dynamics divorced from familial tensions and intrigues, and increase economic competitiveness.

Some have already taken encouraging steps. For over a decade now, Dubai has been liberalizing utilities pricing. Recent changes in the leadership in Abu Dhabi’s colossal sovereign wealth funds and in Saudi’s ministry of foreign affairs indicate that these highly influential organizations are transforming from vehicles for the ruling families to solid state institutions. But such thinking and reforms also requires Gulf states to limit their ambitions and redeploy dwindling resources at home to tackle unfolding problems. Key decision makers, who have been formed in years of plenty and comfort, will have to re-negotiate their relationship with the rest of society.

All of this leads to another strand of thinking. The new generation of rulers will try to assert the Gulf’s leadership across the region; prolong its period of dominance; widen and deepen the confrontation with Iran; and assume more external responsibilities. The prevailing rhetoric will be that the region is undergoing a period of immense transformation that requires preserving the order that has existed in the Gulf in the last half century. A correct premise leads to the wrong conclusion, and as a result, internal challenges will be marginalized. The most creative and daring forces in the Gulf societies today, the ones trying to affect gradual but serious reforms from within, will be side-lined. Problems will not come to the surface. The Gulf’s current financial power, and especially its hold over the most influential media platforms in the region, will conceal the cracks. But the internal pressures will not disappear. The disquiet will remain quiet, but tensions will simmer until they reach a boiling point.

The greatest threat here is that no one can predict the triggers that will ignite these tensions. The 1979 siege of the Grand Mosque in Mecca (Islam’s holiest shrine and the seat of Saudi religious authority) by a group of religious fundamentals triggered the beginnings of a rebellion. It was quickly crushed. The mass demonstrations in spring 2011 in Bahrain were contained by a swift Saudi and Emirati military intervention. These were small scale surprises that security responses were sufficient to quell. If the next trigger comes from an economic or social shock, it could give rise to a large scale disruption that may not be contained by a rapid security reaction. The Gulf’s political system could face an explosion. Serious internal reform, not external projections of power and assertions of influence, is the sole mitigation.

Tarek Osman is a political economist focused on the Arab World and is the author of Egypt on the Brink. He was the writer and presenter of the BBC’s 2013 radio series “The Making of the Modern Arab World” and the 2015 radio series “Saudi Arabia: Sands of Time.” He is the political counselor for the Arab World at the European Bank for Reconstruction and Development. On Twitter: @TarekmOsman.

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