The Gulf Cooperation Council
The Gulf Cooperation Council
November 19, 2014
Hunter Norwick - Team Member Studying the Gulf States
This past week, Bahrain, Saudi Arabia, and UAE agreed to return their ambassadors to Doha after eight months of poor relations. The Gulf Cooperation Council (GCC) is resolute in reducing the political schism between member nations, which first resulted from Qatar’s support for the Muslim Brotherhood earlier this year. Saudi Arabia has outlawed the Brotherhood, while UAE on Sunday declared it a ‘terrorist organization’.[1] Nevertheless, this is only one of many divisive issues confronting the Council.
The Gulf region is undergoing a number of developments, ranging from the rise of extremism to the fall of global oil prices. According to the GCC’s charter, each state is obligated to work together to accomplish three objectives: first, to achieve an optimal exploitation of natural resources; second, to take a common stance against non-member states; third, to develop and research oil, gas and other natural resources.[2]
The six-nation bloc has two options before them: either cut oil production or permit lower prices. Kuwaiti Oil Co, however, has explicitly stated that it intends to increase oil extraction, and Saudi Arabia, too, continues to ramp up production.[3] According to the IMF, the GCC states are expected to lose approximately $130 billion over the next year in revenue.[4]
External actors are calling upon the GCC to improve other channels of revenue, namely by increasing education rates, reducing tariff barriers, and cutting government expenditures.[5] The IMF worries that oil-producing states are liable to fall into deficits beginning as early as 2015. Christine Lagarde, the IMF chief, speculates that GCC countries will lose roughly eight per cent of their total GDP in upcoming years.[6] This will have penetrating effects on the livelihood of Arabs if other avenues of revenue are not tapped.
A rehashing of an old adage might be both prescient and applicable: one industry’s decline becomes another’s boon. The Gulf States have largely relied on their oil fields to generate wealth, making it vulnerable to intractable market fluctuations. The Emir of Kuwait, for example, stated that OPEC states need to “build productive economic activities that provide opportunities for the youth to work, diversify the state's sources of income, and reduce the reliance of our economy on oil”.[7]
There are two ways officials are seeking to do this. First, Arab leaders are using the plummeting of oil prices to justify a cut in welfare subsidies.[8] The intent is to increase the size of the private market, and reduce the citizenry’s reliance on the state. Second, leaders in the Arab world plan to diversify their economy. However, the former objective is unlikely to transpire because of the civil unrest, and the latter may fail because of bureaucratic logjams.
These setbacks notwithstanding, the economies of the GCC states are likely to change direction and reduce their reliance on oil production. This is therefore an optimal time for businesses to take advantage of potential subsidies to new, fledgling industries, and to find additional channels of investment if the US can pressure Saudi Arabia and others to break down trade barriers.
