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Qalaq fi Al-Khaleej: Political Bankruptcy in a Post-Hydrocarbon Gulf

The GCC member states’ pocketbooks may be safe, but its governmental trajectory is headed for a tempestuous political bankruptcy.

In the Gulf Cooperation Council, and for its six member states─Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates─oil is not just a natural resource. It is political currency. 

Since the late-twentieth century, each member state, both individually and collectively boasting some of the highest numbers of proven oil reserves in the world, has utilized its oil rent to induce the embourgeoisement of their populations and to distance their regimes from societal pressures. This process has produced autocratic autonomy, which has in turn upheld the authoritarian stability paradigmatic of the Middle East. Indeed, as long as the Gulf Six continue to collect oil rent, pressures for democratization are likely to remain low, and the ruling families shall remain enthroned in what has been dubbed the rentier state thesis

However, as Edoardo Campanella writes for Foreign Policy, oil prices may have reached their zenith, meaning their concomitant decline may also loom near. Compounded with the COVID-19-induced collapse of oil prices earlier this year, global initiatives to reduce reliance on fossil fuels, and a marked decline in demand for fossil fuels even pre-pandemic, is threatening the foundations upon which the Gulf’s macroeconomy and political landscape are built on. Indeed, a severe shock in the oil market may precipitate a new era for the Gulf. Without its foremost political currency, the region as we know it may go bankrupt; if not economically, politically. 

The Diversification Debate

It is no surprise that hydrocarbon revenue is integral to the financial sanctity of the GCC, but a world order sine-oil rent may not necessarily spell financial disaster for the Council. Though many are less than optimistic about diversification in the region, significant progress has been made among the Gulf states in question. 

The United Arab Emirates, for example, is an exemplar of post-hydrocarbon diversification, flaunting an Economic Complexity Index (ECI) higher than that of Australia and New Zealand. Since the mid-2000s, its diversification has manifested chiefly vis-à-vis tourism, with Abu Dhabi now joining neighboring Dubai in welcoming international corporations to its sprawling cityscapes. The Emirates have even opened their borders to Israeli tourists who were previously barred from entering the country owing to the decades-old Arab-Israeli animosity. Though tourism’s sustainability itself has been questioned, especially in light of the global pandemic, it still continues to bring the Emirates one step closer to a more sustainable economy. Indeed, for the UAE, reduced reliance on oil is possible and probable if the state underwrites its posterity with continued diversification schemata.

Meanwhile, Oman has pursued a similar strategy of diversification, though the focus has been primarily on manufacturing. In a mere three decades, this sector grew from a valuation of $69.5 million to $5.6 billion. Whereas the United Arab Emirates demonstrates the outcome of a rigorously pursued diversification strategy, Oman illustrates the power of potential: the notion that even without oil, the GCC states may not be doomed after all. Admittedly, Oman’s ECI is nowhere near that of the UAE or even Saudi Arabia, but continued efforts made in good faith will allow the state to modernize and continue reducing its heavy reliance on hydrocarbons. Evidently, bankruptcy in the fiscal realm is avoidable, but there remains a question outstanding that is especially pertinent to the GCC: can the GCC’s oil-fueled ruling regimes retain their legitimacy moving forward? 

An Endangered Political Order

Though the GCC states wield the potential to insulate themselves economically from the oil market’s volatility, bolstering the integrity of the ruling autocrats may pose a greater challenge when their wherewithal to govern is derived wholly from the flow of oil rent. Because the patronage payments are funded by oil, and because the resource’s role in international industry has become increasingly palliated, the Gulf must be extremely wary of going “politically bankrupt” – that is, exhausting their legitimacy by abandoning their uniquely Middle Eastern oil-backed douceur scheme.

Virtually every member state has derived its legitimacy thus far under a patron-client model, wherein the ruling regimes co-opt their citizens with magnanimous patronage payments, who are then expected to return the favor with passivity and popular vindication. Absent oil rent, the future of this model is under threat as the governments are left without their main chip to bargain with their citizens. Reeling from oil shocks, the GCC states have already implemented taxes as an alternative form of revenue, but it could be at the expense of their legitimacy. The repercussions are already apparent.

Though not in the GCC, Jordanian protesters took to the streets to expostulate new taxes imposed on the middle class. Similarly, the United Arab Emirates instituted a Value Added Tax (VAT) plan at the beginning of 2018, but small business owners and cash-strapped denizens have already asked the government to reduce taxation levels and restore oil-rent-funded payments. Saudi Arabia, too, levies among one of the highest VATs in the region, and though the regime is yet to see any meaningful unrest, the impending cessation of patronage payments will undoubtedly call the regime’s legitimacy into question.

As payments to the populace begin to stall, the most effective method for the incumbent regimes to retain their legitimacy is to encourage participation, though this may prove to be rather toilsome. For the ruling families, some of which have been in power for nearly a century, instituting reforms to prevent democratization movements makes little sense when the regimes have yet to see any significant uprisings. Should they come to fruition, they could be as severe as the 2011 Arab uprisings as former Jordanian Deputy Prime Minister Muasher argues, or they could be mild and easily quelled. In the present-day GCC, Muasher’s outcome is not likely. As the region becomes farther and farther removed from oil, however, a second Arab Spring confined to the GCC becomes more likely. Because the incumbent autocrats lack ample incentive to do so, the lack of reform combined with the collapse of the rentier paradigm will most certainly compromise the legitimacy of the GCC’s six regimes. It now remains a question of when and to what extent.

The GCC member states’ pocketbooks may be safe, but its governmental trajectory is headed for a tempestuous political bankruptcy.  

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By Mustafa Ahmedani

Mustafa Ahmedani is a third-year Political Science and History student at UCLA concentrating in International Relations. He is a Managing Editor for the Journal on World Affairs and has published work in supranational organizations and campaign finance.

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