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An economic transition fraught with danger for the petro-States of the Gulf

An economic transition fraught with danger for the petro-States of the Gulf

Attempts at “adjustment programs” have been met with protest and younger generations are likely to hold their countries' rulers to account.

Analysis | Middle East

This article has been republished with permission from Orient XXI.

“Our generation is paying the price for the mistakes made over the last decades”, a young Omani woman exclaims, having resigned herself to leaving her native land and her relatives for a job in one of the more stable Gulf countries. There is a note of bitterness in this college graduate’s voice as she tries to hide her disenchantment and the feeling that she is a powerless witness of the collapse of a local economy built by the late monarch, Qubous Ben Saïd Al-Saïd (1970-1920) on the irresistible wind-fall revenue provided by the country’s underground oil and gas deposits. Once an out of the way sultanate of medieval aspect on the Eastern tip of the Arab peninsula. Oman has, since the 1970s capitalized on the sale of its hydrocarbons - 70% of the State budget today - to build modern public infrastructures and a civil administration which pays handsome wages in return for an absolute loyalty to the powers that be. According to a report by the United Nations Development Programme (UNDP), Oman is the country in the world where the Human Development Index progressed the most between 1970 and 2010. The long hours of labour for a private sector on petro-dollar life-support are delegated to foreign workers with no union protection, most of them from Asia and Africa. However, a high fertility rate (over 7 children per woman until 1990) and the likelihood of a decline in the supremacy of oil on the energy markets have spoilt a social model on which Sultan Qabous of Oman built his legend... and which is now at the end of its tether.

“Twenty five years ago, the government already knew unemployment would be a problem. They knew it and they did nothing. If my family would let me, I’d be out in the streets protesting”, Sara rages. She lives with her parents in Sohar, an industrial town on the shore of the Gulf of Oman, 200 km to the North of Muscat, the capital. A few days earlier, an unaccustomed wave of protests swept through Sohar and several other towns, denouncing the scarcity of civil service jobs, the recent austerity measures decided by the new Sultan, Haitham Ben Tarek Ben Taimour Al-Said and, an extremely rare occurrence in a part of the world allergic to criticism, voicing accusations of corruption aimed at the Omani rulers. “Where are the oil and gas?” chanted the chorus of demonstrators in the streets of Salalah, a seaside resort of 350,000 souls whose microclimate makes it popular with the Gulf families when the region suffocates under the burning summer heat. Some 900 kilometres from Salalah, in view of the impressive harbour facilities of Sohar, a demonstrator who wishes to remain nameless for fear of reprisals from the local authorities, has this to say: “We want the government to find those corrupt individuals and confiscate the money they stole from the coffers of our country”. His is a muffled anger, hidden from the gaze of foreign visitors behind a veil of apparent tranquillity enveloping one of the world’s last absolute monarchies.

From the Arab Spring to the energy transition

The social unrest grumbling in Oman crystallizes the dangers involved in introducing austerity programmes which the region has long refused to deal with pragmatically. The ruling elites have preferred to put off till tomorrow the complexities of shaping a post-oil era whilst leaving a handful of wealthy families a free reign over the local economy. In the words of a 2009 diplomatic cable from the US embassy in Muscat [Revealed by Wikileaks.]], “the private sector in Oman is described as an oligarchy”. A feeling of injustice due to the uneven distribution of the oil revenue, an awareness in young people that they are a sacrificed generation, a dread of the poverty trap among the middle classes which offends their dignity and threatens their budget, these are just so many signs of an underlying uneasiness which people find it increasingly difficult to hide. In neighbouring Saudi Arabia, the authorities make every effort to minimise the realities of deepening poverty, discreetly concealed behind the opulence of the royal family but very real, nonetheless. According to the World Bank the country “is faced with a problem of imminent poverty” and in terms of income inequality, the Kingdom is ranked 26th worst in the world, just after South Sudan. Because the country’s retirement system stands to run out of resources, Riyadh is presently exploring the idea of raising the retirement age and increasing contributions.

“The easiest way to create political problems is to have people starving”, Ian Mcintosh wrote. The former boss of Louis Dreyfus Company, a trader in agricultural produce, was referring to the Arab Spring of 2011 when the dynasty that has ruled over Bahrain since the 18th century, decided to call in the troops of its Saudi big brother to put down the insurgency which threatened the very stability of that island monarchy. While the repression carried out by the Gulf regimes against all dissenting voices is quite ferocious, it is nonetheless indirectly backed by our Western democracies. British Defence Minister James Heappey [Quoted by Declassified UK.]] admitted before Parliament that the 230 military personnel stationed in Oman have “regular contacts with Omani authorities... to share their ideas and experiences in every area of security, including the management of crowd protests”. In 2020, the Sultanate’s military expenses, especially for the purchase of British weaponry, amounted to 11% of its GDP, the highest percentage in the world. In addition, the New York Times revealed that four of the Saudi agents responsible for the murder of journalist Jamal Khashoggi in 2018 had, during the year preceding the murder, undergone a paramilitary training course approved by the State Department and entitled “Defensive by nature” for the purpose of “better ensuring the protection of Saudi rulers”.

However, the trump card in the hands of the ruling families in the Gulf countries lies at the very roots of those traditional societies where absolute obedience to the figure of the ruler and the tribal chiefs is a moral principle to which many citizens still subscribe, placing national stability at the top of their priorities. These ancestral tribal dynamics still provide today the social pedestal on which the Gulf societies are founded. The Omani student Hajid Hassan Sadiq Abdawani describes them a touch of regret in a forthcoming research study for Sussex university: “The new Sultan’s only title to legitimacy is the letter left by the former Sultan transmitting the throne to him, plus the fact that he was born into the reigning tribe”, he writes. And yet in the case of Saudi Arabia, Abdullah Al-Audh, director of research for the Gulf countries with the NGO Democracy in the Arab World Now, observes a “dangerous” change of approach, resolutely carried forward by crown prince Mohamed Bin Salman. A neglect of ancestral tribal dynamics which isolate the young Prince and make him vulnerable. is Al-Audh’s analysis. “What I observe now is the adulteration and provocation of all the ingredients which have ensured the stability of Saudi Arabia for a very long time”, he says. “We are always hearing that ’Mohamed Bin Salman is popular in Saudi Arabia’, but where are the independent statistics to prove such a claim? There are none”, he points out.

"Dipping into people's pockets"

And yet any risk of seeing the kingdom catch fire on account of the economic “reforms” that so badly affect the middle classes and the poor is dismissed out of hand by Ali Shihabi, a high-ranking advisor, close to the Saudi royal court. “I think people under-estimate the threshold of pain which the population is prepared to bear before disrupting such (social) cohesion, and Saudi Arabia is far from such a (breaking) threshold today”, he says with reference to the austerity measures that are coming thick and fast: tripling of VAT, increase of energy prices and governmental efforts to privatize hospitals and schools. “Originally, the idea of ’Vision 2030’ wasn’t to go dipping into people’s pockets via the tax system”, Abdullah Al-Audh complains bitterly.

In a TV interview, lasting nearly an hour and a half and watched by a broad Saudi audience, Mohamed Bin Salman fervently justified tripling the TVA though grudgingly admitting the “hurtful character” of the measure. “The last thing I want is to hurt a Saudi citizen. I’m doing all right. I have money. I was rich before I worked for the government”, said the Prince in confidential tones, “so it is not in my interest to injure any Saudi citizen,” before declaring: “This will go on for a year, five years at the most, and then things will be back to normal”. In June 2021 raw material, traders estimated that the price per barrel of crude could rise to as much as $100. A short-term respite for the oil-based Gulf economies but not without dangers. In the past, oil price rises have ”upset the Gulf monarchies’ plans for budgetary consolidation", says a report from the financial rating agency, S&P Global.

Double-edged blessing

The waves of discontent have not spared the northern-most, and most “democratic” of the six members of the Gulf Cooperation Council (GCC). In Kuwait, “there are now many silent protests against the levying of new taxes”, is Clemens Chay’s analysis. He is head of research on Gulf countries at the National University of Singapore (NUS), specialising in this Emirate. Qatar and Kuwait are two holdouts, refusing to create a Value-Added Tax when the GCC members accepted it unanimously in 2016. But contrary to Qatar and the United Arab Emirates, whose economies are more diversified - liquid natural gas for Qatar, international tourism, finance, logistics, real estate and aluminium for its Emirati neighbour - Kuwait remains solidly attached to the oil windfall, which represents over 80% of the national income.

The country is proud of its active parliament, in a position to advocate the interests of its citizens against the government and the royal family; but the Singaporean academic has a harsh option of of this institution: “During the whole political history of Kuwait, its parliament has always been more reactive than proactive. It tends rather to block governmental actions than to act as a source of propositions, tabling constructive new laws”, he writes. A point of view which is shared by several analysts. “The future Kuwaiti generations will look upon the present generation with angry contempt. The country’s economic and political decadence have made it so dysfunctional that it is not even capable of managing its exceptional wealth”, reads a virulent tweet from Ali Al Salim, co-founder of the investment consulting firm, Arkan Partners.

Unless the climate changes and the rise in ocean levels to which the region is especially vulnerable succeed in overshadowing the political debate and act as a brutal reminder to the peoples of the Gulf that the oil and gas industries have a key role in climate disruption, nothing will change. The vast desert spaces of the Arab Peninsula, in a scenario of high impact emissions, are likely to become uninhabitable by the end of the 21st century on account of the humidity increase and extremely high temperatures. In the streets of Al-Nuwaiseeb, a city at the Saudi border on the Kuwaiti coast, the mercury rose to 53° Celsius at the end of June, the world’s highest temperature for 2021. Black gold was a blessing for the petro-States on the Persian Gulf...but one which is likely to turn out to be double-edged.

Oil field near Dubai, United Arab Emirates (|(|
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