When you think about the massive wealth of countries in the Gulf, the first thing that comes to mind is oil. Oil is about so much more than just what’s coming out of the ground. Oil is about money, it’s about politics and it’s about power.
As oil producers, Saudi Arabia, the United Arab Emirates, Qatar, Oman, Kuwait, and Bahrain are some of the wealthiest countries in the world. Together they make up the Gulf Cooperation Council, or the GCC. So, how did this influential organization come together, and is its collective wealth at stake as the world attempts to move away from fossil fuels?
Whats next for the Gulf Cooperation Council?
The Gulf Cooperation Council came together in 1981, and since then has arguably become one of the most influential trade blocs in the world. But what’s next for the six monarchies in the GCC?
The Gulf Cooperation Council was set up back in 1981, Originally, it was expected to be a way that they could collaborate on policy, whether it’s economic policy or even defense policy. In the past, they hadn’t really done that. They had been working with various at times colonial actors.
The United Kingdom obviously was very heavily involved in the region, the United States as well. When you talk about the GCC, it was really pretty much a sleepy kind of organization for several years.
First time it really taking shape in terms of big policy decisions was back in 2011. Of course, that was the Arab Spring. During the Arab Spring, of course, there was a lot of trouble in Egypt, a lot of fear, frankly about the overthrow of monarchies, of autocracies. The spring of 2011, when the Arab world was rocked by pro-democracy uprisings in countries like Tunisia, Libya, Egypt, and GCC member states Saudi Arabia and Bahrain.
While the movement galvanized the council, it also drove a wedge between Qatar and the other five GCC member states.
You have to remember that all of these guys, technically, are related. There’s still a familial tie from all the Gulf Arab countries. It’s an issue of respect and tribalism as well. So even though, they’re not all pulling the same weight when it comes to the money and when it comes to the oil reserves, there’s a real history there that people don’t forget. So, informally, the GCC is like, the world’s biggest family affair. In a way, yes totally.
GCC countries, they have been some of the fastest growing economies in the world, that purely down to oil. These are still all hydrocarbon economies, with the exception of Qatar, and of course, because that’s natural gas.
The GCC, notably Saudi Arabia, the UAE and Kuwait, contributes around 30% of global oil production.
How have the GCC countries been affected since the oil price shocks, in 2014, 2015, and the oil price war between Saudi Arabia and Russia in 2020, brought upon by the pandemic-induced slowdown?
We’re talking about countries that have serious sovereign wealth funds, and they’ve had to really dip into those. But part of it as well is they’ve had to go to the international community and gone to international debt markets. They’ve been willing to take on debt in order to go forward. In 2020, Saudi Arabia, the UAE, Qatar, Bahrain and Oman issued $42.1 billion in international debt, a record for the Gulf states and a 25% increase from 2019.
But things might not be perking up. In 2020, a report by the International Monetary Fund projected that the GCC’s financial wealth of $2 trillion could be depleted by 2034.
Peak oil is something that we discuss so often the prospect of it, when it will happen, if it will happen, of course it will.
It’s been interesting to see the two narratives coming from the UAE and Saudi Arabia, for example, how swiftly that they are trying to move to more carbon neutral policies. They know that they have to do that to be sustainable in a global environment where there’s going to be a lot of pressure to go green.
A report by the International Energy Agency in May 2021 noted that CO2 emissions from the energy sector and industries have increased by 60% since 1992. In fact, the report, which detailed the road map to achieving net-zero carbon emissions by 2050, was openly mocked by several OPEC leaders. The Saudi energy minister, for example, publicly expressed his doubts.
So it’s more of their disbelief that we’re going to not need the basic, traditional sources of energy in the short to medium term. Countries like India and China cannot exist without them, and if they are the engines of global growth, then the rest of the world will feel it if they aren’t fed.
With the transition to green energy in the last few years, especially since it’s evolved into a race against time not just for all of these Gulf Arab countries, but also in between these Gulf Arab countries as well. Perhaps the Qatar Development Bank CEO, he said it best when he asked:
“What would we be able to produce if oil and gas did not exist?”
When he’s saying we have to have something beyond oil to offer the world, he’s speaking for every Gulf Arab economy, and it’s not something that they don’t know, whether it be the volatility in oil prices, when they crashed out and went under 40. Or even during the global pandemic when they hit almost zero, I mean this was a situation where we had negative prices for the very first time, and it was one which nobody could have predicted but certainly galvanised this push to diversification.
They’re working very hard though on these diversification strategies. They’ve not been unaware that the world is changing, but when you have, you know, 80 plus years of oil wealth basically dictating how your economies are running, it’s a fast and solid moving freight train that you’ve literally got to put the brakes on and then reverse.
Economic diversification from oil is inevitable. And each Gulf country has charted a different course to getting there. For example, there’s Saudi Vision 2030 – a strategic framework to reduce the state’s dependency on oil. The vision 2030 instituted a couple years ago, with the ascension of the Crown Prince Mohammed bin Salman in Saudi Arabia really changed the game in a sense because it brought the opportunity for an IPO of Saudi Aramco, something that nobody thought was going to be possible and which they managed to pull off.
The listing of Saudi Aramco on the Saudi stock exchange valued the world’s biggest oil and gas company at $1.7 trillion and raised $25.6 billion at the time. That amount fell short of the $100 billion investment Aramco executives were hoping to count on to help diversify the economy away from oil.
For decades, education beyond religious education was not emphasised in countries like Saudi Arabia and the UAE. That has changed over the last 20 years or so. Education is something that they’ve got to put a lot of emphasis on in the coming years to get that group of technocrats and entrepreneurs, frankly, that they really need.
They’ve got to go very, very fast, because what they are attempting to do is to get people off the public dime in terms of government jobs and have them creating their own businesses, working in private companies.
For example, tourism inside Saudi Arabia, that’s one of the big things that they’re investing in. They want to create jobs by doing this, they want to open up the country by doing this, something that you’ve never seen prior to Mohammed bin Salman and King Salman.
How quickly that’s changed, how fundamentally the Crown Prince’s policies have changed things for young people, most of the population is under the age of 35. It’s an incredibly ambitious project, because it’s not just about the economics of it, it’s also about the culture of it, it’s about the social aspect of it as well, allowing women to drive, they want more women in the workforce, they know that they need that in order to be economically sustainable.
There has been a big shift in the UAE, in their priority, towards hydrogen. This is something that we’ve been talking about quite a bit as well over the last few years. This is something that the country takes very seriously, and that they’re taking very seriously to the international community.
In Dubai, a green hydrogen facility was piloted in 2021, to produce eco-friendly hydrogen using renewable energy. It’s the first of its kind in the Middle East and North Africa.
Will economic diversification mean that the development initiatives within the GCC, do they need to evolve? Will it lead to the very notion of the GCC itself becoming obsolete?
They know that when they all stand together, they’re stronger than individually. So for the GCC countries, if we’re thinking about whether or not they’ll continue within the GCC construct, because they’re still going to have conflicts within GCC countries that they need to resolve.
The member countries have disagreed on a number of affairs, including foreign policy and competing economic visions. They’re all family, but you know, there’s always disagreements within the family. The Omanis are incredibly pragmatic; they have been the ones who in the past have done the secret negotiations with Iran.
The conversations that Oman was secretly, quietly leading between the United States and Iran. Now, did the Gulf Arab countries generally take very kindly to that, well of course no. Another notable conflict was the Qatar crisis that lasted three years, ending in January 2021.
GCC members Saudi Arabia, the UAE and Bahrain, along with Egypt, severed diplomatic relations with Qatar, citing the latter's alleged support for terrorism, which Qatar denies.
Airspace and maritime borders were also closed between Saudi Arabia and Qatar. At the end of the day, what we’ll see in post, that Qatar rift, for example, is that Saudi Arabia and Qatar, seemingly just jumped right back in the pool together.
Nobody wants to be left on the wrong side of history. They want to focus on what they know best, which is money, making money, how to do that, bringing big business into the region. And part of that obviously, is looking to new partners, and really push a narrative for it, which is you know, open for business.
This is a part of the world that will continue to be incredibly important, even as we diversify away from carbon, hydrocarbons.
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