GULF STATES: Downturn to exacerbate political tensions

OxfAn: Friday, May 8 2009 

SUBJECT: The political impact of the economic slowdown on GCC states. 

SIGNIFICANCE: Although the impact of the financial crisis on the GCC states has not been as devastating as in other parts of the world, there are already political consequences, which will become more severe if the crisis is prolonged. These relate to long-term problems that were masked by the soaring oil prices and dramatic GDP growth of recent years.

ANALYSIS: The illness of Crown Prince Sultan and the promotion of Prince Nayef in Saudi Arabia are reminders of the critical roles played by Gulf rulers. Some like King Abdallah are aging (85) and others like the Emir of Kuwait (75) suffer indifferent health. Succession thus becomes a key issue in many states:

• If Nayef were to become king he would have to work within the consensus decision making in the ruling family, but is likely to be more conservative than Abdallah or Sultan economically as well as politically. There are some of the signs of tension that the question of succession can bring to the fore as different parts of the family compete for influence.
• Kuwait's difficulties with parliament could become worse if the Emir left the scene.
• In Oman there is no clarity over who might succeed Sultan Qaboos, who is both ruler and prime minister, and in Dubai and Qatar (where the rulers are in their 50s) there are young and untried heirs. Qatar has a large ruling family and it can be difficult for new rulers to impose themselves.

Political reform. The Gulf Cooperation Council (GCC) lacks the institutions that might provide an outlet for the angry public opinion that is emerging on other parts of the world:

• The Saudi Majlis al-Shura may be respected for the quality of its members and its growing influence -- but it is selected, not elected, and its existence is at the whim of the king.
• Oman's parliamentary system has failed to motivate an electorate disillusioned by its limited powers.
• The UAE federal national assembly is largely irrelevant.
• Qatar produced a constitution giving wide powers to an elected house but seems reluctant to implement it.
• Bahrainis, too, were promised an effective elected lower house in 1999 but its system now gives equal power to the selected upper house, with the King making the final decision.

The way that Bahraini and Kuwait MPs have used their position to challenge government policy and to vent public opinion shows that there is an appetite for accountable and elected parliaments. 

The Kuwait parliament is often cited as a reason to avoid such institutions within the GCC. It has again been dissolved and there will be new elections in June:

• The political blocs and independent MPs, some representing tribal interests and others different trends of Sunni and Shia Islam, seem able to work together only to block government measures or subject ministers to 'grillings'.
• Ministers fear them, and the current crisis has been caused by MPs attempting to grill the prime minister, a leading member of the ruling family.
• The electoral system provides no way for the regime to contest elections through a party or a bloc of candidates. Elections thus produce mostly opposition MPs.
• As long as political parties are banned these blocs are unlikely to form coalitions that might contribute to Kuwait's development.

The disillusion is such that some in the ruling family want a period, possibly prolonged, without a parliament if the new one fails -- as it will. 

Youth discontent and jobs. Saudi Arabia has virtually eliminated Al-Qaida and the GCC states have developed effective strategies to deal with the religious causes of extremism. They understand the need to deal with societal causes and have programmes to create jobs for their rapidly growing populations and deal with the pockets of poverty and exclusion. These in turn depend on the progress of economic reform, which is still a work in progress. 

All governments have at the centre of their domestic strategies investment to create jobs for young and rapidly growing populations. They have mostly opted to keep spending in 2009 and are trying to focus on the downstream oil and gas and sectors (where cheap energy gives a competitive advantage) and moves to encourage the diversification of the economy. The problem is less acute in the UAE and Qatar and perhaps Kuwait, but the others will have to find even more state funds for these areas at a time when international banks are not lending and the domestic banks lack capacity. 

All but Bahrain have the resources to maintain spending in the short term, hoping that oil prices will recover soon. However, projects are being cancelled and postponed and the private sector, which remains the main engine of growth, has cut back its investment. This is bound to slow down the rate of job creation. 

Shia communities. The Shia majority in Bahrain believes that the changes to the parliamentary system were designed to prevent them controlling the elected lower house. The mainstream Shia group (Al-Wefaq) reluctantly participated in elections in the hope of working within the system to bring about reform. Others associated with the Al-Haq have resorted to demonstrations against an electoral system that they believe disfavours the Shia. The situation has been exacerbated by claims that the regime has been offering nationality to Sunni immigrants to change the sectarian balance. 

In Saudi Arabia a recent incident in Medina led to protests in parts of the Eastern Province where the kingdom's Shia minority (7%) are concentrated, with one cleric calling for secession if the government does not do more to address their grievances. The Shia believe that they suffer discrimination in jobs and the allocation of resources. The mainstream leaders advocate working with the regime to address theirs grievances but other voices may grow stronger as the financial situation is likely to affect the Shia more severely than others. 

There are similar grievances in Kuwait where the Shia are much larger and do have parliamentary representation though not one that reflects their size. 

Wider impact. Yemen, with a weakening regime and growing domestic problems, including a resurgence of terrorism, is being badly hit by the fall in oil prices and slowing of investment, raising the spectre of a failing state that sees its solution as joining the GCC. Budgetary difficulties in Iraq could quickly erode the recent political gains. The Iranian regime as it approaches presidential elections in June is being hit by oil prices that are well below what are need to balance its budget and maintain spending. 

Trouble in these states will have an impact on the GCC, which has been considering developing its own nuclear programme in response to Iranian attempts to develop a nuclear weapon. The cancellation and delay of GCC investments in North Africa, and the laying off of third country nationals (150,000 Egyptians have returned from the GCC recently), could also weaken the GCC's political influence in the wider world -- as its regional difficulties increase. 

CONCLUSION: Most recent focus has been on the economic difficulties facing GCC states, but the downturn can also generate political problems domestically and regionally, particularly if lasts for more than 2-3 years. If those political crises come to a head at a time of economic difficulties they could create a vicious circle where political failures increase economic instability, which in turn saps confidence in the political system.