When Gulf Cooperation Council rulers met early last month in Doha for their 28th Summit, the Gulf region was preoccupied with the war in Iraq, while under the threat of a new confrontation involving Iran. The Summit host, Sheikh Hamad bin Khalifah Al Thani, the emir of Qatar, warned that future crises will spin “out of control” and called on the GCC’s guest, Iranian President Mahmoud Ahmadinejad, to spare the region “the grave dangers” threatening the welfare of its peoples.
Though the focus was squarely on Ahmadinejad, the six conservative Arab Gulf monarchies (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) are actually faced with a slew of social and economic challenges, among them serious cost of living pressures and declining currencies. In short, the heads of states were confronted by several concerns requiring their urgent attention that dwarf past accomplishments.
Why have GCC states achieved so little since 1981 when the potential was there to form an effective model for the rest of the Arab world? What were the reasons that prevented a fuller integration? Will GCC governments adopt genuine long-term commitments to a common path?
To be sure, all previous GCC summits addressed whatever serious challenges faced the region, including the epochal 1979 Iranian Revolution, as well as three devastating wars that were fought in the vicinity (the Iran-Iraq War (1980-1988); the War for Kuwait (1991); and the War for Iraq (2003- )). GCC leaders also had to ponder developments that affected the wider region such as the perennial Palestinian-Israeli conflict, Lebanon and Darfur. After the 2001 Al-Qaeda attacks on the United States, GCC countries became caught between American and Iranian hegemonic aspirations and, because of the 2003 attacks on Iraq, a reawakened sectarian tension between Sunnis and Shi’ites.
In short, the GCC has always had its plate full with existential threats, which partly explains the regional body’s limited accomplishments to date. In the climate of fear in which they have often found themselves, member states have been concerned mostly with shoring up their economies and protecting their governments from internal as well as external foes. Despite often facing a common enemy, agreeing on a unified security strategy has proved impossible. Still, some interests have been identified and a few joint policies adopted.
Prospects of war. Last month in Doha, GCC rulers were faced with the prospect of a new war, or at least an air attack on Iran, to deny Tehran a putative nuclear capability. Notwithstanding the surprise December 3, 2007 National Intelligence Estimate (NIE), which concluded that all 16 American intelligence agencies believed Iran halted its nuclear weapons program back in 2003, Sheikh Hamad bin Khalifah, remembering his private May 2006 visit to Tehran, was not reassured. On his visit, the Qatari emir “sought some words of nonaggression from the Iranian leadership. Instead, the Iranians suggested that Qatar, which is the site of the regional headquarters of the US Central Command, would be its first target in the event of an American attack.”
Although President Ahmadinejad told his GCC hosts at the Doha meeting that Tehran wished to sign a joint security pact with them to promote peace and prosperity, as well as create an economic cooperation bloc, both were offers Iran has made before as part of its overarching strategy to rid the region of its Western military links. In other words, there was nothing new in his presentation even if, ironically, he uttered these calls a few miles from one of the largest American military bases in the Gulf. Remarkably, he also chose not to mention Iran’s controversial nuclear program to alleviate GCC worries, save to claim the issue was permanently closed.
GCC rulers believe that an attack on Iran will endanger them as well and hoped to voice their concerns directly with their Iranian counterpart. The gambit did not come off, and they have failed to formulate a contingency plan of what options could be exercised should a confrontation occur between the US and Iran. Even though the December 2007 NIE sounded positive, the assessment stated that Tehran was likely keeping its options open with respect to building a weapon and, more important, that intelligence agencies do “not know whether [Iran] currently intends to develop nuclear weapons.”
Against such uncertainty, GCC citizens do not expect their leaders to offer a decisive security plan. Most believe that major Western powers, led by the US and key European powers, will be tasked with protecting GCC states and will dictate how they behave, which is akin to an abdication of responsibility. Irrespective of any Western or GCC wishes, however, Iran is set to become a nuclear power before too long. GCC states stand in the shadow of a neighboring Islamic power that openly boasts about its hegemonic ambitions.
To mitigate this inevitability, GCC member states proposed setting up a consortium for uranium enrichment in a neutral third country, perhaps Switzerland, although a similar Russian proposal was rejected several months earlier. The idea is to defuse the current standoff with Iran, given that the consortium would serve users of enriched uranium throughout the Middle East, presumably including GCC states once they build their own nuclear facilities. In fact, at the November 2007 Riyadh OPEC Summit, President Ahmadinejad signaled that Iran may be interested in consulting other nations about a neutral supplier of enriched uranium.
Saddam redux. The tough talk emanating out of Washington despite the findings in the NIE has persuaded GCC leaders that a new confrontation in the Gulf cannot be ruled out, and may in fact be gaining momentum. Thus, many in Doha were disturbed by Ahmadinejad’s bombastic style. Indeed, Gulf rulers pointed out that Ahmadinejad was adopting a position similar to that of the late Iraqi President Saddam Hussein. They pointed to UN Security Council resolutions 1737 and 1747, which called on Iran to suspend all enrichment-related and reprocessing activities, calls that Iran has ignored. GCC leaders fear the consequences of a miscalculation. The latest NIE estimated that Iran’s enrichment program could provide it with enough raw materials to produce a nuclear weapon within a decade, a timetable that is essentially unchanged from previous projections.
Under the circumstances, if the Security Council were to impose more severe economic and diplomatic sanctions against Iran, GCC states would have little choice but to abide by them. In this if in nothing else, the GCC states are in agreement: Iran represents a threat. The states are not in agreement on how to deal with Iran. Kuwait, Oman and Saudi Arabia consider the failures of US policies in Iraq to have emboldened Iran. Bahrain, Qatar and the UAE, perhaps for historical reasons, prefer a more interventionist approach.
Because Tehran rejects any peaceful solution to its occupation of three UAE islands, and because several Iranian statements periodically rekindle the dormant – and, for the Iranians, unsettled – claims to the Kingdom of Bahrain, it may be safe to conclude that Iran does not inspire confidence its Gulf neighbors. Ahmadinejad flatly rejected UAE President Sheikh Khalifa bin Zayed Al Nahyan’s repeated offers to settle the dispute at the International Court of Justice, insisting that the three occupied islands are part of Iran. He was evasive over Kuwait’s effort to resolve a maritime border dispute that prevents the development of a natural gas field.
In Doha GCC rulers agreed that a nuclear Iran will alter the regional balance of power, especially now that Iraq is no longer a counterweight. In effect, GCC governments loathe the notion of an Iran controlling primary Iraqi centers of power and unduly influencing the political process in Baghdad. They also disapprove of its questionable role in the political and security affairs of Lebanon and Palestine.
Oil factor. If security questions dominated every GCC Summit to date, affordable access to oil, now approaching the psychological threshold of $100 per barrel, preoccupied officials as well. OPEC heads of states disagree on the desirable price level, with Saudi Arabia, Kuwait and the UAE preferring to lower the current high level. Others, led by Iran and Venezuela, believe prices should go higher. What is problematic is the sharp rise – from $50 per barrel in January 2007 to near $100 in early December 2007. Such volatility harms international markets and threatens to damage GCC states’ long-term interests.
Obviously, geopolitical developments partly explain high oil prices, whether because Turkey threatened to send troops across the Iraqi border, or the American president raised the specter of World War III, or when martial law was imposed in Pakistan. There was no doubt that markets reacted to political changes, and a US, or even an Israeli attack on Iranian nuclear installations, could have further impacts on global oil supplies.
In addition, it is critical to factor in high demand from China and other Asian countries, with a limited amount of spare capacity worldwide (perhaps less than 2 million bpd). With no conservation in sight, the higher price threshold remains unclear, though demand is not in the wane. GCC states are in the process of establishing careful ties with emerging economies where energy demand is highest or projected to increase over the next years and decades. Today, both China and India enjoy an abundant reservoir of surplus labor, which ensures growth for the foreseeable future and which requires additional oil imports. Their economies are thus complementary to those of the GCC, where higher incomes translate into higher imports from both China and India, and where Gulf investments will probably increase shortly.
Still, the key question is the weakening of the US dollar, and the undervalued GCC currencies. Economists in the Gulf region noted that GCC governments, like other economies throughout the world, are putting less of their net new reserves into dollars, which is a form of diversification. With poorly developed capital markets, they call for tighter monetary policies, to curb inflation. At Doha, GCC rulers addressed the need to urgently revalue their currencies, along with a significant change in the dollar peg to a basket of currencies, all to protect their comparatively small economies. They did not agree, however, to move away from the dollar peg for purely political reasons, but this may occur gradually over time.
Dollar dither. Whether this policy is sound is next to impossible to fathom. Against strong internal pressures from an increasingly wary population that is losing its purchasing power, Saudi Arabia indicated that it had no plans to change its exchange rate against the US currency, or to revalue the riyal, both of which made no economic sense but illustrated concrete political decisions. In fact, consumer prices rose a record 4.9 percent in Saudi Arabia in August 2007, and inflation in the UAE accelerated to a record 9.3 percent in 2006. Qatar retained the highest inflation rate in the region, reaching 14.8 percent in the first quarter of 2007, with similar predictions for all GCC countries. Along with Saudi Arabia, Qatar, Bahrain and Oman repeated that they had no plans to change exchange rate policies, although UAE Central Bank Governor Sultan bin Nasser al-Suwaidi declared in mid-November 2007 that the UAE could drop the dirham’s peg in favor of a basket of currencies.
Ironically, it was Iranian President Ahmadinejad who suggested that all oil producing countries stop trading in dollars, because the latter was “a worthless piece of paper.” According to press reports, Tehran has ended its collection of payments in dollars, preferring local currencies or euros. Even without Ahmadinejad’s goading, GCC governments were keenly aware that de-linking oil from the US dollar was a super sensitive topic. For the Saudi Foreign Minister Prince Saud al-Faysal, the “consequences” of such proposals were detrimental, and could further weaken the greenback.
