Boom Amid Gloom: The Spirit of Possibility in the 21st Century Gulf

By N. Janardhan

The first decade of the new millennium has witnessed wide-ranging transformations in the six countries that make up the Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates). The oil boom of the last few years has served to highlight and accelerate growth in financial market activities across the Gulf region and in Islamic financial and banking activities overall. These countries entered unchartered waters through social and political experimentation, economic expansion, and asserting their influence internationally. These attempts stemmed not only from the realization that such a shift was inevitable, but also from their new found confidence that a blend of tradition and modernity can indeed survive alongside and complement each other. Boom amid Gloom is an empirical study of seven themes that help test the pulse of these countries and indicate where they are headed during the course of the next few decades. Some of these game-changers are central to understanding how the 2003-2008 oil boom ushered in and nurtured an unparalleled sense of hope in the region, even as the global economic slowdown spread gloom in many parts of the world. The book analyzes how the region stands on the threshold of evolving, from merely being oil-rich and rapidly modernizing to achieving a more balanced and sustainable model of overall development in the future.

• Language: English
• Publisher: Ithaca Press
• Release date: Jul 1, 2022
• ISBN: 9780863725241

Book preview

Introduction

Tim Niblock

Much has been written about the Gulf in recent years. Any new work on the region needs to be distinctive, not just conveying updated information but conveying perceptions and lines of analysis which enable the reader to see the region in a different way and gain a more far-reaching understanding of its dynamics.

This book is distinctive. One aspect of this stems from the writer’s background. Most of the literature which is available on the Gulf – or at least those elements that find their way into the Western public arena – are either by Western scholars or by scholars from the region. This book gives a South-South perspective: an Indian researcher who has spent years working in and researching on the Gulf reflecting on the problems facing the region and the patterns of political, social and economic development which are evident. The approach to the region is different, with a greater tendency to set the Gulf ’s development within the context of South and East Asian developments. Whereas Western literature tends to discuss the rising strength of the South and East Asian economies, and the problems and dilemmas facing the Gulf states, as separate phenomena, here they are treated as integral parts of a changing global balance. What marks the contemporary world system, then, is the growing importance of Asia in its entirety.

A further aspect of distinctiveness arises from the timing of the book. It is a product of the second major oil boom. Most of the other literature surveying and analysing the development of the Arab states of the Gulf dates from an earlier period, before the post-2003 sharp rise in oil prices had transformed the economic, social and political landscape. The significance of this is worth stressing, in historical perspective. The first major oil boom occurred between 1973 and 1982. There was, at that time, a strong spirit of optimism in the Arab states of the Gulf. Development plans that envisaged massive economic and social change were introduced. The region appeared set for a major transformation in all aspects of social and economic provision, leading relatively quickly to the emergence of modern developed states. This was followed by a prolonged period of crisis: the price of oil fell and then fluctuated in a manner that removed the basis for stable development planning. The complexity of some of the social and economic problems thrown up by development also became apparent. The region, furthermore, was riven by the three major wars that shook the international system between 1980 and 2003: the Iran-Iraq war, the first Gulf War, and the second Gulf War. Most of the existing literature on the Arab states of the Gulf is set within this context of boom followed by crisis, regional tension, uncertainty and developmental weakness.

It has only been after 2003, and especially after 2005, that the Gulf has begun to emerge from a necessary obsession with crisis and the need to avoid immediate disaster. The early stages of the oil price rise could initially be seen as one more fluctuation, easily reversed. After 2005, however, it became increasingly clear that this was no short-term fluctuation: it stemmed from a long-term change in the balance between the supply and demand for oil, much of the latter stemming from the rapid pace of industrialization in Asia. Ambitious new development plans were developed. The framework within which development was now envisaged was substantially different from the earlier period. The states of the GCC (Gulf Cooperation Council) had all, by the end of 2005, acceded to the World Trade Organization. Private investment was to play a prominent role in the new developmental explosion. The GCC states could now seek to position themselves at the heart of the global economy, emerging as leading industrial powers through the competitive advantage which they possessed in the field of petrochemicals, and as leading financial powers through the massive resources accruing to their Sovereign Wealth Funds. Hence the ‘spirit of possibility’ which figures in the sub-title to this book.

The global financial crisis since 2008 has not changed this optimistic scenario, despite the attention that Dubai’s shaky finances has attracted. On the contrary, the financial crisis has, overall, reinforced the GCC states’ relative strength in the global economy. Although oil prices fell at the beginning of the financial crisis, reflecting an expectation that demand would fall, they had by the end of 2009 rebounded. At the time of writing, they remain well short of the levels of early 2008, but are nonetheless some three times higher than they were in 2002. There is a widespread expectation that the upward trend will resume in the near future. The GCC states, in fact, constitute a part of a wider picture: the contrast between Asian success and Western weakness, reflected in economic performance during the financial crisis.

Many, and indeed most, of the concerns that Janardhan covers, then, are new ones – or at least they possess a different gloss or different dynamics than before. This is reflected in each of the seven major themes he pursues in the book. First, he looks at the prospects for political reform. The topic itself, of course, figures in most books about the GCC. Janardhan’s emphasis is very much on understanding why externally promoted solutions encounter resistance – sometimes at a popular as well as governmental level. He contends that the counterpoint of reform and conservatism within the GCC states is more subtle and nuanced than is often acknowledged, and that discourses on reform are integral to all the societies of the region. There is a basis on which institutional participation can be developed and democratization constructed, but external pressures sometimes weaken the domestic dynamics that could carry these processes forward. Economic and political reform may work in contrary directions to each other, but can in particular circumstances be mutually supportive. The character of the regional environment is also important: a regional environment marked by conflict and division will not foster the values of compromise, debate and negotiation which encourage a democratically inclined domestic political discourse.

Second, Janardhan focuses on the role of the new media and its relevance for the creation of a liberalized political culture. The debate on this has a different balance from what would have been appropriate a decade ago. In the 1990s, the overwhelming view was that, in the perspective of creating a more liberal and open public space, the Arab media were part of the problem. They had no capacity to engineer or encourage change, but rather constituted instruments of control. Even outside of their countries, governments were acquiring ownership of, or influence over, television channels and newspapers so as to project their own views and prevent or disable criticism. This dimension of the media remains in being. The limitations are, indeed, reinforced by the increasing involvement of the private sector in the media. Arab private investors have widened the range of content broadcast on satellite television, but have not widened domestic political discourse in the countries that host their businesses. Yet, another reality is now present: the populations of the Gulf, as with people elsewhere, are no longer dependent on sources of information that their governments can control. Local populations are gaining access to information through channels that their own governments are powerless to influence. Governmental attempts to direct and channel popular moods and attitudes have become a complex matter.

Janardhan shows how the spread of internet use and of mobile texting has created a new public space for discourse. The forms of media involved here, moreover, are unbounded by national borders. Ideas, views and information move between Arabs in all the countries of the Arab world, Arabs in the outside diaspora, and the international arena more generally. The blogosphere, in particular, has created virtual communities where information is exchanged and views developed – a public space of the kind characteristic of open societies. Satellite television has also played an important role here. Even though each satellite station may be unwilling to criticize the domestic political structures of its home state, the stations are not necessarily so coy about criticizing the policies and institutions of neighbouring states. The Al Jazeera channel provides the best example of this practice, retaining support in its home state of Qatar through its silence on domestic Qatari concerns, while engendering considerable resentment (and sometimes outrage) in governmental circles elsewhere in the Arab world – and often in the West also. The overall outcome of satellite multiplicity has been to broaden the arena for public debate.

Third, Janardhan highlights new areas of economic growth and development. The focus here is on economic diversification and the knowledge economy, linking this in with the capacity of the educational systems of the region to produce graduates of the level and quality needed in the contemporary globalized economy. While the programmes of educational reform are carefully documented in this book, as also are the huge sums that governments are now devoting to the education sector, the overall picture that emerges is not optimistic. Creating new universities and colleges, whether locally instituted (such as the King Abdullah University for Sciences and Technology in Saudi Arabia) or implanted from outside (such as the campuses established by US universities in Qatar), may give the appearance of international educational competitiveness, but the majority of local students continue to be educated in universities which are less well funded, more narrow in their curricula, and more restricted in their activities.

In the light of the information presented, it seems unlikely that the GCC states will be able to rely on a broadly based and internationally competitive native workforce. One aspect of this, which Janardhan does not address, is that a new type of division is emerging in Gulf societies. Accession to the WTO, which all the GCC states have now completed, works to the advantage of industries that are internationally competitive, due to their resource base and their energy requirements. Petrochemicals and hydrocarbons are examples of such industries. They have the resource and incentive to employ graduates of elite universities and colleges, locally and internationally. Personnel in these industries will, and to some extent already do, constitute an internationally aware and internationally competitive elite whose salaries will reflect their scarcity value and their critical roles in their industries’ global expansion. These industries will be able to satisfy government-imposed regulations on labour localization, because they have the resources to attract such local expertise as is internationally competitive. Accession, however, creates new problems for industries that do not share the same competitive advantage. Faced with demands that they localize a percentage of their workforce, they can only attract the less able graduates. The prospects for the survival of such industries are not bright. To some extent this is part of a wider global trend, but its impact is likely to be particularly acute in the Gulf due to the growing discrepancies in attainment and skill levels of those emerging from higher education, and the requirements for locals to be employed at salary-levels that do not reflect international competitiveness.

Fourth, the labour market. Concern over the size of the expatriate labour workforce has, of course, been strong over a prolonged period. Most of the Gulf states’ development plans over the past 30 years in the Gulf have envisaged the localization of employment and the reduction in numbers of foreign labour. In practice, the opposite has happened, at least with regard to the latter. Locals have generally increased their participation in the labour force, but expatriate numbers have increased yet more. Few of the measures which have been introduced to limit or reduce foreign labour affected the overall figures, although some measures have reduced foreign labour in specific sectors. The new element which has come into this dynamic in recent years stems from the accession of the GCC states to the WTO. The opening up of markets to the global economy has, as indicated earlier, intensified the need for business to recruit the most competitively priced and efficient labour. Foreign labour, acquired on the international market, satisfies this requirement more easily than local labour. One solution would be to strengthen the whole range of welfare state provisions for GCC nationals, making it possible for the latter to accept lower salaries. Janardhan’s view, however, is that GCC states would do better to rid themselves of ‘defensive demographic strategies’, see the demographic variables as factors that can enhance the region’s coherent development, and accept the rational consequences of the integration of the GCC economies into the global economy.

Janardhan turns, fifth, to foreign policy. His emphasis here is on the new diplomatic roles the GCC states are now playing. He sees this as evidence of growing self-confidence. The governments are no longer willing to be identified internationally as oil-rich but politically weak, marginal not only to major global issues but even to conflicts within their own region. Buttressed by the increased economic power they now possess, Janardhan contends, the GCC are ‘reinventing themselves as more significant players in the regional and international arena’.

There is certainly considerable evidence to support these contentions. Qatar, in particular, has been active in mediating between Lebanese political groups so as resolve that country’s ongoing conflicts, hosting talks between the Sudanese government and the Darfuri insurgent movements, negotiating for aid and assistance to reach Gaza, maintaining effective channels of communication with Iran etc. The UAE and its component emirates have encouraged global bodies of various kinds to base themselves in the country. Saudi Arabia has taken a lead in forging new relationships in Asia.

Janardhan rightly points to the importance of the expanded resource base in underpinning and prompting these new initiatives and directions. They must also, however, be viewed within a wider geopolitical context. The credibility of the established external power-brokers, the major Western powers, has been in decline since 2001. The causes of the declining credibility have been various. GCC governments reacted badly to US reactions to 9/11: the attribution of blame to GCC governments (Saudi Arabia’s in particular) for ‘creating the conditions which made 9/11 possible’. The pressures exerted after that for political and educational reform were resented as infringements to sovereignty, despite a recognition that reform was needed. In their initiation of the 2003 war, the United States and Britain were seen by many Gulf elites as displaying a cavalier attitude to international law. The conduct and outcome of the war seemed to demonstrate further failings: an inability to foresee the likely consequences of military action, and a lack of capability to control the course of events. Western policies had substantially increased the reach of Iranian power in the region. The Palestine issue also loomed large in the catalogue of grievances. Having failed to respond effectively to the Arab peace plan (crafted in its original form by Crown Prince Abdullah of Saudi Arabia in 2002), the United States and its allies were seen as pursuing a peace process (the Quartet’s Road Map for Peace) which was increasingly illusory. It was not backed by the pressure needed to halt Israeli settlement-building, let alone to initiate a process geared to the dismantlement of settlements. Nor did the European Union appear as a viable alternative to the United States: it was complicit in the failure of the peace process, and had failed to act effectively in negotiating a Free Trade Agreement with the GCC. The year 2009 marked the 20th anniversary of the first EU–GCC announcement of a shared intention to conclude an FTA. The desire and ability of GCC states to pursue diplomatic initiatives of their own must be set against this backdrop.

Whether the diplomatic initiatives undertaken by GCC states actually increase the collective diplomatic strength of the GCC states, however, is questionable. Many of the initiatives reflect the rivalries between Gulf states rather than a shared determination to project themselves effectively on the international stage. Key elements in Qatar’s distinctive foreign policy, for example, are the maintenance of collaborative relations with Iran, support for Hizbollah in Lebanon, the conclusion of a Free Trade Area agreement with the United States (apparently inconsistent with Qatar’s obligations under the GCC common market), and permission for Israel to open a trade office in Doha (an agreement which was subsequently frozen, in protest against Israel’s assault on Gaza in early 2009). The one element that all of these policies have in common is their dissonance with the international positions espoused by Saudi Arabia. Given that Saudi Arabia is the only one of the GCC states with sufficient international weight to play a role on the global stage, it could be argued that the Qatari initiatives are diminishing rather than enhancing the role of GCC states in global affairs.

It is also worth recalling that the Arab states of the Gulf have, at times in the past, played significant roles in regional and global politics. In the late 1960s and the 1970s, Saudi Arabia helped to shape the parameters within which the Palestine issue was handled. This occurred through direct pressure on the Western world (in particular through the oil boycott imposed in 1973–4), and by means of worldwide diplomatic initiatives. Such initiatives led, for example, to the majority of African countries severing their ties with Israel in the mid-1970s. Close coordination between the Arab states of the Gulf and other Arab states underpinned these initiatives. An active diplomacy is, therefore, not new to GCC states. It is the extent of the intra-regional mediatory activity which is new.

Sixth, Janardhan explores the development of Gulf–Asia ties, and the possibility of fundamental changes to the security architecture of the Gulf region. The importance of the Gulf–Asia relationship has come into sharp focus since 2003. The realization has spread that the substantial and steady rise in oil prices is not the result of random fluctuations in the oil market. Rather, it reflects a long-term change in the balance in the supply and demand for oil, much of which stems from the rapid industrialization of Asia. Asia, then, has created the dynamic for the steady growth in revenues reaching the Gulf states, and its own further development is dependent on increasing imports of Gulf oil. The quantities of oil needed are such that supplies from elsewhere could never be sufficient. The interweaving of common and shared interests is enhanced further by trade and investment in the petrochemicals sector. As Janardhan suggests, mutual economic dependence is bound to raise issues of strategic cooperation. The strengthening of Gulf–Asia mutual dependence, moreover, is happening at a critical time. As has been contended earlier, the Western powers no longer appear as credible as they once did, in terms of providing critical and uncomplicated strategic support. The possibility of a major shift in the dynamics of the Gulf ’s security architecture arises.

Much of the informed discussion of the Gulf–Asia relationship in recent years has focused on the growing symbiosis between the Gulf states and China. Janardhan recognizes the importance of this, but also stresses the significance of India’s broad and multi-faceted relationship with the GCC states. The range of the mutualities that connect India with the Gulf is wide: prolonged and intimate historical contact; a record of trading with each that goes back centuries; population movements both at the elite and labouring levels; some shared cultural traits; and complementary economic needs, especially in the trading of oil and petrochemicals. Indian companies have emerged as major contractors in the Gulf. To all this is now added a strategic dimension: a rapidly developing Indian naval capability in the Indian Ocean. Nor is it only a question of China and India. Many other newly industrializing Asian countries are developing a strong presence in the Gulf, complementing the GCC states’ longer-established links with Japan, Taiwan and South Korea.

Janardhan is surely right in seeing these relationships as of key importance for the future. Some possible limitations to the development of these relationships, however, should also be noted. Sharp divisions remain among the countries of the Gulf, especially between the three major players: Iran, Iraq and Saudi Arabia. For as long as such tensions exist, Gulf states will be tempted to seek external support. In the short- and medium-terms the United States has the greatest capability to provide the weaponry and military backup that a state perceiving itself to be vulnerable might require. The United States, moreover, controls many of the key sea lanes on which both oil producers and oil consumers depend. The Asian governments themselves are conscious of their own dependence in this regard, and have shown themselves reluctant to take actions perceived as threatening to the US presence in the Gulf. This dynamic would only change if there is a fundamental shift in the character of intra-Gulf relations – creating a regional security architecture where the Gulf states can resolve differences locally. The confidence built up by such a shift would make an external strategic presence unnecessary. The ability of Asian countries to strengthen their political presence in the GCC states, then, is partially dependent on the creation of more stable, peaceful and conciliatory relationships among the latter. It is in their interest to promote such relationships, and some of them are in aposition to do so. China, for example, is the only great power that enjoys good relations with all of the three major Gulf states. It may in the future find opportunities to use these good relations to foster negotiated agreements on potentially conflictual issues.

Seventh, environmental concerns. This is a field where the GCC states are usually portrayed negatively. Their economies produce much of the oil and gas whose use provides the catalyst for climate change. As Janardhan points out, the Gulf states are responsible for some 30 per cent of the world’s oil output, and control some 40 per cent of the world’s proven gas reserves. The blame for climate change clearly lies primarily with consumers rather than producers, but the association remains in the minds of some observers. At times, Gulf governments have borne some responsibility for this association, given that some have cast doubt on the causes and reality of global warming. That, however, is no longer a significant issue today. A further factor behind the negative image is the high per capita carbon imprint in the GCC countries – one of the highest in the world. More broadly in the environmental field, many of the developments along the Gulf coast have been undertaken with limited knowledge or concern as to how they will affect the wider marine and desert environments.

Yet, there is also a strong trend in the GCC states (some more than others) to develop environmentally friendly projects. These include Masdar City in the UAE, which aims to be the first city in the world with zero carbon emissions. There are also investments taking place in solar energy. In the latter, the GCC states have a strong basis on which to build: guaranteed sunshine for large parts of the year, plenty of open space not currently in economic or housing use, and ample financial resources to support the costly initial stages of solar energy projects.

Janardhan’s book, therefore, breaks important new ground. It raises issues that are important to address, whether or not one agrees with its specific contentions. The book should initiate and shape debate, and this is what is needed at the moment. Debate and discussion is vital both among the local populations themselves, whose future is directly at stake, and among those external to the region. All must recognize how the GCC states will impinge on, and help to fashion, the new global order that is emerging.

1 Political Reforms: Thinking Out of the Box

The call for reform in the Gulf region is gaining momentum, not just behind closed doors, but also in various public forums. Without meaning to rock the boat too strongly, reformist initiatives are conceived by academics, and even ruling family members, as a way to create a mechanism that can ensure a stable and secure future for their countries.

This changing perception was most prominently articulated by General Sheikh Mohammed bin Rashid Al Maktoum, UAE vicepresident, and prime minister and Ruler of Dubai:

If you do not change, you will be changed … If you do not initiate radical changes, responsibly discharge your duties and uphold the principles of truth, justice and responsibility, your people will resent you. More than this, the verdict of history on you will be severe.¹

While there is acknowledgement in all quarters of the need to undertake reforms, the differences, as ever, are related to the nature and extent of these reforms, as well as the role of external forces as an agent for change. Opinions converge, however, in intellectuals and common people alike emphasizing the need for a culture- and region-specific model for democratic reform in the region, while strongly rejecting the imposition of Western diktats.

When Washington announced its first plans after the events of 9/11 in 2001 to push for democratization in the Arab world, the regimes and people reacted with anger and scepticism at one level, while becoming cautiously optimistic on another. Perhaps the greatest cause for initial scepticism was that the George W. Bush administration announced its intention to create the Greater Middle East Initiative – with democratization as its core objective – without first consulting the countries at the receiving end. This meant that even those who thought the US idea was good and could help in the region’s overall development, questioned how one country could push for democracy when Arabs themselves were not part of the consultation process.

The reaction to the US-led invasion of Iraq, and the inability of the United States to make headway in resolving the Palestinian-Israeli violence, were two other reasons for the scepticism regarding the American policy. In particular, having watched the chaos and anarchy that followed the invasion of Iraq – an invasion premised partly on democracy promotion – many in the region associated the American policy with catastrophe.

Two prominent reactions emerged