As protests started in the last week of May in a few cities of Oman over economic concerns, there was a glimpse of the decade-old Arab Spring protests. Nevertheless, while the geographical locations (cities such as Sohar) remained common, the reasons at play were different. This time around, the concerns were over unemployment and joblessness among the pandemic coupled with more extensive structural changes to the Omanese economy. Thus, while the protests might have happened only in Oman, they indicate possibilities in the larger Gulf Political Economic set-up that is undergoing a similar shake-up.
COVID-19 came at a crucial time when the region was already ailing with lower oil prices. The pandemic further induced a drastic reduction in the prices which came down even lower to around $20 per barrel in April 2020 from approximately $64 per barrel at the start of 2020. Interestingly, in the US, it even went below 0$ because of a storage crisis. Along with this, the pandemic also brought a halt to economic activities. These two things together dealt a severe blow to the Gulf economy. The impact can be understood from the fact that hydrocarbons account for over 80% of the revenue generated by Oman and similar figures in other Gulf countries. The Gulf budget is thus over-dependent on the volatile oil market.
Structure of Political-Economy and Impending Crisis
Since the discovery of oil in the Gulf, area economies have become reliant on it for sustenance. As a part of the social contract, political stability comes from the distribution of Oil-rents through various channels to the citizens. This distribution takes the form of increased investment in public welfare projects like health, education, etc., government jobs for citizens at a premium salary compared to market wage rate, and exclusive business contracts for domestic business owners, which in essence allows them to make large amounts of profits. These are basically ways to distribute the economic profits generated from oil exports. All this was maintained while no income taxes were imposed, and oil remained the primary source of revenue, as mentioned above. Public-Sector industries were set up to bring in modernization and innovation, which they succeeded in doing but have come to dominate the entire market over time. They now have come to even act as structural barriers to the growth of any private firm in their respective sectors because of their scale as well as advantages and subsidies received from the government. Citizens, too, flock to jobs in the public sector because of higher wages than the market rate.
Interestingly, the low-paying jobs of the public sector and even the private sector come from expatriates, which now consist of over 50% of the population in some of the Gulf States but are devoid of any meaningful rights vis-a-vis the citizens. Until recently, they were treated by the inhumane 'Kafala System' in most states which tied them to their initial employer. This has fortunately been done away with in most states by now. Private sector enterprises that run are also indirectly supported through government contracts and connections, which again are supplied through Oil and Gas earnings. Thus, there is a lack of meaningful space for innovation and private industry, which puts increasing pressure on the government to maintain social and economic stability from the hydrocarbon revenue.
This social contract now faces a critical challenge due to multiple reasons. According to an IMF Policy Paper titled 'Economic Diversification in Oil-Exporting Arab Countries' released in 2016, the hydro resources of Bahrain are expected to deplete in the next ten years while those of Oman in 25. Others, too, face a similar timeline, whereas in the short term, the demand and oil prices are expected to see a downfall due to the increasing efficiency of renewable energy sources and market shift towards them. This peculiar situation has forced Gulf nations to rethink their economy and bring in diversification. This involves looking for alternative sources of revenue and spurring private sector enterprises, and bringing foreign investment. Another important strategy is to reevaluate and streamline the generous public relief mechanism in place. Oman, for instance, has cut down on subsidies for affluent households to focus its resources on the poorer segments. Similarly, Value-Added Tax was also introduced along with a gradual introduction of 'Income Tax' for the affluent segment of the population. This again is a move that is being replicated or at least planned in other Gulf countries. Moreover, rulers such as Prince Mohammed Bin Salman of Saudi Arabia are aggressively pushing for economic diversification by 2030 and recently announced that would invest over $3.2 Trillion for the same by 2030.
Political Stability in the Wider Middle-East
Though they might look small on paper, these measures have broader implications on the political stability of the Middle East. The social contract in the Gulf is undergoing a rapid change and thus provides space for the destabilizing elements to take a shot. Put into the backdrop of being just a decade after the Arab Spring, when numerous regimes across the Middle East and North Africa were toppled through protests, it acquires more immense significance and poses a substantial threat to these political structures.
Middle-East conflicts are largely characterized as the Shia-Sunni divide, embodied in the rivalry of the Saudi bloc and the Iranian bloc. As a matter of fact, the Iranian revolution was a major motivating factor behind the formation of the GCC. To challenge the leadership by the Saudi bloc of the Muslim Ummah, an alliance has been budding between Turkey, Iran and their allies. It included Malaysia till PM Mahathir Mohamad lost power last year. Qatar also came out as a strong ally. It was thus blockaded by the Saudi, UAE, Bahrain, and Egypt to pressure it to cut its ties from Iran and Turkey and stop bankrolling Muslim Brotherhood and political Islamists. The shutting down of the Al-Jazeera media network was another critical demand.
The Muslim Brotherhood played a significant role in the Arab Spring and hijacked protests in various countries, including Egypt, to establish their candidate as the ruler. There are speculations among Gulf nations that relatively better weathered the previous protests that the Brotherhood and its allies would try to ferment similar dissent and protests in their lands. Ideological coherence between Qatar's Sheikh Al-Thani and Turkey's Erdogan, along with Erdogan's open support to the Brotherhood, are major irritants. There are strong reasons to believe that the Iran bloc would try to capitalize on this change to promote protests through its media and financial arms as well as proxies across the region. Even though outright removal of the dispensations may not be possible, any instability in the Gulf would work in favor of promoting an alternative leadership of the Ummah. Thus, economic changes affect the social contract on which these kingdoms are based and are hence precursors to any political volatility.
Thus, the Gulf needs to maintain touch with the masses and balance structural economic change and political stability. What is at stake is not just the economy but the leadership of the wider Muslim Ummah. Erdogan's ambitions of reviving the Ottoman leadership are not hidden from anyone. There have been multiple attempts in the past by him to project himself as the leader of the Muslim World. Indeed his economy is in danger as well. In the end, political and military power trace their origin to economic strength, which is where the Gulf finds itself at crossroads.
Falit Sijariya is the Founder of Studomatrix, an all India school students' organization with over 25000 students in India and Diplomatron. He is currently majoring in Political Science and Economics from St. Stephen's College, Delhi. His writes on Geopolitics, Public Policy and Political Economy for various Think Tanks. He is engaged in reforming the school education landscape across India with Studomatrix and empowers students specially Tier-2 and Tier-3 cities.