Gulf Research Center
GRC Corporate Members' Roundtable
22 April 2009
The outlook for the GCC countries in April 2009 is one of cautious optimism. The global financial crisis has underscored the links in the global economy, and in this sense the GCC states are certainly not immune from the negative repercussions of the current downturn. Any hopes that they could decouple from the general trend have proven to be wishful thinking. For example, some sovereign wealth funds have lost more than 30 percent of their assets; there has been a dramatic increase in refinancing costs for cash strapped corporations and a precipitous decline in the price of oil from a high of nearly $150 in July 2008 to almost $30 at the outset of 2009.
But while the consequences of the economic crisis have certainly been felt, there is also a lot of exaggeration and fear-mongering in current media coverage of the region. The fact is that the GCC countries are in a privileged position to deal with the present situation. Oil prices are likely to recover due to global supply constraints even in a scenario of sluggish demand. While the various diversification efforts in the Gulf in heavy industries trade and tourism have arguably reached critical mass, these efforts will not simply disappear. At reduced price levels, they can in fact offer good value. Furthermore, due to their accumulated savings, the GCC governments have the ability to step in to provide stimulus and bridge financing for various ongoing projects. Far from being a dark scenario, there are many silver linings to be explored.
On the regional security and political fronts, the picture is more uncertain although here as well there are developments that reflect a sense of cautious optimism. Overall, the security concerns have increased for the GCC states over the past six months with piracy and international maritime security having been added to the continuing challenges as exemplified in the volatile security situation in Iraq, the deep concerns over the Iranian nuclear program and the Islamic Republic’s expansionist policies in the region, and the ever-present threat of terrorist activities within the Gulf region. The unstable situation in Yemen, the re-emergence of the Taliban in Afghanistan, concerns over the stability of Pakistan, and the election of a right-wing government in Israel are also factors that heighten tensions in the immediate neighborhood of the Gulf and they must be seen as potential threats to regional security.
At the same time, the election of a new administration in Washington combined with the increased willingness of the GCC states themselves to actively contribute to the diplomatic resolution of disputes are undoubtedly elements that are contributing to the lessening of tensions. While the jury is still out on the new Obama presidency, the shift from unilateralism as the defining nature of US Gulf policy broadens the terms of debate and reinvigorates the chances of diplomatic progress. The readiness of the GCC states to also become engaged ensures that GCC interests are part and parcel of any discussions thereby increasing the regional ownership of the process.