For the near future, petroleum will remain important to the economies of the industrialized nations. When Kuwait was overrun by Iraqi forces in August 1990, the United States put together the international coalition that drove the Iraqis out, liberating Kuwait in February 1991. Due to more recent disturbing events, the significance of that 1991 military campaign has almost faded from public memory. The Persian Gulf region has sadly remained a very problematic and troubled area.
Stretching down the western side of the turbulent Persian Gulf, the Gulf Corporation Council (GCC) founded in 1981 is an alliance designed to promote mutual economic cooperation and defense. The GCC is composed of six member states: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.
The GCC is unique since its member countries are all monarchies. They are governed by royal families with the rulers allowing varying degrees of popular political participation. Their legal systems are based on Islamic law. In some of the counties, it has been combined with western legal adaptations. The people are mostly followers of Sunni Islam with a minority 10-15% being Shia. The exception is Bahrain which is ruled by a Sunni royal family and the majority of the island’s population is Shia.
In an area tormented by regional rivalries, the GCC states fear dominance by Iran or Iraq. The GCC states contain about a third of the world’s proven oil reserves and over 20% of world natural gas reserves. Currently, the GCC nations produce 25% to 30% of the world’s oil production. The size of the oil reserves in Saudi Arabia, Kuwait and the United Arab Emirates rank among the world’s top ten in size. The countries of the GCC depend on foreign labor. The number of expatriates in the labor force ranges from 40% to 85%.
For years, the countries in the GCC have been trying to diversify their economies, to move away from the dependence on oil. Since the 1970s, they have invested billions in infrastructure, industry, health services and education. The emphasis on education has produced large dividends. In the early 1970s, the literacy rate ran between 10% and 30% depending on the country. The literacy rate in the GCC is now in the high 90% range for both males and females. Healthcare has been greatly improved, there has also been a massive shift from rural to urban living. The member countries have a combined population of approximately 46 million. Saudi Arabia, the largest in territory, has population of about 30 million.
The Federal Reserve estimates that the average U.S. household saved $780 on gasoline costs in 2015. In the GCC states, the low world oil price has resulted in massive budget deficits. This situation has forced the GCC governments to begin to reduce the copious benefits and economic subsidies that became part of the deal binding subjects to monarchs in the days of high oil prices. With governments now considering taxing businesses, foreign workers and common citizens, one of the doctrines of current governance, the principle of no taxation and no representation, is losing validity.
As a result of the financial crunch, the rulers are seeking to end many of the practices and lavish spending programs that have been in place for nearly 50 years. The cradle to the grave welfare system is due to undergo a massive cutback. Many of the benefits long thought by people to be a birthright will be reduced. Analysts agree that the reforms are needed, many should have been implemented years ago. Many ordinary GCC citizens, however, see themselves as being asked to make financial sacrifices much larger than those being made by the social elites. The outcome will hinge on how well the reforms are carried out and if the common folk see economic opportunities coming with the reform effort.
Unfortunately, the reform drive is coming at a dangerous time. The region is afflicted by the war in Syria, instability in Iraq, an Iran with regional aspirations, the fighting in Yemen and the problem of the Islamic State. If the reform effort is handled poorly and popular discontent in the GCC countries reaches unmanageable levels, world oil supplies could be quickly affected. The United States and other world powers have a stake in seeing the GCC reform effort succeed. It is one of those thorny matters that world political leaders will be dealing with in the near future.