The GCC Counts the Costs of Its Conflict

5 MINS READNov 2, 2017 | 09:30 GMT
The leaders of the Gulf Cooperation Council gather for their annual summit in 2005.

The annual Gulf Cooperation Council summit is slated for December. But nearly five months into the blockade that Saudi Arabia, the United Arab Emirates and Bahrain, along with Egypt, imposed on Qatar, it's unclear whether the conference will happen as scheduled -- or at all.

  • The blockade on Qatar will make economic integration — a perennial struggle for the Gulf Cooperation Council (GCC) — all the more difficult.
  • The longer the blockade continues, the more the GCC's cohesion will be at risk.
  • Though the GCC's members share similar economic and security concerns that lend themselves to common solutions, each individual state's domestic priorities will prevent it from focusing on the good of the bloc as a whole. 

The annual Gulf Cooperation Council (GCC) summit is slated for December. But nearly five months into the blockade that Saudi Arabia, the United Arab Emirates and Bahrain, along with Egypt, imposed on Qatar, it's unclear whether the conference will happen as scheduled — or at all. If the GCC calls off this year's summit, or if Qatar sits it out, the cancellation would mark the first time in the bloc's history that a disagreement has prevented the annual meeting. If, on the other hand, the six member states pull together to hold the conference as planned, the meeting will offer a glimmer of hope that the bloc can weather the current crisis as a cohesive entity.

The feud has revealed the cracks in the GCC's veneer of unity and disrupted relations not only in the bloc itself, but also in the region. It has not, however, interfered much with the Gulf states' economic affairs. Although Saudi Arabia and the United Arab Emirates hoped Qatar would cave under their pressure, the country's economy has withstood the blockade largely unfazed — as have those of the other GCC members. The far greater source of financial stress for the GCC is the stagnating price of oil, which will continue to drive the group's constituent states apart even after the current dispute has blown over.

An Unfulfilled Goal

From its inception, the GCC has listed greater economic integration among its goals, though it has struggled to make headway in that endeavor. The differences between the Gulf states' economies, and their priorities, have continually gotten in the way of integration. Saudi Arabia has long advocated to bring the bloc's members — which together would form the world's 12th-largest economy by gross domestic product — into closer economic cooperation. Kuwait, by contrast, has resisted measures that would make it more dependent on the rest of the GCC. The tiny state is the only country in the bloc that pegs its dinar to a basket of its main trading partners' currencies, rather than to the dollar, and it infamously bucked proposals for a common currency in the mid-2000s. Apart from their diverging interests, the Gulf states' well-established trade and investment ties outside the bloc have also hindered greater integration. Transit and supply chain connectivity constitute the extent of the Gulf states' interdependence in trade. Qatar, for example, traditionally relies on the developed ports in the United Arab Emirates for much of its importing and exporting needs and on land routes through Saudi Arabia for up to 90 percent of its food imports.  

The Economic Heft of the Arab Gulf States

Abu Dhabi and Riyadh believed these links would be enough to force Doha into complying with their demands sooner than later. Adding to the pressure on Qatar, Saudi and Emirati banks unofficially suspended business with companies and entities linked to the country, and deposits in Qatari banks declined as well. The isolation has created its share of financial problems for Qatar, which has had to spend considerably more on food and supplies than it did before the blockade, relying on countries such as Iran and Turkey. But because the state has its own hubs to transit shipments of natural gas, its economic mainstay, to markets abroad, Qatar has managed to stay afloat. Furthermore, the dearth of economic ties between the GCC states has limited the blockade's damage to the country, and to the rest of the bloc. Credit ratings agencies, after all, already had downgraded Saudi Arabia and Qatar for various reasons well before their latest spat began.

Selective Cooperation

In reality, the economic consequences of the bloc's conflict with Qatar pale in comparison with those of recent reform efforts in the GCC. Saudi Arabia, the United Arab Emirates and Qatar have all had to resort to levying new taxes and reducing subsidies to cope with lower oil and gas revenue. And each of the countries has felt the effects of these measures more deeply than they have felt the fallout from the blockade. The shared sense of vulnerability, in fact, has encouraged them to adopt a common value-added tax, to take effect in 2018. Their differences aside, the GCC states can at least agree on one thing: They need money from a more diverse array of revenue streams. Even so, the countries are implementing the measure not for the sake of the bloc, but for the sake of their individual survival. The tax will enable the governments in the Gulf states to increase their income without turning their public against them.

At the same time, the enduring security concerns that first brought the bloc together in 1981 will give its members room for cooperation. All six member states signed off on sanctions against a list of alleged terror financiers with links to Yemen in October, despite the diplomatic rift between them. Regardless of their disagreements, the Gulf states will continue to band together and pursue common policies to prevent Iran from extending its reach across the Middle East through proxy groups like Hezbollah or the Houthis. The bloc's members are all wary of the diplomatic and economic influence Tehran wields, though the states with larger Shiite populations, such as Saudi Arabia, Bahrain and Kuwait, consider the Islamic republic a more pressing threat.

Common circumstances and geopolitical similarities prompted the Gulf states to form the GCC. But the bloc never has been and never will be the economic partnership its members once envisioned. More than 30 years since its founding, a deepening sense of individualism among the bloc's members is turning them inward, and their common drive to diversify their economies will put them in tighter competition with one another in the future. As the GCC's member states prioritize their own needs over those of the bloc, they will have to leave their dreams of economic integration behind. 

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