Members of the Gulf Cooperation Council (GCC) are trying to change with the times. Declining oil revenues have put some of these energy-dependent countries on the brink of economic crisis. Saudi Arabia's revenue fell by more than half over the past three years, from $302 billion in 2013 to just $147 billion in 2016, and its foreign reserves have tumbled by roughly $200 billion since mid-2014. Even Kuwait, perhaps the most financially stable GCC member, will post a budget deficit this fiscal year — its first in well over a decade. At the same time, all of the bloc's member states are dealing with mounting demographic pressures and generational shifts in leadership.
To cope with their newfound circumstances and weather the prolonged period of low oil revenues that is likely ahead, GCC states are pursuing unprecedented structural reform initiatives. The measures — including moves to reduce fuel subsidies, privatize businesses and diversify economies — are aimed, at least in the near term, at alleviating the countries' pressing economic problems. In the long term, however, they envision a new social contract between the governments of the GCC and their people to sustain the reforms. Efforts in Saudi Arabia to nationalize the workforce and employ more women, for instance, will transform the kingdom's social and political structures, albeit slowly. But change will not come easily, and the leaders of GCC states will encounter numerous complications along the way. For countries with large Shiite populations, such as Bahrain, Kuwait and Saudi Arabia, the ambitious reforms stand to exacerbate sectarian tensions between their Shiite and Sunni communities, giving Iran an opportunity to gain influence in the region.
The reform campaigns, though unusually broad in scope, are not the first such efforts that the countries of the GCC have made. Until now, however, the Gulf's leaders have not shown much urgency in pursuing economic change. After oil prices tanked in the early 1980s, Saudi Arabia depleted its financial reserves and ran a budget deficit of more than 10 percent of its gross domestic product for nearly a decade to avoid implementing reforms. It was not until the late 1990s — when its debt-to-GDP ratio exceeded 100 percent — that Riyadh bit the bullet and proposed substantial changes to its economy. In 1998, the late King Abdullah (then the kingdom's crown prince) cautioned his fellow countrymen that the time had come to adapt to a "lifestyle that does not rely entirely on the state." But oil prices picked up in 1999, obviating the need for austerity. Over the next 15 years, the reforms that the Saudi government had promised fell by the wayside as Riyadh dealt with problems in other areas, such as the domestic outcry over the U.S. war in Iraq and the steady creep of religious extremism.
No Longer an Option
Today, Saudi Arabia and the rest of the GCC are in no position to defer economic reform. With few prospects for a quick recovery in oil prices, the Gulf countries must prepare for an extended period of reduced oil revenue. Governments in the GCC will also have to find a way to accommodate the young people dominating their populations — 60 percent of Saudis, for instance, are under 15 years old — when they enter the workforce. Meanwhile, various groups throughout the bloc are calling for change, both economic and social. Reform is no longer an option for the GCC's members, but an imperative. GCC leaders such as Saudi Deputy Crown Prince Mohammed bin Salman and Emirati Crown Prince Sheikh Mohammed bin Zayed al-Nuhayyan will pursue the measures they have put forth accordingly.
Of course, overhauling the Gulf countries' economic, political and social structures will be no small feat. Cuts to social spending — which ballooned in the Gulf states after the Arab Spring uprisings as governments tried to quell unrest — will doubtless meet with resistance from the public, as they have in the past. Furthermore, uncertainty in the region will give Iran an opportunity to try to exert and increase its influence with the Gulf's Shiite populations.
Iran and the GCC: A Long and Varied History
Despite its ideological rivalry with the bloc's members, Iran has been a trade partner of the GCC's members since well before the bloc's establishment. In fact, the first proposals for the bloc included Iran as a member. The shah of Iran maintained a relatively friendly relationship with the Gulf states, focusing on areas of mutual concern such as the spread of Baathism, socialism and communism in the region, until the country's 1979 revolution overthrew him. In Gulf countries themselves, moreover, relations between Sunnis and Shiites — though tense — were peaceable. Gulf leaders did not view their Shiite communities, or the sectarian divisions within their countries, as a threat to national stability. The Arabian American Oil Co., which later became the Saudi Arabian Oil Co. (Saudi Aramco), employed many Shiites before its nationalization in 1980. In addition, a tacit understanding in Saudi Arabia's Eastern Province, home to much of the kingdom's Shiite population, allowed members of the sect to practice their faith, if only in private. Kuwait's royal al-Sabah family also found a useful ally in the country's Shiite community, cultivating ties with the Shiite merchant class to counter the demands of its Sunni counterpart.
But the 1979 Iranian revolution shattered the relative harmony in the Gulf. As the uprising progressed, the region's burgeoning Shiite activist groups, many of which had ties to Iran's Movement of Vanguard Missions, took to the streets themselves, demanding greater religious and economic freedom. Shiite groups in Eastern Province launched massive protests that year after Sunni extremists seized the Grand Mosque in Mecca. Amid the upheaval, the Saudi government grew more attuned to and suspicious of internal dissent movements; the newly forged Islamic Republic of Iran, meanwhile, established the Office of Islamic Liberation Movements, a governmental entity tasked with exporting the revolution abroad. Its efforts gave rise to militant Shiite groups in the Gulf, such as the Organization for the Islamic Revolution in the Arabian Peninsula and the Islamic Front for the Liberation of Bahrain. In 1981, the latter group staged a coup against Bahrain's royal family, the al-Khalifas.
Wary of the threat that Iran's political sway had become within their borders, the Gulf states banded together to form the GCC in 1981. Back in Iran, however, support for the Gulf's Shiite movements was on the decline. Factional divides left the politicians and clerics who backed the groups, such as Mohammad al-Shirazi and Hossein Ali Montazeri, marginalized (and in some cases, executed or imprisoned) and led the government to shutter the office for revolutionary movements. By the late 1980s, ties between Iran and the Gulf's Shiite communities had atrophied. Tehran still tried to empower new Shiite insurgencies in GCC countries, most notably Hezbollah al-Hejaz, the group widely believed to be responsible for a 1996 attack on a housing complex in Khobar, Saudi Arabia. But it now faced an uphill battle. In the years after Iran's revolution, governments throughout the GCC took a tougher stance on Shiite militancy. (They became all the more vigilant after public protests in Bahrain in 2011 revealed the strength of Shiite militant movements in the country.) The Gulf states' expansive security apparatuses cracked down on insurgent groups and made swift work of dismantling them. Many militant organizations concluded that challenging the system through violence at Iran's bidding was a losing strategy that earned local Shiites only harsher treatment and fewer rights.
Now, as GCC members pursue reform, Tehran may take the opportunity to renew its ties with the region's Shiites. Iran's Shiite communities still share ideological bonds with those of the Gulf, after all, and the rise of a new generation of Shiite leaders in the GCC could further strengthen those affinities. Tehran will have quite a few hurdles to overcome in its efforts to boost its clout in the Gulf, though. For one thing, many Shiites in the region adhere to the doctrine of Iraqi cleric Grand Ayatollah Ali al-Sistani rather than the teachings of Ayatollah Ruhollah Khomeini, who oversaw Iran's transformation into an Islamic republic. For another, Shiites in Bahrain, Saudi Arabia and Kuwait take pride in resisting their governments without Iran's intervention or oversight. Even so, conditions may be ripe for Iran to re-establish its influence in the Gulf, and the country's leaders are likely to try.