GCC: Can The Arab Gulf States Form A Political And Economic Union To Rival The EU And Shut Out Iran?

Since an uprising erupted in Bahrain last year, in tandem with the wider 'Arab Spring' revolution, the royal families of Bahrain and Saudi Arabia have both accused Iran of interfering with Bahrain's internal affairs.

Bahrain is somewhat unusual in the Middle East in that the ruling elite are Sunni Muslims who govern a populace of predominantly Shi'a Muslims. Iran (a Shi'a power) has reportedly assisted their Shi'a compatriots in Bahrain in their protests against the government. In response, Bahrain's powerful Sunni-dominated ally Saudi Arabia dispatched troops to Manama to quell the rebellion in the tiny kingdom and maintain a tense status quo.

Worse yet for Tehran, the contemplated union of Saudi Arabia and Bahrain forms only one part of a potentially much wider alliance -- the political, military and economic integration of the Gulf Cooperation Council (GCC), which comprise Saudi Arabia, Bahrain, Kuwait, Qatar, the United Arab Emirates (UAE) and Oman.

The last GCC meeting in Riyadh on May 15 failed to reach a concrete agreement on this ambitious project, but the mere suggestion of the idea of the Saudis and Bahrainis uniting sparked alarm and resentment in Iran as well as among the opposition in Bahrain.

As Iranian parliament speaker Ali Larijani put it in an interview with the state-run IRNA news agency: If Bahrain is supposed to be integrated into another country, it must be Iran and not Saudi Arabia.

It’s Always Sunni In The Arab Peninsula

Originally created in 1981 in response to the Islamic Revolution of Ayatollah Khomeini in Iran and the emergence of Saddam Hussein in Iraq, the Sunni-dominated GCC is primarily a loose affiliation of shared economic and political interests. Their economies are heavily dependent on crude oil and energy production, which itself is reliant on foreign migrant labor (particularly from Asia) and a young, rapidly growing labor force.

As for governance, “the most notorious feature they all share is that they are all dictatorial regimes,” said Dilshod Achilov, professor of political science at East Tennessee State University at Johnson City, Tenn.

Indeed, all six states are ruled by hereditary monarchies, which offer limited political representation.

In addition, the GCC states have a common cultural identity, which they refer to as 'Khaleeji,' said Jamie Chandler, a professor of political science at Hunter College in New York City, and encompasses language, literature, music, cuisine, and dress drawn from Najd and Yemen tribal ancestries.”

“The existing [GCC] has brought several benefits to the Arabian Peninsula since its founding, such as a central patent office, monetary council, and common market,” Chandler added.

However, despite the many similarities among GCC nations, a genuine union would face significant hurdles and would have a difficult time equaling the successes of the European Union as a trade and military alliance.

One of the major obstacles is the lack of consensus among the states on a host of issues. “In the past, they have not met new threats with a comprehensive, diplomatically driven strategy,” said Chandler. “Instead, each [member] has responded individually. It will be hard to break this pattern.”

Saudi Arabia: Neighborhood Giant

To visualize what a united GCC would look like, contemplating the role that Saudi Arabia would play is critical. The Kingdom, which boasts the richest oil fields in the world and produces about 15 percent of the planet’s crude, would, of course, dominate the union with its vast global economic and financial leverage. Because of its oil relationships, Saudi Arabia has amassed nearly $650 billion in foreign reserves, making the Kingdom the third largest holder of foreign currency after China and Japan.

Moreover, the Saudis have used their money to deepen friendships with Muslim nations in the region. Recently, the Saudis agreed to hand over $3.25 billion in financial aid to its needy neighbor to the south, Yemen, and Egypt, Lebanon, Jordan, Pakistan, and Palestine all depend heavily upon Saudi largesse.

Given the Saudis' immense wealth, would they exert too much influence in a proposed GCC? Achilov noted that the Kingdom’s power could potentially be muted if the GCC follows the EU’s lead and gives equal veto power over decisions to all member nations.

“Even a small EU country (e.g., Luxembourg) can block the EU’s decisions,” said Achilov.

However, creating that type of arrangement would be difficult because in the initial intra-state negotiations the Saudis’ outsized influence would tilt the playing field in their favor. And tamping down the Saudis power after the GCC is formed could be equally problematic unless “a central authority exists to enforce commitments,” said Chandler.

Considering the autonomy that Gulf states enjoy and are unlikely to yield, a strong governing body with real teeth overseeing the GCC is hard to imagine.

The EU has continued roll out a number of measures to ensure that power is relatively equal among member countries. For example, the EU employs a rotating leadership, which ensures that officials from smaller countries can ascend to the most important decision-making jobs.

Moreover, the EU is comprised of a number of different institutions – Council of the European Union; European Commission; European Council; European Court of Auditors; European Court of Justice; and European Parliament – each of which are independent of each other. Thus, the EU in its current form is a monument to the concept of “separation of powers” – although it's not perfectly egalitarian, since the big three, France, Germany and UK, wield somewhat more influence than the weaker peripheral nations.

“But even this took several years of treaty developments,” Chandler noted. “And we’ve seen a number of challenges as of late in how each country wants the EU to deal with the Greece crisis.”

GCC: Small, But Growing

The GCC is much smaller than the EU, which has a population in excess of 500-million people compared to fewer than 50 million in the Gulf states. And economically the GCC also lags well beyond Europe. Combined, the GCC states had a GDP of about $1.37-trillion in 2011 (almost half of that from Saudi Arabia). That is a pittance compared to the total $17.7 trillion economy of the EU.

But the GCC is growing much faster than Europe. The population of the Gulf states has increased 43 percent since 2002, according to World Bank. In fact, Qatar's population spiked by 181 percent over that period, while that of the UAE grew by 130 percent. By contrast, the EU’s average annual growth rate in population has dropped from 0.17 percent in 2004 to 0.10 percent in 2010. As such, the EU's population is projected to peak at 526-million in 2040, and then decline to 517-million in 2060 (when one-eighth of the population will be elderly.)

And GCC economies are also expanding much more quickly than the EU. The combined GDP of the GCC countries has more than doubled since 2001 and these nations are expected to post an average economic growth rate of 5.3 percent this year, supported by firm oil prices and fiscal expansionary policies. The IMF predicts negative growth in the euro zone, and only 2 percent GDP expansion in the U.S.

The only laggard economy in the GCC is Bahrain, due to its continuing political turmoil. Its GDP growth rate should reach about 3.5 percent this year (still higher than any European nation). As a result of this relative economic bonanza, “the GCC countries have accumulated large fiscal and current account surpluses in recent years,” said a report from the World Bank.

And they’ve begun to spend that money on improving the quality of life and the economic mobility of their citizens. For example, 18.6 percent of total government spending in the region as a whole was on education last year versus a global average of 14.2 percent. Adult literacy rates are climbing; in Saudi Arabia literacy among people over 15 rose to about 86 percent last year from only 70 percent in the early 1990s.

Spending on infrastructure in the GCC to improve airports, roads, shipping routes and utilities in hopes of attracting global businesses is also ballooning. As much as $286 billion in new construction projects will be awarded in the next five years, according to a study released recently at the Arabian World Construction Summit. This is on top of more than $500 billion in existing infrastructure investment in the region.

Diversifying Away From Oil

In part because of the substantial infrastructure expenditures, the GCC states have begun to drive new industries into the region, such as tourism, telecommunications, pharmaceuticals and banking.

This is a critical initiative to wean the GCC from its over dependence on oil exports for its survival, particularly since the growth in oil demand is expected to slip over the next few decades as automobile fuel efficiency improves, non-gasoline engine cars are developed and solar energy equipment improves and becomes less expensive. In addition, most of the globe’s prolific and accessible oil reserves are more than halfway depleted.

The non-oil private sector contributed about 47 per cent to Saudi Arabia's economic output in 2009 compared to only 25 percent in 1974, according to John Sfakianakis, the chief economist at Banque Saudi Fransi in Riyadh.

However, for now, crude oil remains the foundation for Arab Gulf wealth. And as the West attempts to sever the Iranian oil pipeline because of Iran’s nuclear ambitions, the Saudis and their regional allies become ever more important in the global economy. They could best take advantage of this position through a united GCC that encompasses a common capital market and monetary system, shared regulations for industry and capital flow and a single bloc for negotiating oil contracts.

But while the GCC states give lip service to joining together, none have shown any great inclination to tackle the issues that must be addressed to achieve that. “Only Bahrain, Kuwait, Qatar, and Saudi Arabia have signed a monetary council agreement to date,” Chandler said. This agreement is the first step towards launching a single currency for the region. “And each state has also clung to protectionist policies, which have repeatedly delayed closer economic ties.”

Perhaps one way that the GCC states could begin to build the foundation for a union would be by expanding security and military cooperation pacts. Indeed, GCC might serve as a kind of regional 'police force.'

For the moment, the GCC’s defense shield force, comprising 40,000 soldiers, plays a significant military role in Gulf security. But the Gulf states’ security partnership depends heavily on the U.S. for training and equipment and must coordinate its military strategy with the Pentagon.

And the U.S. will not allow this arrangement to change significantly as long as Iran remains a danger and threatens to blockade the Strait of Hormuz (a crucial oil transshipment conduit).

But it is increasingly an uneasy relationship. An October 2008 report by Britain's Ministry of Defense commented that while the GCC states welcome the powerful security guarantee the U.S. offers, “a strong domestic anti-Americanism, coupled with broad resentment across the Muslim world of signs of close association with such a resented power, makes a significant US footprint on GCC soil a risk in itself.”

Bahrain And Iran On The Short-Term Agenda

For now, however, Bahrain appears to be the principal focus for the GCC. In many ways, the notion of establishing a GCC union largely emanates from the upheaval in Bahrain and the growing Iranian threat to the survival of Bahrain’s government.

Indeed, the Saudis view Bahrain as a key strategic “buffer zone” between the Sunni Arab monarchies and a potentially nuclear-armed Iran and they see the GCC union as a way to ensure strong support for the status quo among GCC states and to repel any attempts to destabilize the region.

“It is highly imperative for Saudi Arabia to 'save' Bahrain before it is too late,” Achilov said.