The Gulf response to the transformation of the global order

For the GCC monarchies, new strategies for a news energy model.

by Ian Bremmer
27 February 2019
8 min read
by Ian Bremmer
27 February 2019
8 min read

The post-World War II global order is fracturing. And while the 21st century’s shifting energy dynamics are not the cause of this fracturing, they are helping to accelerate the breakdown; geopolitical relationships with Gulf countries that were once considered sacrosanct are now being busily rewritten. This new energy environment also threatens the long-term domestic stability of these countries; leaders in the Gulf have begun bracing for a world where revenues from energy exports may no longer be enough to buy political stability at home. It’s a brave new world, whether Gulf countries want it to be or not.

Development of the downstream sector

This is not to say Gulf countries have been caught flat-footed by all these developments. In response to evolving global energy dynamics—and particularly the rise of the US as a dominant energy producer in the world—Gulf countries have been proactively developing downstream and petrochemical sectors to diversify themselves away from relying on revenue from crude oil production and its exports. The focus on petrochemicals is based largely on the Gulf states’ perceived comparative advantage in accessing cheaper feedstocks linked to upstream production; this is in addition to securing customers and long-term demand growth given their geographic proximity to manufacturing and end-user markets in Asia. It’s no coincidence that Saudi Crown Prince Mohammed bin Salman (MbS) is now gearing up to announce the Kingdom’s formal entry into China’s Belt and Road Initiative (BRI), in addition to positioning Saudi Arabia as the hub point for Chinese investment into Africa. It’s an attempt to bring in-line economic necessities with geopolitical opportunism, albeit one that does little to diversify the region’s core reliance on petroleum and oil as the center of Gulf diplomacy. 

To be fair, even if Gulf countries are eventually successful in diversifying themselves away from a reliance on oil production, energy more broadly will remain an important component of both their economies and their diplomatic outreach. To that end, we’ve seen an emerging relationship between OPEC and Russia—OPEC’s mechanics and spirit have materially changed with Saudi Arabia playing a critical role in leading, along with Russia, the most recent round of production cuts. Saudi Arabia and the United Arab Emirates will continue to seek new ways to cement cooperation with Russia to manage oil markets. News of a proposal to establish a Saudi-Russia centric OPEC replacement should not come as a surprise.

But as Gulf countries begin reorienting themselves on the international stage in earnest, they must also address political issues closer to home, especially given that the security and political environment in the broader Middle East affect energy production and pricing. While the geopolitical landscape in the region remains complex, one of the few certainties is that MbS is not going anywhere, international outcry over the Khashoggi killing not withstanding. But MbS needs a more stable Gulf given his own economic and political challenges at home; the rest of the Gulf needs it too as fluctuation in oil prices only adds more risk for the Gulf diversification programs—if prices are too low, it jeopardizes fiscal resources; if prices are too high, it dulls the will for implementing much-needed change. This need for geopolitical stability will most likely necessitate a climbdown from the Saudis on the war in Yemen and will push the Saudis to engage with Qatar in a more proactive manner (most probably by enlisting the Kuwaitis to act as negotiator). It will also force Riyadh to accept the realities on the ground in Syria (i.e. recognizing Bashar Assad has won and making peace with it), and to tone down the prospects of direct confrontation with Iran (it helps that both sides have their own domestic challenges to worry about—Tehran is heading into a serious economic recession this year).

The internal challenges for the new generation of leaders

All that said, it must be acknowledged that the politics in the GCC states will be significantly transformed in the coming decade. A new generation of leadership is seizing the reins in Saudi Arabia, the United Arab Emirates, Qatar, and Bahrain—and even to some extent in Oman. Until recently, this new generation has consistently been portrayed as erratic, but has now become much more predictable and pragmatic. Nevertheless, these new leaders will be challenged by growing internal, bottom-up pressure for greater popular participation among a youthful workforce that’s chronically underemployed, and in particular by those agitating for representation of specific marginalized groups, including young people, women, religious minorities and citizens living in the less well-off areas of Saudi Arabia, Oman, Kuwait, Bahrain and the UAE.

Changes in the availability of education and information are adding to expectations of greater transparency, freedom of expression and political participation. Far greater freedom of information has a particularly pronounced impact in countries where the media were previously tightly controlled by the state, as in the Gulf; young people are exposed to a far greater diversity of ideas than were their parents. Social media, hugely popular in the Gulf states, are normalizing the public expression and participatory debate of views. These intensifying pressures will not necessarily lead to revolution, but if the Gulf rulers do not act to accommodate changing public expectations, more discontent could arise in the coming years. That discontent may not turn into successful protests, given the tools and resources that Gulf governments have to maintain power. But struggles over power and wealth could polarize social, ethnic or religious groups; opposition movements could become radical and divisive, like the government policies that engender them; and larger regional and international powers could take advantage of unaddressed political weaknesses.

For decades now, energy has been one of the few constants for Gulf countries. That’s been both a blessing and a curse, making Gulf countries vulnerable to fluctuating international oil prices while at the same time providing more than enough revenues to buy the political peace at home. But as the shift in energy dynamics makes the Middle East less critical to the world from a geopolitical perspective, Gulf countries will be hard-pressed to make this new energy calculus as successful for themselves as the old one.

The author: Ian Bremmer 

Ian Bremmer is the President of the Eurasia Group, a leading global political risk research and consulting firm, which he founded in 1998 with a capital of only $25,000. The company now has branches in New York, Washington and London and works with a network of experts and resources all over the world. The Eurasia Group provides financial, corporate, and government clients with information and insight on how political developments influence market trends. Bremmer created Wall Street’s first global political risk index and has written a number of books, including Every Nation for Itself: Winners and Losers in a G-Zero World, which details risks and opportunities in a world without global leadership. He also wrote the national best-seller The End of the Free Market: Who Wins the War between States and Corporations? and The J Curve: A New Way to Understand Why Nations Rise and Fall, selected by The Economist as one of the best books of 2006. Bremmer is also a contributor to The Financial Times, A-List and Reuters.com and writes The Call blog on ForeignPolicy.com. He has also published articles in the Wall Street Journal, Washington Post, New York Times, Newsweek, Harvard Business Review and Foreign Affairs. He appears regularly on programs on CNBC, Fox News Channel, National Public Radio and other networks.