Common needs, diverging agendas: The GCC at 40

25 May 2021
Growing interdependence outshines internal differences as the Gulf Cooperation Council (GCC) marks 40 years since its establishment

On 5 January, a widely used publicity photo taken to mark the conclusion of the 41st GCC summit showed leadership figures from all six member states standing side-by-side in front of the mirrored walls of the new desert conference centre in Al-Ula, Saudi Arabia.

The image was significant because it provided a strong visual statement of unity in the GCC after a three-and-a-half-year diplomatic dispute that shattered confidence in the ability of the six-country alliance to continue.

The diplomatic crisis, which saw Bahrain, Saudi Arabia and the UAE, together with Egypt, sever diplomatic and transport links with Qatar on 5 June 2017, was ostensibly triggered by an alleged hack on Doha’s official news agency. But the disagreement highlighted a wide range range of political and security divisions in the bloc that include relations with Iran, support for the Muslim Brotherhood, hostile reporting by state-run media and espionage. 

While the Al-Ula Accord represents a significant, and welcome, rapprochement in regional relations, it has not resolved any of these fault lines, which reflect the reality that the GCC is a group of independent sovereign states, each with its own ambitions and agenda.

While all six states face the common challenges of over-dependence on oil, an inefficient state-run economy, regional geopolitical instability, dependence on imports and high levels of youth unemployment, Doha’s strategies and actions in recent years to address some of these challenges have been at odds with those of Riyadh, Abu Dhabi and Manama. Meanwhile, Muscat and Kuwait also have differing priorities from their neighbours.     

While the recent dispute may have been the deepest fallout between GCC members, it was not the first. It will almost certainly not be the last. 

So, as the GCC marks the 40th anniversary of its establishment on 25 May 1981, the question is: Can it survive another 40 years? And if so, for what purpose?

Defence cooperation

The GCC was initially established in Riyadh as an alliance of the six Gulf Arab oil economies of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE. 

Its charter focuses on economic, educational and cultural cooperation and does not specifically mention political and security issues, but the primary purpose of the alliance was to counter the growing regional influence of revolutionary Iran. 

Security cooperation formed the bedrock of the alliance. In 1984, amid the 1980-88 Iran-Iraq war, the GCC established the Peninsula Shield Force (PSF) to counter military threats against any member state. An intelligence-sharing pact was signed in 2004. Although the PSF was in place through the 1990 Gulf war, its first major deployment came in Bahrain in 2011, when PSF forces were used to protect guard infrastructure against protesters during the 2011 Arab uprising, the so-called Arab Spring.

The fallout between Riyadh, Abu Dhbai, Manama and Doha in 2017 saw Qatar expelled from the Saudi-led campaign against Iran-backed Houthi militia in Yemen and significantly damaged the bloc's unity.

As a consequence, and despite the statements of solidarity from Al-Ula, Qatar is unlikely to be viewed by Saudi Arabia, Bahrain and the UAE as a reliable security partner for the foreseeable future. And vice versa.

Financial systems

But despite its differences, the GCC has delivered several of the socioeconomic and security-oriented goals it set out to achieve 40 years ago, although there have also been some significant misses. 

The GCC’s most ambitious attempt at economic integration came during the Gulf economic boom of the early 2000s, when a single currency was planned for the region.

The proposed monetary union was ultimately derailed by disagreement over the location of the GCC central bank and the economic pressures of harmonising monetary policy amid US dollar weakness and double-digit inflation.

The ambitious project was first weakened when Oman withdrew from the scheme, and then effectively came to an end when the UAE pulled out in 2009. Since then, attempts to integrate the finances of the GCC have been limited and on a bilateral basis.

Another potentially significant monetary initiative was launched in 2019 when the Saudi Arabian Monetary Authority (Sama) and the UAE Central Bank (UAECB) began a pilot study on a common digital currency known as Aber.

After deeming the digital currency viable, the Aber will be used in financial settlements between the two countries through distributed ledger technology (DLT) and blockchain systems.

For fiscal policy, the six GCC states signed an agreement in 2016 to implement VAT. Like other attempts at integration, the uniform roll-out of the tax has not proceeded as planned. The UAE and Saudi Arabia introduced the tax as the agreement said in 2018. Bahrain and Oman then followed, while Kuwait and Qatar have yet to implement the tax. 

GCC states have also provided economic support to one another when needed. Saudi Arabia, Kuwait and the UAE supported Bahrain in 2018 by pledging a $10bn reforms-based aid package that neutralised the risk of a debt crisis in the island kingdom.

Energy synergies

Other economically significant regional collaborations include the establishment of the GCC Interconnection Authority (GCCIA) in 2001 as part of the six-member states’ energy security plan.

In 2009, the first phase of the transboundary network, which links Bahrain, Kuwait, Qatar and Oman, began operating. The UAE and Oman joined the network in 2011 and 2019, respectively.

GCCIA’s assets include nine 400 kilovolt-substations, three high-voltage direct current converters, 100-kilometre submarine cables and 1,050km overhead transmission lines.

The 2,400MW grid has allowed some inter-country exchange, which has in turn helped avert electricity disruptions and minimise investments in new power plants by reducing the level of reserves needed in each country.

The GCCIA is also expanding beyond its member-states by forging agreements to trade electricity with countries such as Iraq, Jordan and Egypt.

Compared to the past 20 years, the GCCIA’s role is expected to become more prominent in the decades ahead as each country implements its energy transition and decarbonisation initiatives, including the integration of variable renewable energy such as solar and wind, and nuclear energy, into their fuel mix.

As things stand, the network provides the foundation for a fully fledged electricity market that will support the long-term economic and industrial aspirations of the GCC states.

The GCC has shown it is able to deliver on narrowly defined areas of economic interest, such as with its unified electricity grid or interconnected railway plans, as well as to closely coordinate in areas of mutual interest, such as internal travel, health and education

Transport and logistics

The GCC has had mixed success with reducing the economic obstacle of borders between the member states, both through its common custom regime and efforts to develop interconnected transport networks. Free movement has been established as a principal among GCC citizens, but not GCC residents.

Domestic road projects, such as the Emirates Road programme in the UAE and Oman’s Al-Batinah Expressway routes, have hugely improved road transit speeds across the region, and projects such as the upgrade of the Saudi Arabia-Oman highway have significantly reduced cross-border transit times.

The union’s signature commercial and public transport interconnectivity project, the GCC Railway project, is also under way.

Current plans for the first phase linking Saudi Arabia, the UAE and Oman are to be finalised between 2021 and 2023. The second phase would connect Kuwait and Bahrain by 2025, with Qatar currently bypassed in the revised plans released since the GCC diplomatic dispute.

Air space in the GCC has been well-integrated for several decades – so much so that during the GCC diplomatic dispute, issues arose due to Bahrain’s control of Qatar’s commercial airspace.

In both the aviation and port logistics sectors, rapidly expanding airport and naval port capacity has led to oversupply and significant competition between GCC countries for the same international business.

Despite calls from the industry, the council has not worked on developing an integrated logistics strategy that might harmonise and streamline logistics development plans across the GCC, with strategy instead remaining focused on the nationalistic logistics development goals of each individual state.

Covid-19 and healthcare

The abruptness and urgency of the Covid-19 pandemic has deepened regional ties in the healthcare sector, as marked by the phase 3 clinic trials held for the Chinese-made Sinopharm vaccine, which began in the UAE and Bahrain in July and August 2020, respectively.

Discussions for a unified GCC healthcare passport were expected to commence in March.

The digital passport could hold vaccination and Covid-19 test data, as well as help to manage travel regulations and documentation.

Covid-19 has proven that collaboration can help the GCC more rapidly grow and internationalise its manufacturing competencies.

Progress on documentation such as a unified healthcare passport could spur further healthcare cooperation in the region, which is expected to require 12,358 new hospital beds by 2022.

Equally importantly, such developments could strengthen the regional medical sector supply chain, which has historically been stymied by a bias towards petrodollars.

As all six GCC states pursue economic diversification programmes to move away from oil revenues, investments in the region's nascent, but promising pharmaceuticals and healthcare sectors could help to further grow non-oil GDP both on an individual and a regional level.

A society beyond oil

The prospect of declining global oil demand has created an awareness among GCC member countries that in order to maintain present levels of affluence, they need to invest in non-oil industrialisation, technological and digital innovation, upskill their labour forces, and promote social and cultural change.

But the modernism and futurism on display in the GCC is the product of decades of prosperity enjoyed on the back of hydrocarbon revenues, and even as strategic diversification plans are executed in the future, oil and gas investments will remain important in the GCC. 

As the world begins its shift towards a post-oil economy, the extremely low production costs for many Gulf oil and gas producers will ensure that they remain among the world's most reliable providers of primary energy to global markets. 

The multibillion-dollar petrochemical derivatives complexes that Oman, Qatar, Saudi Arabia and UAE have planned in Duqm, Mesaieed Industrial City, Jubail and Ruwais, respectively, are a testament to the GCC’s goal to unlock greater economic value from every barrel of oil and gas its members produce.

As the six GCC member countries undertake an unprecedented, comprehensive socio-economic transformation journey to diversify away from oil, the economic ties that bind the GCC together will provide a backbone to deliver the ambitious plans set in motion to overhaul the status quo and transform long-established social structures.

The scope for alignment

It is clear from the dispute over the past three and a half years that there is no broad political and economic alignment within the GCC – each member state faces its own unique set of challenges and opportunities and has its own vision and agenda to meet these challenges.

Tighter economic and political integration through means such as a single currency or a deepening of the existing defence or security ties within the group is therefore unlikely to be supported by all six members.

Nonetheless, the GCC has shown that it is able to deliver on narrowly defined areas of economic interest, such as with its unified electricity grid or plans for an interconnected railway network, as well as to closely coordinate in areas of mutual interest, such as internal travel, health and education.

In the wake of the late 2014 decline in global oil prices, the wealthier GCC members came together to establish a $10bn financial support agreement to help support Bahrain as a sovereign and fiscal entity through a fiscal rebalancing programme. This cooperative endeavour showed the GCC at its best.

Moving forward, areas of narrowly defined economic interest are likely to form the bulk of progress for the six-country bloc, while coordination involving political or security matters are more likely to emerge between smaller groups within the GCC, at a level where common interests more readily align.

By Jennifer Aguinaldo, John Bambridge, Neha Bhatia, Colin Foreman, Indrajit Sen and Richard Thompson

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