New Gulf deal needed for Obama era

14 December 2008
Economics, oil and Iran are where the GCC and the US can quickly co-operate in 2009. It will be a year of hard labour.

There have been more endings than beginnings in a year that closes with spirits flagging everywhere.

The most popular finale was the end of the presidency of George W Bush. He saved his most memorable interview until almost last. Bush told ABC Television earlier this month that his biggest regret was the US "intelligence failure" in Iraq. No doubt unintentionally, he could not have put it better.

It was Barack Obama's year and now it is his turn. Rarely have so many wanted a new president to succeed. The world cannot take any more of what we have just had.

Obama will focus first on the economy, and has announced that his administration will modernise America's infrastructure to create jobs and help business. This could cost up to $1 trillion, an amount equivalent to almost 2 per cent of global GDP. It will be the biggest capital programme in history and may double the US' budget deficit this financial year.

The Obama package will be the fourth big boost to the US economy since the start of 2008:

  • First was the appreciation of the dollar against most other currencies, and by more than 10 per cent against the euro. It has radically increased American international purchasing power.

  • The second was the 70 per cent oil price fall since the summer.

  • The third, the US Treasury Department's $700bn troubled assets relief programme (TARP), is proceeding.

Never has so much been done to quicken recovery. It is unlikely that the recovery drive will not have started, at least in the US, by this time next year. But there will need to be a lot of hard work between now and then.

The US is going in a different direction under Obama, and the GCC needs a new deal with Washington for a new American era. By sticking with the dollar and supporting the US economy, it already has a part in Obama's economic plans.

Oil comes next. Saudi Arabia's King Abdullah said at the end of November that $75 a barrel was the right oil price. Opec's most influential member wants an end to oil volatility and a pact with the world's largest energy user.

The calculation is that America's love of cheap gasoline can be countered by the argument that low prices stoke consumption, discourage production and deter alternative energy investment.

To lift prices, Kuwait, Qatar, Saudi Arabia and the UAE must cut production - but will not want to offend the US. A green light from Washington is needed first.

This leads to the third element of the new deal: a potential GCC role in closing the gap between Iran and the US. Higher oil helps Iran, and Russia and Venezuela too, but that is another story. GCC oil exporters are well placed to encourage Iranian moderation, in return for a price the Islamic republic needs, while also addressing America's long-term energy goals.

A deal between the GCC and the US will help reconstruction in Iraq, reconciliation in Lebanon and peace in Afghanistan. There is work to be done in Yemen and Sudan and to reduce the poverty and division that feed extremism.

New presidents promise too much. There is no place for false hopes about what Obama can do to end the conflict between Israel and the Palestinians. Consistency and commitment are needed, not sound bites and photo opportunities.

The long game may suit Obama as he gets down to the business of government on 20 January. He will have to have answers there, too, in due course, and the GCC will be ready when he does. But the priorities for them both in 2009 will be the economy, oil and Iran.

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