Region in the cusp of arms and oil race

21 January 2016

Increased defence spending in a world awash with oil will hurt

That the lifting of nuclear-related sanctions on Iran will trigger an arms race between the GCC states and the Islamic republic has seemingly become a self-fulfilling prophecy.

A high-ranking Bahraini air force official has recently confirmed that a joint committee is now working to revive a cross-border missile defence system. This effort cannot be removed from Iran’s ballistic missile programme, regardless whether it could carry a nuclear warhead or not.

The missile defence programme revival follows a collective increase in defence spending in 2015, where the GCC states focused on weapons replenishment in line with enhancing their attack capabilities presumably due to the wars in Yemen and Syria.

A Boeing Defence official has said that they were fast tracking all orders from the GCC during the last quarter of 2015.

Increased defence spending in an environment where oil prices are at their historic lows, and with most GCC states just beginning to implement their economic diversification strategies, creates a new level of insecurity or concern among policy and decision makers.

Indeed, how far can or should economic decisions be isolated from political ones?

The UAE, Qatar and Oman, in particular, maintain major trade relations with Iran. The UAE is Iran’s second largest trade partner and the hundreds of dhows at Dubai Creek carrying goods to and from Iran prove this.

Traders from both sides were anything but jubilant over the lifting of the nuclear sanctions and the potential relief in terms of payment transactions. Most suppliers and contractors, particularly those of European origin with a base in the Gulf are now be looking at quickly e-entering Iran, given thinning opportunities in the GCC states due to restricted budgets.

The common belief among the entrepreneurial circle is that the volume of trade and support between the region and Iran is too precious and too significant to be undermined by a direct military conflict. They could even go one step further and assume that the gathering arms race is nothing but a show of power or bravado between regional rivals and that in the end, economics will always prevail over other interests.

The only problem is that the arms race might not be imaginary. The Yemen war and the resolve that most Arab states, led by Saudi Arabia, have displayed in this war by underwriting billions of dollars in military support, indicates their willingness to go to war with their neighbour.

Ultimately, this prospect cannot but dampen the strategic and economic growth ambitions within the GCC region.




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