Studies 09 November, 2017

The Impact of the Oil Crisis on Security and Foreign Policy in GCC Countries: Case Studies of Qatar, KSA and UAE

Abstract

The Gulf Cooperation Council (GCC) is a group of six Arab Middle East countries that form a union to cooperate on economic and security matters. All six countries are largely dependent on oil revenues to meet their national budget. Their monarchical regimes and the large oil revenues that flow as a result of the region possessing at least 30% of the proven oil reserves of the world have led to the development of a mostly rentier state model in which money derived from their hydrocarbon exports are redistributed to citizens as a means of ensuring their loyalty. However, the growing population of GCC (which is predominately youthful) as well as the lower and more volatile price of oil has made the maintenance of such a model unsustainable.

Lower and more volatile oil prices have also influenced the security and foreign policies of GCC countries. Since 2014, the price of oil has dropped at times by up to 70% from its peak. Although there has been a small recovery in prices, this has not been sufficient to reach the breakeven prices at which GCC countries expect to export their oil and balance their budgets. This has led to some changes in the rentier state model of collecting vast oil revenues and redistributing them to citizens in the form of guaranteed well-paid public service positions as well as cuts to various subsidies such as water, electricity and gasoline. In Saudi Arabia, cuts to subsidies led to a 60% increase in the chargeable rate for water and electricity to some high value properties and industries. Saudi Arabia is one of the world’s biggest arms purchasers but has cut its military budget by 15%. Given the austerity measures being pursued by GCC countries in order to meet budgetary requirements, it is expected that other GCC countries will also cut their military budgets. Cutting military budgets and possibly cutting aid to neighbouring countries such as Egypt indicates how low and volatile oil prices are affecting the foreign and security policies of the GCC.

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