Power is compelling. For decades, the states of the Arabian Peninsula have had decisive sway over international energy markets. These days energy availability and costs are at the core of the national security of all major countries in both the West and Asia. The states of the Arabian Peninsula also control colossal liquid budgets with a major bearing on key industries and markets, including the ultra-important sovereign bonds market. Relative to their demographic size, these states are today among the most influential in the world in consequential international political and economic dossiers.
Power is also seductive. The states of the Arabian Peninsula have, for over two decades, been building some of the world’s most glamorous urban spaces, positioning themselves as key transportation, shopping, and increasingly entertainment hubs for the Middle East, East Africa, and West Asia. In the past decade, almost all of them have been boldly introducing modern norms of living that are vastly different from those that have long dominated their societies. Not surprisingly these countries are emerging as sought after destinations not only for talent from the Middle East and the Indian Sub-Continent, as they have been for a half century, but increasingly from Europe and most of Asia as well.
This is a new form of power that the states of the Arabian Peninsula have never enjoyed before. In the fifty years since the meteoric rise of oil prices in the mid 1970s, and despite the fluctuations in energy prices, these states have experienced repeated waves of major petrodollar windfalls. But these windfalls hardly ever translated into serious power on the international scene.
Four reasons hampered their rise in the past half century. First, for most of that period, the states of the Arabian Peninsula had to allocate significant portions of their wealths to investments in domestic infrastructure to create or sustain modern urban spaces, often in sparsely populated areas. Second, these states witnessed dramatic population increases over the same period. And as the social contracts there were in these decades anchored on the state providing citizens with effectively everything with hardly any forms of taxation, significant percentages of national budgets went towards these social obligations. Third, in the decades after the Iran-Iraq war in the 1980s and the war to liberate Kuwait in 1991, there was a sense of impending danger that the states of the Arabian Peninsula invested heavily in highly expensive defence programmes. And fourth, since the early days of oil revenues, these states have directed a major part of their incomes to long term international investments, primarily in the West.
Things began to change twenty years ago, with the pace of transformation gaining serious momentum in the past few years.
Infrastructure in the Peninsula has already come close, and in some cases surpassed, that in most Western countries. Investments continue to be poured into infrastructure, but most of the new spending is discretionary, and often to create ultra luxurious or innovative projects, rather than being a requisite for basic development.
Socio-demographic trends have also been changing. The new generations in the region, including in Saudi Arabia – by far the most populous of the Arabian Peninsula states – are, like in most wealthy societies, marrying later in life and having smaller families. The pressures on the budget to sustain the social contract that has prevailed in the region in the past decades are getting lighter.
Defence spendings continue and in some cases are rising. But so are oil and gas revenues. And several of the Peninsula states are trying to extend their revenue generation in the hydrocarbon industries’ value chains, increasingly investing in refineries in the countries that import most of their oil, particularly in Asia. The objective, which seems realistic, is to significantly increase and diversify their revenues, and reduce the burdens of what they consider crucial spending, such as on defence.
Investment strategies are also changing. Long term, low yielding strategies, for example investing in real estate, have for several years now been diluted in favour of investing in technology transfers, and in potentially high-yielding, transformative industries such as quantum computing, bio-technology, and artificial intelligence. Investment returns in the past few years have been significantly higher than they were in the past four decades.
Wealth is relative. The states of the Arabian Peninsula have, for over a half century now, been much richer than their fellow Arabs and their neighbours, such as Iran. Increasingly, however, they are becoming richer than many Western and Asian societies – especially in terms of purchasing power and material living standards.
Prosperity often begets pomposity. This includes the frenzy to buy trophy assets, such as European football clubs and royal chateaus, or to build the largest and tallest of whatever structures.
But prosperity also begets confidence. Whether in their decisions concerning the dynamics of the global energy market, or in their interactions with major powers in the West and Asia, the states of the Arabian Peninsula are increasingly much more assertive and blatantly pursuing their own interests than at any time in the past half century.
Saudi Arabia, the United Arab Emirates, and Qatar are not India or Brazil. They lack these countries’ demographic weight, political gravitas, civilisational depth, and crucially defence capabilities. Still, the resources currently available to the states of the Arabian Peninsula, along with their new modus operandi in investing and foreign affairs, make them serious players on the international scene.
There is confusion about their objectives, however. Some think they are trying to balance their historical dependence on the West, and primarily on the United States, with new multi-faceted, mutually beneficial relationships with China, Russia, and emerging regional behemoths such as India. Though partly true, this confuses medium term tactics with long term desired ends.
The states of the Arabian Peninsula correctly assess that the world is entering a novel phase, likely of a strategic confrontation between the US (and behind it the West) and China (and with it, a set of countries with acute grievances about the world order that has prevailed since the end of the Second World War, and particularly of the thirty years since the end of the Cold War). There are voices in the Arabian Peninsula that think they can become poles in the emerging international landscape. They are wrong.
The wise thinkers in the Arabian Peninsula, however, some of whom are close to decision making circles, aim to alter their countries’ position in this new world. Indeed, they want to put an end to the old paradigm of oil-for-security, upon which their relationship with the US, and their foreign policy, have been anchored for the past seven decades. But they do not want to create new dependencies on China or other powers. What they want is strategic autonomy, whose scope and parameters the next article in this series will present.