The first article of this series presented the new scopes and scales of power the states of the Arabian Peninsula are currently enjoying. The second article focused on their quest for strategic autonomy, arguably the most important and consequential development in these states’ foreign policy. This third article in the series puts forward vulnerabilities they confront.

The Arabian Peninsula states have for decades pursued economic diversification from oil and gas. They have intensified their efforts in the past decade, partly because the 2008 financial crisis opened to all highly liquid investors attractive opportunities, and partly because they have been adopting more innovative and less conservative investment strategies, as discussed in the first article of this series. However, the vast majority of these diversification efforts have yielded limited results. The economies of all of the Arabian Peninsula states remain highly, and in some cases almost totally, dependent on hydrocarbon exports.

The new diversification efforts launched in the past decade, are ambitious, and for many among the region’s youths, stirring. There are mega investments to create ultra modern colossal urban spaces. There are also forays into new industries to which the Arabian Peninsula states are allocating tens of billions of dollars. But most of these investments are experimental, and in almost all cases, the states of the Arabian Peninsula are actually importing the technology and talent needed for these endeavours to function.

This points to the second vulnerability. In the past two decades, the Peninsula states have achieved impressive breakthroughs in their educational and healthcare systems. Yet, the Peninsula’s human capital remains far from its potential. The educational systems lack any world-class university. Local businesses in the region do not produce any significant research and development in their industries. And despite at least three decades of major investments into scholarships, technology transfers to the Arabian Peninsula or excellence by companies or citizens from the region abroad are quite negligible.

This is related to the third vulnerability, the social contract. Since the discovery of oil on a large scale in the Peninsula over seventy years ago, the prevailing social contract in the region has been anchored on the state taking care of its citizens. This transcended free education and healthcare to shielding large segments of the populations from seriously competitive jobs in market-based dynamics. The result is that whereas the states of the Arabian Peninsula now boast a thin cadre of highly competent managers and business leaders, vast swaths of the workforce, across all living generations, have not had any experience in a really competitive job market.

Demographics exacerbate this vulnerability. The populations of the states of the Arabian Peninsula have more than doubled in the past three decades, albeit starting from small sizes. As discussed in the first article of this series, population growth rates have been slowing down in the past few years. But the bulk of the region’s population is under 35 years old, with a major cohort of teens. These young people will be entering the workforce at a time their countries are transforming the social contracts that prevailed in the past half century.

Expectations add to the pressure. The Peninsula’s well educated youths, with by far the best living standards and highest exposure to the West in the entire Arab world, will increasingly demand serious representation, empowerment of the local civil society, and checks and balances in the political economy, than has been the case ever in the region. There are indications that influential power centres within the ruling structures in the Arabian Peninsula do not adamantly oppose that trend. But as the social contracts evolve, the delicate dynamics of having better political representation and a more open civil society could force on the Peninsula’s societies and ruling structures questions most of them – perhaps with the exception of Kuwait – have never confronted before.

Demographics present another problem. In most Arabian Peninsula states, expatriates constitute the majority of residents, in some cases exceeding 80 percent of the populations. For the past half century, expatriates in the region expected and accepted to live in and contribute to their host societies in return for attractive financial remunerations, and for many very comfortable standards of living. This deal has been changing slowly but steadily. There are now large groups of expatriates, and their children, that consider the Arabian Peninsula states they have been living in for decades their home. Many have been investing heavily into building lives there. The region’s political structures recognise this changing situation. Increasingly, the states of the Arabian Peninsula are introducing schemes to retain and attract highly talented or affluent groups and usher them onto paths towards long term settlement, and perhaps neutralisation. But these schemes are very selective and so small in scale. As time passes, and as social contracts evolve towards more political openness, the states of the Arabian Peninsula will need to find more sustainable solutions to the remarkable situation of having modern, developed societies in which the vast majority of the populations are non-citizens.

Identity is increasingly a fraught issue. Almost all the societies of the Arabian Peninsula were until few decades ago highly conservative, inward looking, and largely homogenous in their values and outlooks. Large scale western education, exposure to the world, richness, and the presence of millions of expatriates from different cultures have opened the societies of the Peninsula to new values, ways of living, and frames of reference. The old identities are no longer dominant, and in some Arabian Peninsula states, are increasingly marginalised. If current demographic trends persist, it is almost certain that some Peninsula societies will become, within a generation, truly multicultural. This could prove to be a major boon in terms of evolving a local form of social liberalism that the Peninsula has never experienced before. However, it can also lead to serious tensions as old cultures – whose adherents see themselves as the owners of the land, and of the wealth - face the threat of losing power and prestige. History, in other parts of the world, indicate that in such situations, cultural conflicts are more likely than harmonious coexistence.

These are all serious vulnerabilities. Addressing them requires smart, courageous policies, as well as luck. These vulnerabilities and the Peninsula states’ quest for strategic autonomy point to different potential scenarios in the foreseeable future, which we will discuss in the next and last article of this series.