Number 40, August 1995
U.S. - GCC Security Relations, II:  Growing Domestic Economic and Political Problems

by Patrick Clawson
Note
Conclusions
Recommendations

Economic Difficulties Will Persist 
	The Arab monarchies of the Persian Gulf-- Kuwait, Saudi Arabia, Bahrain, Qatar, UnitedArab Emirates (UAE), and Oman--grouped in the Gulf Cooperation Council (GCC) faceeconomic problems.  Adjusted for inflation, their oil income is less today than 15 years ago, whiletheir populations are 50 percent larger.  
	During the oil boom years from 1973 through 1984, the false impression was created thatthe GCC countries were world-class economic powers.  For the moment, they were important inworld financial markets, when the oil revenues were flooding in faster than could be spent.  Theimage of this period remains in the minds of many, even though the reality has long since changed.The only GCC state with significant foreign assets, above the normal needs of a central bank forsmoothing out fluctuations, is Kuwait.  And those assets are endangered by the large deficits inKuwait's budget.  
	Nor are the GCC countries fabulously wealthy any longer.  At the height of the oil boomfifteen years ago, they were the world's richest countries: per capita income in the GCC statesexceeded that in the United States then.  The situation is entirely different now.  In 1995, the sixGCC states have a collective GDP of about $210 billion, and a total population of 24 million,giving them a GDP per capita of $8,700.  That is one-third of the U.S. level and two-thirds of theIsraeli level.   To be sure, the GCC figures are distorted by the large numbers of low incomeforeign workers.  Comparing the GDP to only the citizen population of 13 million, the GDP percitizen works out at $16,000, or two-thirds of the U.S. level and the same as for Israel's Jewishpopulation.  In other words, the GCC states are economically at the cusp between developingnations and industrial states -- they are not at the economic level of the major industrial powers.
	The prospects for the GCC economies remain dependent on the world oil outlook. TheInternational Energy Agency forecasts that the demand for oil will increase briskly over the nextfifteen years, resulting in higher prices and in a sharp increase in GCC output, even factoring inIraq's eventual return to oil markets.  But similar forecasts of a recovery in GCC oil income havebeen made steadily for ten years and have been consistently wrong.  The forecasts haveconsistently underestimated the steady expansion of oil output from non-OPEC sources otherthan the CIS, which looks set to continue.  Indeed, because of advancing technology that reducesproduction costs and makes possible production from previously uneconomical fields (primarily inthe Gulf of Mexico), U.S. oil output may increase in the next decade.  Given the history of overlyoptimistic projections, the GCC states would be well advised to base their plans on cautiousforecasts about future income.

**Given the history of overly   optimistic projections, the GCC states would be well advised tobase their plans on cautious forecasts about future income.**

	It is entirely possible that the current era of constrained resources will persist for theindefinite future.   Even under the most optimistic forecasts from government or industry sources,oil income per capita will not return to the levels of 1973-84.  Governments will have to continueeconomizing,  spending less on services and subsidies than what the population has come toexpect.  While economists can readily point out inefficiencies and areas for economizing, the needto win acceptance of constraining changes will delay efforts to balance the budget.  Following theexperiences of other countries, GCC deficits are likely to shrink no more than two percent ofGDPs per annum.  That means Kuwait, with a deficit about 20 percent of GDP (the largest in theGCC), is not likely to have a balanced budget in this decade.  Most of the GCC countries willhave to borrow significant sums abroad by the end of the decade.

Domestic Politics Will Become More Lively
	During the last twenty years, the domestic politics of the Gulf states were remarkablyquiet for countries undergoing profound socio-economic changes.  There were some signs ofdomestic political debate, especially in Kuwait, and one spectacular violent episode (the 1979takeover of the Mecca Mosque by extremists). One reason was that there were ample funds togrease the wheels; another was the stability of leadership.  Qatar's July 1995 change in ruler wasthe first such transition in any of the GCC countries in 15 years.  Some of the rulers have been inpower for 30 years.   
	In coming years, Gulf governments may face more vocal domestic opposition. Some ofthis is a healthy broadening of political debate; e.g., the Kuwaiti parliament has become active,holding the government and the ruling family accountable for waste, fraud, and abuse.  Some ofthe opposition is violent, such as the unrest in Bahrain that began with sizeable disturbances in late1994 and continues with fire bombings and occasional demonstrations.  The level of opposition,both within established political institutions and on the street, is and will probably remain modestin comparison to most countries, including the United States.  The Gulf is ripe for dissent, not forrevolution.  The challenge for GCC governments will be accustoming themselves and theirsocieties to open dissent, which is a new phenomenon that some government officials will finddisturbing.
GCC POPULATION AND OIL EXPORTS

	Dissent may well be expressed in religious terms.  The mosque is one of the fewinstitutions in which debate about issues of the day is acceptable socially.  There is greater interestin the purity of Islamic practice among the youth.  Unlike their parents who went to Westernuniversities, the young elite were educated at home in institutions stronger in Islamic instructionthan in technical learning.  The youth are becoming aware of the limited prospects facing themcompared to their parents' generation, and they wonder if the great riches of the oil boom wentWest.   

Disagreements with the United States about Burden SharingAre Inevitable
	The temptation is strong to think of the GCC states as a cash cow who can provide themoney to solve every security problem the United States faces, from maintaining the defenseindustrial base through arms purchases to paying for the oil provided to North Korea. Saudis saythey have more than 40 requests pending from the United States for financing various security orhumanitarian operations.
	The checkbook approach to the security relationship is unsustainable.  Even if the Gulfcountries had the cash--which they do not--security ties could not be based over the long run onsoldiers-for-hire.  The United States commits its forces where its national security interests are atstake, not where there is money to be made.  Overemphasis of the financial side of the relationshipis corrosive of domestic U.S. support for the relationship.  The U.S. commitment to the regionmust be based on a corresponding commitment of the GCC citizens to the defense of their ownstates.  To be brutal, the relationship must be bonded in blood not money: GCC citizens must beprepared to die defending their countries before the U.S. public will accept risking its sons' anddaughters' lives in defense of GCC states.
	The financial approach to the relationship undermines confidence in the GCC about theU.S. commitment to the region.  There is a general recognition in the region that the UnitedStates will remain concerned because of its vital interest in who controls the Persian Gulf oil.  Butthere is some nervousness among the foreign policy elite about how much the United States willbe prepared to back up that concern, especially when the United States seems preoccupied withits domestic problems.  In discussion, analysts cited examples of what they saw as a lack of U.S.follow-through on its commitments to the Muslim world: the U.S. withdrawal from Somalia aftercommitting its prestige, and the perceived difference in Bosnia between strong words and weakactions.

**The U.S. commits its forces where its national security interests are at stake, not wherethere is money to be made....U.S. commitment to the region must be based on acorresponding commitment of the GCC citizens to the defense of their own states.

	Once the principle is established that the United States is in the Gulf to defend its vitalinterests and that the GCC states are determined to provide as much as they can for their owndefense, then there come the details of who is responsible for what.  Disagreements about burdensharing are inevitable.  They occur in every single security relationship that the United States has. 
	To keep the differences within bounds, agreement is needed on the general principles thatgovern the burden sharing.  Desert Storm/Shield operated in practice on the principle that theUnited States provides men but not money.  That is an inappropriate basis for a long-termrelationship.  The best model is the German and Japanese experience, in which the foreign partneris asked to pay for some or all of the costs incurred in their countries, such as housing or thehigher cost of training abroad, but not for the salary costs or the wear-and-tear on equipment.  Infact, the German and Japanese model is more or less what is being done at present in the Gulf. The current situation in the GCC states is that the local governments provide host nation supportconsistent with their resources and their security problem.  In practice, this means that Kuwait andSaudi Arabia pay more of the local costs for U.S. forces, while Bahrain and the U.A.E. pay less.   
	More needs to be done to educate publics in the United States and in the GCC countriesabout current cost-sharing arrangements for U.S. forces in the Gulf.  Many otherwisewell-informed persons in the Gulf are under the impression that they are bearing the full burden ofthe U.S. military involvement in the region, whereas, in fact, U.S. taxpayers pay tens of billions ofdollars each year for forces in the region or committed to go to the defense of the region. Similarly, many in the foreign policy community in the United States seem to be unaware of thecontinuing payment for Southern Watch operations over southern Iraq.**