Oil pumps work at sunset in the desert oil fields of Sakhir, Bahrain. (Hasan Jamali/AP)
As oil prices dip below $50 dollars per barrel, media outlets from Bloomberg to The Economist to Foreign Affairs have analyzed the effects of this price drop on “The Arab Gulf” as a region. While faced with resource allocation problems common to rentier countries, Gulf countries have each in fact pursued a number of different strategies in response. Certain commonalities exist across Gulf countries, but it would be a mistake to think of them as identical. Despite these differences, many articles on the recent decline in oil prices understate or largely ignore this variation. They treat the Gulf as a monolithic region without regard to variation in governance, economy and national outlook, drawing sweeping conclusions. An examination of Kuwait, Oman and Bahrain reveals the extent of differences in sub-regional approaches to the situation, and offers policymakers a better basis for assessing U.S. interests in the region.
Debate over the price drop has been most overt in Kuwait because of the relative openness of the country and power of its parliament. Because of the drop in oil revenue, Kuwait has been under pressure to cut government spending. As a result, the government decided on Oct. 15 to remove subsidies on kerosene and diesel for the first time in decades, raising their price from 19 cents per liter to 58 cents. The change, which became effective Jan. 1, has generated opposition in Kuwait. Lawmakers have demanded a debate in the parliament over the unpopular price increase. Many bakeries, which use kerosene ovens, went on a five-day strike to protest the increase. In response the government exempted these bakeries from the higher kerosene price. Tankers that deliver fresh water in the country have also been charging more because of the rise in diesel fuel, although the government has threatened legal action for doing so. While the cuts may remain in place, they will do so at a high domestic political cost.
Oman’s system of government is more authoritarian than Kuwait’s, and the rapidly declining health of its leader Sultan Qaboos has necessitated careful planning by its government. Oman also produces significantly less oil than Kuwait and its population is greater by roughly 300,000 people. Therefore, Oman is even more likely than Kuwait to take seriously plans to generate revenue from sources other than oil. This revenue will be important in the coming years. In 2015, Oman expects a revenue reduction of $260 million, and a total deficit of $6.5 billion. It is unclear how the government will make up for this shortfall. A plan to tax foreign worker remittances was rejected by the State Council in late December. Other measures may be enough to recoup at least some of the loss. Oman is expecting a 25 percent increase in income tax revenue, and additional revenue from non-Omani labor licenses and customs duties. It also plans to privatize some state-owned companies, including certain units of Oman Air. While these measures may not balance the budget entirely, they represent a serious effort to diversify sources of government income.
Bahrain’s situation is different from Kuwait and Oman. While its economy is relatively diversified, political unrest prompted a response by security forces that created an $11.2 billion debt in 2012. Additionally, Bahrain overestimated the average price of oil in 2014 at $90 per barrel, which expanded the deficit to a projected $15.7 billion by the end of the year. The government has been working on a response to the debt issue since March 2014. However, following further disputes over elections that were boycotted by the opposition in November, the budget debate has been pushed off until March 2015. On Jan. 6, Bahraini Prime Minister Khalifa bin Salman al-Khalifa presented a four-year plan to the country’s Council of Representatives with significant investments in social welfare, housing and governance. Bahrain has further expenses that fall outside the budget, planning to spend $5 billion on a new airport and a second causeway to Saudi Arabia. Yet contentious elections and the ensuing protests by the country’s Shiite majority have slowed this progress. While public opposition has been limited and sporadic in Kuwait or Oman, ongoing political unrest in Bahrain is a prominent factor in the government’s calculus.
While the strategies of these three Gulf states to falling oil prices have similarities, they are not identical. Kuwait is engaging in unpopular cutbacks whose political viability is limited, Oman is looking to increase economic diversification and Bahrain is focusing on long-term efforts to create both economic and political stability. Each country’s strategy is shaped by its history, regime type, economic portfolio and cooperation of its citizens. None of these considerations is common to all countries in the Gulf. As the fallout from the price drop continues, analysts should take care to appreciate these important differences, rather than treat the region as a homogenous block.
Scott Weiner is a PhD candidate in political science at the George Washington University.
