*This Policy Insight first appeared as a feature article in the Majalla on February 9, 2011.

Half a century after independence and two decades since the liberation from Iraqi occupation, Kuwait’s bitter experience with pan-Arabism and ongoing regional power plays have affected its growth. However, since the downfall of Saddam Hussein in 2003, and thanks to robust oil revenues, Kuwait has witnessed an unprecedented boom, albeit amidst raging internal disputes over the need for reform and the future direction of the country.

Betrayal

Since its independence from Britain in 1961, Kuwait’s evolution as an oil-rich nation-state—in one of the world’s most troubled regions—has been marked by rapid development, which has largely been interrupted only by the actions of its neighbors, such as the August 1990 Iraqi invasion, and the subsequent seven-month occupation.

In the decades leading up to the invasion, Kuwait was experiencing a boom in oil-money revenue, which caused a bonanza in infrastructure growth. This attracted highly skilled laborers and businesspeople from all over the region, including a young Palestinian engineer called Mohammed Qudwa, otherwise known as Yasser Arafat. After having made a name for himself and his small organization, Fateh, Arafat emerged as the undisputed leader of the Palestinian Liberation Organization (PLO) starting in the late 1960s until his death in 2004.

Using their connections in Kuwait, Arafat and his associates—many of whom had also lived in Kuwait City—collected donations for the PLO. Compared to other Gulf countries, Kuwait and Kuwaitis were especially generous in supporting Arafat financially. Kuwait was also politically supportive of Arafat and the PLO cause. Despite its small size, Kuwait was able to use its financial weight to leverage its political position, which the government lent to the Palestinian leader until the first Gulf war when Arafat stood next to Iraq’s Saddam Hussein while the latter paraded units of his army that had invaded Kuwait in August 1990. Naturally, the Kuwaitis felt betrayed by Arafat, and after their country was liberated, the Kuwaiti government promptly expelled most Palestinian residents and expressed bitterness toward pan-Arabism, which it had championed until it was invaded by another Arab country.

Coupled with Kuwait’s regional location among the Middle East’s three giants of Iran, Iraq and Saudi Arabia, anxieties about regional power plays are never far from the mind in Kuwait City. But as we near the 20 anniversary of the Iraqi invasion, much of what preoccupies the Kuwaiti elite and population today seems to be rooted in internal disputes.

All Politics are Local Politics

Political rift that often pits the elected parliament against the government, as well as sectarian and social fault lines, are indeed real challenges that Kuwait regularly struggles with. These divisions, however, should not be exaggerated. In the meantime, thanks to buoyant oil prices for much of the last decade, the Kuwaiti economy has never been short of cash, despite the unrelenting—and sometimes harmful—tangle that the royal family and the parliament and government find themselves in. Several observers believe that Kuwait’s political stalemates continue to hinder key reforms and oil sector development.

In 1963, two years after independence, Kuwait held its first national elections. In comparison to her immediate Arab neighbors, this was a pioneering development, even though the elections were only open to those men of impeccable Kuwaiti pedigree. Even today, as all other fellow Gulf Cooperation Council (GCC) countries experiment with various political reforms, Kuwait is arguably still at the forefront in paving the way.

For example, at a time of heightened anxiety in Sunni-majority states about the rise of the Shi’a as a political force, the May 2009 elections in Kuwait saw the nation’s minority Shi’a community almost doubling its representation in parliament to nine seats. Also in 2009, and for the first time in Kuwait’s history, four women were elected to office.

Another example would be the degree of pressure the emir of Kuwait is willing to allow the parliament to bring down on the government, whose backbone is formed mainly of senior royals. In December 2009, for the first time in history anywhere in the GCC, the prime minister was exposed to questioning by members of the parliament, although Prime Minister Sheikh Nasser Al-Mohammed Al-Sabah democratically survived the no-confidence vote.

While the emir, Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah who came to power as the 15th emir in 2006, has the authority to override the wishes of parliament in favor of his nephew the prime minister—which he has so far chosen not to do— the fact remains that only a few other states in the region have legislative bodies with such leverage to scrutinize.

The most recent no-confidence vote in Sheikh Nasser took place on 5 January 2011. Again, the prime minister survived the no-confidence test. Parliamentarians had brought about the censure after police had physically assaulted a number of opposition lawmakers at a public gathering on 8 December. Opposition MPs also argued that Sheikh Nasser had used the police and security forces to intimidate his opponents.

The repeated standoffs between the royals and lawmakers have resulted in the emir disbanding of parliament on five occasions since its reinstatement in 1992. In 1999, 2003, 2006, 2008 and 2009, the emir called for early elections, arguing that parliamentarians had been endangering the country’s national security.

As the Al-Sabah family remains in solid control of government, the opposition it faces in the parliament comes from both the conservative/Islamist and independent/liberal deputies. However, it remains safe to characterize the Kuwaiti political scene as dominated by personalities rather than policy issues, with ties of clan, family and religion proving more central in parliamentary activities than in competing policy blueprints. Meanwhile, as the House of Al-Sabah strives to juggle between the rivaling interests of Islamists, tribes and the liberals, the Sabahs have found the tussle between the government and the legislative branch to become increasingly debilitating.

Since the emergence of Sheikh Sabah as emir in 2006, five governments have resigned. Dissolving the parliament and holding new elections, however, has not brought about more harmony between the government and parliament over the past four years. As “politics as usual” continue, dominated by a government that has had to constantly fend off parliamentarians’ attempts at more policy influence while deputies themselves act on the basis of short-term interests, domestic stability was never endangered or compromised. Yet the provisional approach to policy-making, which is so prevalent in Kuwait, has—by most accounts—come at the expense of long-term economic planning and development.

The executive-legislative impasse today threatens economic reforms seen as vital to the long-term prospects of Kuwait. On the one hand, the government seeks to implement market-oriented measures that will generate foreign investment and lead to both economic diversification and less reliance on oil export revenues, while also creating more private-sector jobs.

The 50 elected parliamentarians, on the other hand, appear to be anything but skeptical about large-scale reforms, and are evidently only keen to maintain, as much as possible, the generous welfare state that Kuwaitis have come to know over the last two generations. While many of the MPs remain steadfast in obstructing reform, fearing their constituents’ wrath in the event of the need to tighten belts, the International Monetary Fund (IMF) is on the side of the government.

It’s the Economy

According to the IMF, Kuwait needs to lessen its dependence on oil export revenues, diversify its economy and decrease the amount budgeted for subsidies while increasing income tax. Economic logic aside, there seems to be little doubt that it is the careers of the elected parliamentarians that are on the line should major reforms start to hurt the average Kuwaiti citizen.

As a result of this political-economic discrepancy, it took some 10 years of deliberations before a major economic initiative was launched in February 2010. According to Arabian Business, the four-year plan will direct some $104 billion toward the development of infrastructure, much of it aimed at the oil and natural gas industries. There are said to be some 1,100 projects to be launched as part of the scheme, making the 2010 scheme the first major plan in the country since 1986.

Edmund O’Sullivan, the publisher of Middle East Economic Digest, wrote in December 2010 that Kuwait’s “total capital investment in the next five years could be close to $200 billion— more than Kuwait’s forecast 2010 GDP.” But O’Sullivan also acknowledged that the insolent parliament could still put up barriers before the implementation of projects, particularly in the realm of the contentious Public-Private Partnership (PPP) programs.

The fact that major initiatives, such as the Kuwait Project that is aimed to open the country’s energy sector to foreign firms, remain dormant have also raised question marks about Kuwait’s overall commitment to foreign investment. In the entire Middle East and North Africa region, Kuwait comes second to last—only to the Palestinian Authority—in securing foreign capital. In order to raise its rank on this table, in the summer of 2010, the Kuwaiti Finance Ministry reduced the tax rate for international firms from a maximum of 55 percent to a flat 15 percent.

Some other key economic issues under continuous debate in Kuwait relate to the bloated and ineffective public sector, creating jobs and countering corruption. The latter issue is not just embarrassing, but is a driver behind much of the acrimony that divides the government and parliament. According to Transparency International, Kuwait’s corruption ranking has fallen from 35 in 2003 to 54 in 2010, although its lowest ranking was in 2009, when it came at 66 on the list assessing the scale of corruption in 180 states.

The charge of corruption is often politically debilitating. The December 2009 no-confidence vote on the prime minister was on the back of charges of financial mismanagement in the Ministry of Interior, a vote that Sheikh Nasser won by 35 against 13 votes. Anti-corruption crusades, however, remain a key populist move by parliamentarians.

Huge infrastructure projects, exactly the kind that Kuwait has sanctioned with the February 2010 bill and which are hoped to be the engine out of the 2008-09 economic lull years, are also most likely to draw the anti-corruption prying of parliamentarians. Only time will show if the latest economic development designs will slow, or altogether falter, in the contest to battle corruption.

The problem of paralysis at the policy-making level aside, as OPEC’s fourth largest oil exporter at some 2.5 million barrels a day, Kuwait is not short of cash. In fact, the country has enjoyed significant current-account sures since 1993. However, there is the problem of having to deal with the problem of oil price fluctuations, which is somewhat offset by income received from the considerable international investments the successive Kuwaiti governments have made since the 1970s. According to data from international financial organizations, the revenue the Kuwaiti government generates from its foreign investments amounts to about 20 percent of its oil export income.

Overcoming the impact of oil price fluctuations, however, pales in comparison to the more important external challenges that Kuwait faces, particularly in the shape of two of its immediate neighbors: Iran and Iraq. In the case of Iran, the Kuwaiti elite remain highly anxious about the policies and ambitions of the Islamic Republic. Despite attempts to maintain cordial ties, the underlying tension in bilateral ties is undeniable. One of the most recent examples of Kuwaiti fears about Tehran’s long regional arm was the May 2010 arrests of an alleged seven-person Iranian spy cell that included a Kuwaiti soldier and that was said to provide intelligence to Iran’s Islamic Revolution Guards Corps.

Where you Stand is Where you Sit

The ongoing Iranian nuclear program and the launch of the Bushehr nuclear plant in 2010 continue to alarm Kuwaitis, in particular against a background of a potential US-Iran military conflict. In the specific case of the Bushehr plant, Kuwaiti fears are far more tangible. A 6 October headline in the Al-Watan newspaper stated that “Kuwait faces a catastrophic situation if an earthquake hits Bushehr,” suggesting that radiation from the Russian-built plant could devastate life in Kuwait.

In terms of relations with Iraq, the strain was again most recently evident on 10 January 2011 when a Kuwaiti naval officer was killed in a confrontation with a group of Iraqi fishermen in waters along the two states’ maritime borders. The issue of border demarcation was also highlighted in July 2010 when Iraq’s Permanent Representative to the Arab League, Qais Al-Azzawi, suggested that Baghdad does not recognize the demarcation of the common borders, although both capitals later dismissed the significance of the dispute.

However, the current Iraqi-Kuwaiti divide both runs beyond questions over the location of the border and can have far reaching consequences for stability in Kuwait. While Kuwaitis were certainly thrilled to see the regime of Saddam Hussein fall in March 2003, the hard reality is that the arrival of an Iranian-backed Shi’a elite in Baghdad continues to be difficult to accept in Kuwait City, especially since the government of Nouri Al-Maliki is often seen to represent Iran’s interests. As with concerns relating to Iran, there are also some tangible fears about developments in Iraq, and none are more consequential for Kuwait than the notion of sectarian spillover from Iraq.

Kuwait’s minority Shi’a population is not a repressed community. It participates in all aspects of life from politics to running leading business entities in the country. However, there is no doubt that the emergence of Shi’a political power in Iraq, as long as some of the Sunni-Shi’a tensions remain there, has impacted the position of Kuwaiti Shi’a.

When Mohammed Baqer Al-Mutri, the head of the Shi’a Clerics Congregation in Kuwait, warned in June 2005 about Shi’a disfranchisement after no Shi’a candidates were elected to office in that month’s elections, the government quickly appointed a Shi’a to the cabinet. As Al-Mutri had warned, and the Al-Sabah royal family evidently accepted, it was a simple question of national unity at a time when Shi’a-Sunni divisions in Iraq, and elsewhere in the region such as in Lebanon, were reverberating across the Middle East.

Still the bigger Kuwaiti divide does not run along Shi’a-Sunni lines but more along differences in worldviews between Islamists and secularists. As recently as September 2009, Islamist MPs promised to censure the prime minister unless he acted against the rise in the number of entertainment establishments, bars and nightclubs.

Another example of this cultural rift has been evident in the debate about the country’s future plans for education. As the government has sought to reform the various curricula with the aim of lessening material that can generate fanaticism among the youth, Islamist MPs have balked and warned of the dilution of “traditional Kuwaiti values.” Given these fault lines, the issue of maximizing internal harmony, as reforms both in the political and economic areas are enacted, becomes of paramount importance to Kuwait.

Looking Forward

Despite the slowdown in 2008-2009, the macro-economic situation in Kuwait remains on solid grounds. When there has been a need, the government has been able to easily interject cash into the economy to lessen anxieties. When the global financial crisis of September 2008 arrived in Kuwait, the government unveiled a $5.2 billion financial stimulus package in April 2009. That, however, was when the Kuwaiti government and parliament saw eye-to-eye about the urgent need to pass legislation.

Today, most observers of the Kuwaiti economy appear to see much of the county’s challenges to be rooted in a lack of coherent and agreeable vision among the country’s various interested parties about where to go from here. Relative to its size, the country certainly has no lack of financial muscle thanks to the flowing oil income that is projected to last for at least another century.

And while Kuwaiti concerns about developments in both Iran and Iraq should not be dismissed, the reality remains that the physical security of the country is more or less guaranteed by some regional and international powers. The value of Kuwait as a strategic partner to the US has, if anything, increased since the 2003 Saudi decision to request that American troops leave the kingdom. The US decision to give Kuwait the status of a Major non-NATO ally in 2004 is a reflection of the American commitment to Kuwait and mutual benefits from a strategic understanding. Time will show if the Kuwaitis will be able to better utilize the reassuring advantage of this important security umbrella as they set about choosing the course for the future of the nation.

Assertions and opinions in this Policy Insight are solely those of the above-mentioned author(s) and do not necessarily reflect the views of the Middle East Institute, which expressly does not take positions on Middle East policy.