I’m standing on a plateau of history. I’m taking a glimpse at what the future holds for the Gulf Cooperation Council (GCC) in terms of challenges and opportunities in the next half-century.

Since its inception more than a quarter-century ago, the GCC effectively maintained its unity and security as incendiary conflicts and wars raged around it. But the first direct existential threat to the GCC came as a result of the Iraqi aggression against Kuwait. I am truly proud of the way the GCC exercised its collective security measures, in conjunction with its allies, principally the US, to restore and preserve its member states’ sovereignty and territorial integrity.

So, from this historical plateau, I see before me just as many opportunities as threats.

But more than any of these, there are questions:

What are the sources and nature of threats to GCC stability in the foreseeable time profile?

What are the dynamics of these threats? Are they exogenously imposed, or internally generated?

Are there inter-temporal tradeoffs between current and future threats? Can we make a choice between these threats? What are the costs of our decisions?

There are but a few questions that our leaders in the GCC have to struggle with on a daily basis. I’ll try in this presentation to give as concise a picture as I can of these challenges, and their possible solutions.

Clear and Present Challenges: Geostrategic/Security

Medium Term Challenges: Economy

Long term Challenges: Demography

Geostrategic/Security Challenges:
If we take a closer look at the reality of the Arabian Peninsula’s geography, we will, without a doubt, reach an unsettling conclusion. Instability in neighboring countries, from the war in Afghanistan and security challenges in nearby Pakistan, to the Iranian confrontation with the international community, to the denial of the Palestinian people their right to an independent state, and the security risk of conflict in Yemen and the horn of Africa, all of these clear and present threats to the GCC represent a formidable challenge to an effective collective national security.

As the history of the previous three decades has shown, security arrangements between the GCC countries have become an indispensable component of the region’s security structure. The GCC’s ultimate security goal is to protect its members from terrorism, weapons of mass destruction, nuclear proliferation and external aggression.

We have, since the inception of the GCC, taken on a “preventive diplomacy” approach to head off regional conflict. This approach is distinctive to our needs in three ways:

  1. The GCC diplomacy is based on a clear and transparent commitment to conflict prevention and resolution through the explicit assertion of peaceful intentions, respect of international law, and a steadfast dedication to codes of conduct between nations.
  2. The GCC countries are fully aware of the dangers that arise when states base their international relationships on the exportation of ideologies. We believe that exploiting diplomacy for unjust territorial or political ambitions, leads to disruption of regional understanding, extortion, and mistrust. If the diplomacy of expansion is destructive, then the diplomacy of state-sponsored incitement of citizens, against their own political orders, is just as destructive. The GCC states have continued to pursue a dialogue with their neighbors and others, to create a collective regional diplomacy, free from the sources of tensions and dangers of political ideologies, all in accordance with international law and the United Nations Charter.
  3. The GCC states are aware of their strategic significance and their international responsibilities and obligations. We have partnered with NATO, the European Union and other regional security institutions, to promote stability not only in the Gulf, but in the greater Middle East as well. While the preventive diplomacy was the modus operandi of the 80s and 90s, the last decade witnessed the birth of more robust, confident, and proactive GCC diplomacy. The GCC has taken the lead in the following areas:
    1. Promoting the Arab peace initiative, and supporting the legitimate rights of the Palestinian people for a viable and contiguous state with east Jerusalem as its capital.
    2. Organizing a donors’ conference for Yemen to promote economic and political reform, and defeat terrorism, poverty, and disease.
    3. Supporting the political process in Iraq, and working for its full reintegration in the Arab world.
    4. Calling on Iran to fully implement the United Nations Security Council resolutions and the IAEA requirements, while recognizing the right to develop peaceful nuclear facilities within the oversight, and safeguards, of the IAEA and international requirements.

Economic Challenges:
The most crucial challenge to GCC economies is our over-reliance on one source of income. It is imperative that we succeed in diversifying our sources of income in order to minimize risk, and secure future revenues.

Not only is our dependence on oil as our primary source of income dangerous in the long term, but our complete dependence on it as our only source of energy, is also unsustainable.

For our part, we in Kuwait have initiated plans to develop a peaceful nuclear energy project, and have ratified the nuclear Non Proliferation Treaty and related IAEA Safeguards Agreements, including the Additional Protocols. We have also signed and ratified most of the international safety and security conventions and agreements. We are working closely with the IAEA to complete accession to the remaining ones, and to establish the requisite comprehensive legal framework.

In relation to assuring availability of nuclear fuel supply, Kuwait’s policy is to rely solely on commercial and international arrangements, and thus not to engage in the development of any indigenous capacity for the sensitive parts of the nuclear fuel cycle, without prejudice to its rights under the Non-Proliferation Treaty. Towards this end, Kuwait supports current international efforts to develop complementary multilateral approaches to assure nuclear fuel supply and services, while safeguarding against proliferation.

The Kuwaiti Government has thus pledged 10 Million dollars to complete the 150 million dollars capital required to realize the project. Kuwait is also an observing member of the US led Global Nuclear Energy Partnership (GNEP), and is planning to join as a full member soon.

However much we are able to wean ourselves from overdependence on oil for our national incomes, we recognize that for the foreseeable future, hydrocarbon revenues will remain an important part of our national economies. The challenge will be how to mitigate the impacts of fluctuations in oil prices on our national budgets and development plans.

Our diversification plans are certainly one prong of this strategy. The other prong derives from our efforts to stabilize the oil market, thereby creating greater economic certainty as we draft our national budgets.

As you know, the world consumes 86 million barrels of oil a day, yet more and more, the price for this commodity is influenced not by the physical market of crude oil barrels trading in New York, London or elsewhere, but instead, by speculators trading “papers barrels” and playing the arbitrage opportunities. As any economist could attest, when oil becomes a financial instrument, the resultant inflows of capital unrelated to physical supplies and demand, inevitably results in a broader bandwidth of fluctuating prices. This instability creates indigestion for budget planners and consequently, wreaks havoc on development plans.
From consuming states’ perspective as well, long-term stable oil prices, at fair values, allow businesses to plan investments and economic activity growth.

As a collective body, the GCC remains committed to an oil policy that provides energy security for the world, through maintenance of a stable equilibrium in the oil market at price levels that stimulate economic development in both, producing and consuming nations.

We have demonstrated during numerous crises, both in the region and internationally, that we are credible and reliable suppliers of hydrocarbons to the world. Global economic stability is vital to the stability of our own local markets, so it is in the GCC’s best interest that the price of oil remains stable in the long run.

With one-tenth of the world’s oil reserves, the State of Kuwait is steadfast in its commitment to maintaining, as well as increasing its spare production capacity to continue to be a reliable source of energy for the world. Only states such as Kuwait, Saudi Arabia, and the UAE will invest billions of dollars to increase production capacity and leave it idle in order to comfort oil markets that, in case of curtailment of production anywhere else in the world, additional barrels of oil can quickly be brought to the market to stabilize the global economy. No other county will do that.

Another economic challenge facing the GCC countries is the integration of our economies to create an effective trading bloc with the rest of the world. The current global economic instability poses a significant strategic challenge to us, and we must unite to face this challenge, and work towards protecting and safeguarding our economies from these financial and economic shocks.

Demographic Challenges:
By far, the foremost challenge to GCC security and development in the long term, is the challenge of demography. The percentage of foreign workers to total workforce in the GCC countries are UAE 90%, Bahrain 62%, Saudi Arabia 65%, Oman 65%, Qatar 86%, and Kuwait 83%.

These vast discrepancies in the demographic makeup of all GCC countries represent a warning sign of the serious threats to the social, political and cultural fabric of the GCC society. The main cause of this major dislocation in the demographic profile can be found in the fundamental disequilibrium in the labor market. The continuous inflow of cheap foreign labor reinforces the distorted structure of incentives in favor of an outdated and inefficient economic mod of production.

This economic structure, which is based on cheap labor, would not be capable of creating meaningful, employment for our emerging youth. The fact that almost half of the GCC population is under the age of 18 makes us face an upcoming wave of young men and women who are soon to enter the job market. With a GCC population growth rate of more than 3% annually, the fundamental challenge is to ensure that the market is capable of absorbing this substantial increase in labor supply.

Thus job creation is among the major goals of the GCC, and amending the labor market model is vital to this end. Our governments need to implement initiatives to encourage small and emerging business ventures. We must provide incentives to the private sector to employ our local youth. Read more employments in the public sector is not the answer.

A mega-project by one of our oil companies may require the expenditure of 15 billion dollars, but since our oil industry is capital and not labor-intensive, this project may produce less than 1000 new jobs. That’s about 15 million dollars for each job created.

Instead, the private sector must be the promoter of job creation. Kuwait recently passed a new labor law that provides more protections and incentives for citizens to move from public to private jobs. The Kuwaiti private sector is already attracting some of the brightest minds in the country. A key indicator of whether this law is successful, is whether we see greater Kuwaitis being employed by the private sector in a few years from now.

Our youth have earned advanced degrees from some of the finest institutions in the world. Many are turning towards entrepreneurship and starting new small businesses within the GCC. They are active in the information technology sphere thus, pushing us in the government to keep pace with their political debates in the blogosphere. There is much room for optimism in this new generation. The governments must now assist in creating the right environment, and then get out of the way.

So as I go back to my historical plateau, I can see challenges and opportunities. I see clear and present dangers to GCC security that needs immediate actions. I also see dangerous currents of economic distortions and demographic dislocations, which require a coordinated GCC response. And I’m confident that we, as a GCC, will be able to rise up to those challenges, and achieve our common desired goals…yes we can.

About this Transcript:
Assertions and opinions in this Transcript 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.