Slow pace of reform allows Gulf discontent to simmer, Jane Intelligence Review, May 1, 1998

International attention was recently focused on the prospects for political reform in the six Gulf Co-operation Council (GCC) states by two noteworthy events: the announcement of a plan for a GCC-wide consultative body and the worsening illness of Saudi Arabia's King Fahd. The two events highlight the distance that the GCC states still need to travel to reform their political and economic systems. The immediate pressures for change may have eased over the past year with the repression of opposition movements. Nonetheless, for two of the most troubled members of the GCC, Saudi Arabia and Bahrain, the need to reform remains pressing.

A Council and a King

In December 1997 the GCC heads of state, meeting in Kuwait, approved a plan to establish a Consultative Council to advise the GCC rulers. Each of the member states (Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates and Oman) would appoint five of its citizens to the body, which would be empowered to provide advice and consultation to the autocratic kings, sultans, emirs and sheikhs who rule the GCC states. Although there is no question of this consultative body being elected, the decision indicates that the dynastic GCC rulers recognise the need to at least appear to be sharing power.

This reformist gesture was shortly followed, in early March 1998, by the news that King Fahd Bin Abdul Aziz Al Saud had been admitted to hospital. King Fahd had been ill for some years but had refused to relinquish power to his nominated successor, his half-brother Prince Abdullah. His deteriorating health, however, focused attention on the unchanging nature of the Saudi kingdom. Despite a facade of pluralism, evinced by its Consultative Council, the kingdom is as much of an autocracy ruled by one family as it ever was. However, this political system is coming under increasing strain as economic and demographic pressures build up in Saudi Arabia and some of its GCC neighbours.

Buying peace

GCC rulers are well aware of the pressures for change that they face. Growing populations, the spread of education, the limited success of economic diversification projects and the volatility of the international energy markets have all put their patronage-based welfare states under pressure. At the same time, their growing reliance on US military protection against Iraq and Iran has caused intense unease among their populaces.

In Saudi Arabia these factors have interacted with long-standing political/religious tensions to spur the growth of radical Wahhabi Sunni opposition movements, some of which launched an armed jihad against the Al Saud, most notably attacking US military targets in the kingdom. In Bahrain, these factors accentuated long-standing grievances by the majority Shia population against the ruling Sunni elite and have led to civil unrest since late 1994.

In Qatar, the stresses contributed to the decision of Emir Hamad bin Khalifah Al Thani to overthrow his father in a 1995 coup. Oman also snuffed out incipient political unrest with pre-emptive arrests, while Kuwait's politics have been marked by continuing deadlock between parliament and the government over crucial issues such as the introduction of income tax and extension of Sharia law.

Pressures eased somewhat early last year due to a stronger world energy market, which helped the GCC states to postpone radical economic reforms. Higher oil prices in 1995 and 1996, helped by economic growth in Asia and the sanctions imposed on Iraqi oil exports, generated windfall profits for the GCC states. Most were therefore able both to invest in costly plans to expand oil and gas production capacity and to avoid making deep cuts in social, infrastructure or military spending.

Nonetheless, this respite was temporary. Since the end of 1997, the decline in demand in Asia, a mistaken OPEC decision to raise output and the prospect of increasing Iraqi oil exports have caused the oil price to plummet. The OPEC basket price for a barrel of crude oil fell from a yearly average of almost $19 per barrel in 1997 to $14.50 per barrel in January 1998 before an agreement between Saudi Arabia and Venezuela to reduce oil production stemmed the price fall. In the medium term the continuing expansion of non-OPEC output, especially in Russia and the former Soviet Union (FSU), will further limit the call on GCC oil. At the same time, continuing efforts by GCC states to boost output threaten to flood the market with over-capacity.

In response to this problem, all GCC states are pushing ahead with structural economic reforms - if to varying degrees. All have privatisation programmes, plans to mobilise more private capital and are looking at ways of cutting back their welfare states and the subsidies they give to their populations. Some are even delaying or cutting military purchases, although others are continuing to make massive new acquisitions. These reforms have, however, only gone so far. Saudi Arabia recognises that it has a significant unemployment problem. It has sought to solve this in part by cracking down on illegal migrants, but this can only be a partial solution. The country can simply not afford to keep running on existing lines. Although the 1997 state budget envisaged a reduced deficit, it was still in the red to the tune of SR17 billion (US$4.5 billion). In pursuit of long-term economic growth and acting on advice from international monetary agencies and financiers, the kingdom is therefore gradually opening up its state-controlled economy.

In the summer of 1997 it announced long-awaited reforms to its stock exchange which allowed companies to go public, but the terms of the reforms remain restrictive and do not go all the way to establishing a fully functioning bourse. More generally, privatisation plans are proceeding at a snail's pace. For instance, Prince Sultan bin Abd Al Aziz, Second Deputy Prime Minister and Minister of Defence and Aviation, remains reluctant to break the monopoly on domestic flights enjoyed by the national airline, Saudia. Although a consortium of Saudi businessmen has reportedly proposed the establishment of an alternative airline, Prince Sultan knows that the move would bring to the fore the whole question of the heavy subsidies paid to Saudia and the uneconomic use of the airline by members of the Saudi Royal Family.

Bahrain faces worse economic problems. The first of the GCC states to produce oil, it has few remaining hydrocarbon reserves. Its status as a commercial and financial centre for the Gulf is meanwhile being undermined by Dubai, the commercial-led economy of which continues to boom. Bahrain's two-year state budget for 1997-98 was pegged at BD1.395 billion (US$3.72 billion), leaving an estimated budget deficit of BD150 million - down from BD236 billion in 1995-6. This reduction in the deficit has partly been made possible by subsidies from its GCC partners. Saudi Arabia has been especially generous, increasing Bahrain's share of revenues from the Abu Safaa oil field. This source alone added $120 million to revenues in 1996. This aid, however, only serves to demonstrate the extent of Bahrain's weakness. Without significant energy reserves, the emirate finds it impossible to balance the books and to provide employment for its growing population. Although a number of steps have been taken to boost employment of nationals and restrict employment of foreigners, the government has been unable to make a significant impact. Rather, its short-term measures to curb civil unrest and political discontent have exacerbated the state's economic problems. For example, in the spring of 1997 it was announced that Bahraini civil servants and security force personnel would receive pay rises of between six and 15 per cent. Some 30,000 citizens, around a third of the national work force, will receive increments. The cost of this generosity could swell the budget deficit to BD195 million - up to 4.4 per cent of GDP. Likewise, the formation of a new internal security force and the equipping of its up to 3,000 members will increase pressures on the budget.

Cracking down

Unable or unwilling to make serious progress in reforming their economies and thereby relieving some of the long-term causes of popular discontent, Saudi Arabia and Bahrain have used repression to counter incipient domestic opposition. Both have had some success with this strategy. Understandably, Saudi Arabia's focus has been on preventing a repetition of the two bomb attacks on US targets and on rooting out those responsible. Since the summer of 1996, its security forces have therefore engaged in mass arrests and interrogations of `suspects'. It remains unclear whether the Saudis have actually identified and detained the group responsible for the June 1996 Khobar Towers attack that killed 19 US servicemen (see JIR, December 1997), since both the Saudi and US governments have been caught up in a miasma of disinformation and confusion regarding this issue. Neither government is yet willing to point the figure definitely at a group or sponsor - whether Iran or a Wahhabi radical element. In any event, this crackdown has, whatever the human rights implications, caused the radical jihadist opposition to go underground. It has also enabled the authorities to break up nascent opposition movements, for instance among disaffected Shia elements in the Eastern Province.

Furthermore, forceful Saudi riyal diplomacy and covert action have effectively neutralised much of the opposition abroad. The most prominent dissident group in the West, the Committee for the Defence of Legitimate Rights (CDLR), represented by Dr Muhammad al-Masari, self-destructed after internal splits and financial problems in its tiny London-based operation. Although still a potential annoyance, Masari's status as the international spokesman for Saudi Islamists has been much reduced. His erstwhile colleague, Dr Saad al-Faqih, now heads the Movement for Islamic Reform (MIRA), also based in London. Although Faqih is still active in propaganda activities, his limited resources have stymied his plans, which included, for instance, plans to launch a satellite TV channel. In addition to their own problems, the London-based dissidents face a growing threat from the British Government, which has responded to Saudi threats over arms contracts by tightening up on the political activities of refugees seeking asylum.

Closer to home, Riyadh's covert riyal diplomacy has also been effective in neutralising Osama bin Laden, a leading and vociferous bankroller of Islamist opposition movements. With the Taliban take-over of much of Afghanistan, Saudi Arabia applied pressure - and offered incentives to - the new Afghan power brokers and persuaded them to restrict the activities of bin Laden and his followers. Similarly, Saudi Arabia has made progress in a border settlement with Yemen contingent on co-operation on internal security to prevent Yemeni territory being used by Saudi Islamist dissidents. These coercive and covert steps to counter the active opposition have been accompanied by limited hints at political reform to help win back the support of disaffected power centres within Saudi society. Actual political reform has been held back by the slow-motion power struggle between ailing King Fahd, Crown Prince Abdullah and Prince Sultan, Fahd's full brother. Nonetheless, the king has hinted that further reforms of the 1992 Basic Law, the country's first formal `constitution', may be forthcoming. Behind the scenes, Abdullah has taken some steps to improve management of state economic and administrative affairs.

Manama's hard line

In Bahrain, the emphasis has been on repression rather than political reform. This is in keeping with the island state's political culture in which a religious and culturally distinct minority conquered the majority two centuries ago and has ruled since. This policy has, however, made life difficult for its friends in the GCC and the West.