Saudi-Led GCC Aims to Spread Regional Influence

The potential inclusion of Morocco and Jordan in the GCC fold should be taken for what it is – a political move by the Gulf states to widen their sphere of influence in the region.

There is, of course, nothing wrong with it. The United States has done it with NAFTA, the EU has been handing out membership forms to many countries within their vicinity; there is of course the ASEAN, and even BRIC nations have recruited South Africa in their club – they are now called BRICS.

But what are the economic and political benefits of the inclusion of two small oil importing countries in the oil-exporting GCC? We examine both separately:

POLITICAL BENEFITS

Since the Arab Spring was sprung upon the Gulf states, they have watched their allies Hosni Mubarak and Zine El Abidine Ben Ali toppled by their citizens in Egypt and Tunisia respectively. The Arab Spring soon became the Gulf’s Winter of Discontent as they watched Hosni Mubarak’s family in prison and Ben Ali fleeing to Saudi Arabia as an exile.

Miffed at how their Western ally U.S. refused to back those two presidents, the Gulf states are keen to bolster their own defences and close their ranks – as well as they should – to defend their turf.

First, the Gulf states ensured that Bahrain’s King Hamad Bin Khalifa did not suffer the same fate as the two North African presidents and now they are hunkering down to fend off the political shamals (Arabic for strong winds) blowing in the region.

The military intervention in Bahrain and the $20-billion aid to Muscat and Manama are clear examples that the Saudi-led Gulf states have launched a proactive diplomatic, economic and military effort to remain a force within the region. The Gulf states were also intensely involved in Yemen and brokering peace between Ali Abdullah Saleh, the embattled president of Yemen, with rebels/freedom fighters.

With Iran already a strong force in Iraq and Syria (and by default Lebanon), the Gulf counterattack ensured that it does not get a foothold in Bahrain. The newly-liberated Egypt also appears to be less hostile to Iran and the Gulf monarchies don’t want to see Iranian influence spread any further than it has already.

Hence Morocco and Jordan ‑ whose leaders have remained strong American allies for decades ‑ appear to be a natural political fit to the Gulf set up. It is the path of least resistance for the GCC states to raise their own profile in the region.

It is unclear how and when these two states will be enrolled in GCC Plus. What economic criteria they would have to meet and what economic benefits will they bring to the GCC table are questions too early to answer.

But it could well be that Jordan and Morocco might jump the membership queue over Yemen, whose application for a full membership has been languishing in the GCC’s in-tray for years.

The political benefits for both the Gulf and the two countries are clear. The new members will help the GCC wield influence deep in North Africa and also deep in the Levant. It will give them a vantage point in Tunisia and Algeria and also offer them a front row seat of events unfolding in Lebanon and Syria.

Jordan and Morocco will also be bolstered politically, and could count on the Gulf to intervene in multiple ways should the protests by citizens in both countries escalate (the precedent has been set in Bahrain). At the moment, while there is unrest in both the countries, it is nowhere near the levels seen in Yemen and Syria. But, as they say, a diplomatic prevention is better than a military cure.



This is where it gets really tricky. The winners here are clearly Jordan and Morocco as opposed to their much-richer Gulf counterparts.

The inclusion of Jordan and Morocco will add $118-billion to the bloc, giving the expanded entity a formidable $1,140-billion – in other words, the two new recruits will make up 10% of GCC Plus. The combined entity will be the 15th largest economy in the world, according to IMF’s 2010 GDP data.

Jordan’s GDP last year stood at $28-billion, making it the second smallest country in the expanded bloc, just above Bahrain’s $23-billion. Morocco packs a lot more punch, with $90-billion economy in 2010, making it an economically weightier partner.

Over the years both countries have benefited immensely from foreign direct investments flowing from the Gulf region.

In September the IMF wrote in its periodic note on Jordan: “The GCC economies (particularly Saudi Arabia) continue to have the most important effect on Jordan’s output cycles, as they account for the largest share of Jordanian trade, remittances, grants, FDI, and tourism receipts. In comparison with other oil-importing economies in the region Jordan’s output growth has the strongest correlation with the growth in GCC non-oil output.”

Similarly, Morocco has seen Gulf investment flow reaching its Mediterranean shores, but the North African state’s biggest partner is the European Union, and its economy tracks that region’s ebbs and flows, especially that of France and Spain.

Given the continued lethargic state of the EU economy, more interaction with capital-exporting Gulf states will be a positive for the Moroccan economy.

However, it is tough to see what ‘net economic benefit’ the Gulf states can derive from this union. Traditionally, both the Jordanian and Moroccan economies have welcomed Gulf funds with open arms, so there is no new advantage for the Gulf.

Both Jordan and Morocco are oil-importers and have different dynamics than the petro-driven Gulf states and that could emerge as a problem in the future.

There is a danger that the two countries might become ‘client states’ of the GCC. The new union could mean that the Gulf states would be compelled to intervene economically – as they did for Bahrain and Oman – and at some point there might be differences between the Gulf states whether they want to shoulder the burden of these states.

The economic question may become more pressing, if oil prices collapse or fall for extended periods of time, especially when Gulf states themselves have rolled out extensive investment plans for their own citizens which are to be funded by high oil prices.

Interestingly, news of Jordan and Morocco looking to join the GCC comes just days after rumours of Greece looking to leave the Eurozone swirled around.

It is important to draw a parallel here with Greece’s current situation in the EU:  Back in 2001, Greece ditched its drachma and joined the EU, despite warnings from the European Central Bank at the time that Greece “still had a lot of work to do to improve its economy and bring inflation under control.” In fact, in 1999, Greece was left out of the eurozone as it failed to meet the EU’s economic criteria.

While Greek’s economic shortcomings were masked by the euro in the early years, the global financial crisis laid bare Greece’s economic malaise and has now led to tremendous economic hardships for its people.

The economic disparities between the richer EU states of France, Germany and Finland on the one hand, and the poorer Portugal, Greece and Ireland are leading to great divisions and resentment within the eurozone and has jeopardized the greater EU project.

SETTING THEIR OWN HOUSE IN ORDER

Even before Jordan and Morocco’s membership requests are reviewed, the Gulf needs to set its own house in order.

In contrast to the EU, the GCC project is far less structured. Even though the six current members have much in common, they find it difficult to get along on key issues. There is tremendous disparity with ultra-rich Kuwait, Qatar and UAE at one end, the poorer Oman and Bahrain at the other, with Saudi Arabia – a G20 giant – somewhere in the middle of the Gulf spectrum.

Before the Arab Spring, the existing members of the GCC appeared to be slowly drifting apart. The UAE and Oman had already decided not to participate in the Gulf currency union for the time being. The Gulf Customs Union was seen as ineffective and the six states often had differing views on political issues in Lebanon, the Levant and Iran.

And even now in these troubled times, maverick Qatar has differed from its GCC counterparts in addressing Yemen’s problems, earning the ire of the Yemeni President.

However, success is not guaranteed. The GCC bloc seems to have finally admitted defeat in finding a peaceful solution in Yemen after numerous rounds of negotiations, it goes to show the Gulf’s determination in extending its tentacles across the region.

As with all great projects, the GC expansion will be a formidable challenge. Adding more countries to the club will always be a tough task but it can be done, as we have seen with the EU, despite all its problems. But the union has to be for the right reasons and with the right partners. The GCC may well find that Jordan and Morocco are tough pieces to fit in their masterplan.

HOW ABOUT IRAQ & EGYPT?

Iraq’s name has sometimes been bandied about as a possible candidate to enter the Gulf club at some point in the future. It certainly has more in common with the Gulf states and can offer far greater potential for investment (which it desperately needs) from the Gulf states. In turn, the Gulf would have the added advantage of investing funds in a fellow-Opec country.

Of course, including Iraq in its fold will have the great benefit of wrestling it away from Iranian influence. However, events in Bahrain has made the possibility of Iraq, a Shii’te majority country, quite unlikely in the immediate future. But that would certainly be a coup for Saudi Arabia.

Egypt too, would make a good candidate, given its economy is only a bit smaller than the UAE, and offers fantastic long-term business opportunities, despite its current upheavals.

Since we are theorising, the prospect of an Iraq plus Egypt plus Gulf conurbation is a mouth-watering $1.3 billion behemoth, or roughly 70% of the overall MENA region economy.

On May 22, Saudi Arabia offered $4-billion loan to Egypt, beating multilateral agencies such as the IMF, which are still negotiating its own $4-billion loan to the North African country. No doubt, this helping hand from Saudi Arabia will come with strings attached.

The GCC, led by Saudi Arabia, is moving quickly to counter Iranian influence. And while it may or may not be successful in exercising its influence in the region or successfully expand it, it has at least brought the six original states closer together.