Kristin Diwan, AGSIW
The Coronavirus pandemic is proving a severe challenge for governments, testing their ability to anticipate, mobilize resources, and motivate populations – all while placing an unprecedented strain on national economies. The Gulf monarchies have thus far proven more capable than most, blessed with ample resources, widespread technological capacity, and, crucially, prior experience. Gulf countries lived through earlier bouts of Coronavirus outbreaks including the 2003 severe acute respiratory syndrome (SARS) and the 2012 Middle East respiratory syndrome (MERS), the latter of which originated in eastern Saudi Arabia.
Considering their proximity with Iran, a global hotspot for Covid-19, the Gulf region thus far has experienced relatively few deaths at 122, although cases have been climbing to more than 17,000. This result, if sustained, will be achieved only through national mobilization and drastic measures of containment by each of the six countries. The implications of these actions, embedded within similar international responses which have paralyzed the global economy, is sure to leave a profound impact on the regions’ states, economies and peoples. National ambitions will need to be re-calibrated and national responsibilities re-balanced in its aftermath.
National ambitions imperiled
The global pandemic has triggered an unprecedented collapse in oil prices, undermining the region’s main source of revenue. As cities are shut down and airlines grounded, demand for oil has plummeted, sending the price of crude tumbling from $51 to $21 in March. The economic impact on countries whose economies still rely upon fossil fuels for 65 to 85 percent of government revenues will be severe. In addition to the astounding losses in oil revenues, non-oil activity is expected to suffer a contraction of 2% in 2020. Without a strong stimulus from governments already suffering from the oil shock, those losses may not return. The demands of the domestic economies will likely force at least some divestment from the international holdings of sovereign wealth funds, already battered by the global downturn, to support the economy back home.
The oil price collapse was further exacerbated by Saudi Arabia’s decision to accelerate oil production in a war for market share with Russia. This marked an impulsive shift in economic strategy. Heretofore, Saudi Arabia had been focused on maximizing oil revenues, both to maintain Aramco’s value during its limited privatization and to accumulate funds to bankroll Saudi’s ambitious diversification projects. These have been spearheaded by state spending through the Saudi Public Investment Fund which envisages the establishment of whole new industries, and even new cities.
Those projects may now be under question, both due to a dearth of funds, but also due to new vulnerabilities uncovered by this crisis. One need only look to regional leader Dubai, which pioneered the formula being emulated in one form or another across the Gulf. As the transit and logistics hub amongst several continents, it has now seen all flights grounded, supply chains with Asia and Europe disrupted and significant declines in the movement of goods through ports and drydocks. The steep investments already undertaken or under planning for new ports in Oman, Kuwait, Qatar and Saudi Arabia were already facing steep regional competition; now they also face more perilous market conditions.
These are certainly challenges shared across global markets. But Gulf economies more weighted toward the international flow of goods and people are more at risk in an era of global pandemics. This also applies to tourism and hospitality, a prominent sector tapped for future investment across the Gulf states. The Saudi leadership has prioritized the expansion of non-religious tourism in the Kingdom, with investments for Red Sea developments including the futuristic city of NEOM tapped at hundreds of billions of dollars. Yet even their traditional revenue from religious tourism will suffer in 2020 with the expected cancellation of the hajj at a time when the Saudi government had been hoping to expand religious visits. The UAE has also announced the postponement of Expo 2020 Dubai; the vast six-month event which officials hoped would bring some 25 million visitors to the emirate from October to March.
This global health crisis has offered opportunities for Gulf states to demonstrate leadership and increase their international prestige. Kuwait has lived up to its reputation as a humanitarian leader by contributing the most of any nation to the World Health Organization efforts to combat the pandemic. Other Gulf nations have offered international aid, notably to Iran, even at a time of geopolitical tension. Saudi Arabia has used its chairmanship of the G20 to convene global leaders virtually in an effort to coordinate responses. Still, the steep economic losses are likely to force Gulf states to shift more of their resources and attention back home, and to demand more from their own citizens.
National unity tested
As Gulf countries have mobilized to confront the Coronavirus crisis, they have been relying upon a new nationalist rhetoric and collective responsibility which they have been nurturing in recent years, most prominently in the United Arab Emirates, Qatar, and Saudi Arabia. Governments and publics have feted their national response teams through language and imagery – at times militaristic – meant to stir up national pride. Public health campaigns have promoted a positive national spirit and national unity in confronting the crisis. Gulf citizens have registered their support through voluntary campaigns in which tens of thousands have participated.
Still, this national unity is being tested in ways both economic and political. In an era of coming austerity rather than plenty, new national responsibilities are being redefined. Bowing to the new fiscal reality, several Gulf countries have already begun planning bond sales and slashing state budgets. As Gulf leaders prepare their public for greater austerity, state narratives that have emphasized pride and national celebration, will appeal more to national responsibility and the value of work.
Eman al-Hussein, a Gulf-based scholar, argues that these new expectations and pressures are falling disproportionately on the private sector. The preventative closures have hit businesses particularly hard, just at the time when new expectations were being set for the private sector to play a more national role and to step up with sizeable contributions to support the state. Meanwhile, more populist rhetoric has been evident in states like Kuwait where parliamentarians have lobbied against bailouts for prominent merchants. The serious damage to economies, however, may force a reassessment of the peril to businesses and how their contraction or even collapse may hinder national employment. Saudi Arabia recently reversed its modest approach to stimulus during the crisis and offered more significant support for businesses, pledging to pay 60 percent of wages for citizens working in the private sector for three months.
This policy emphasis on citizens is important and is a differential which bears monitoring. Nearly 50 percent of Gulf populations are foreigners, with that percentage reaching nearly 90 percent in the smaller and wealthier Gulf states. The cessation of flights and closure of borders has presented special logistical problems, as well as political ones, as both fears and nationalist sentiments run high. The leaders of the UAE, Saudi Arabia, and Bahrain addressed this directly, with speeches stressing the shared challenge of combating the epidemic, with pledges to pay for testing and treatment for all residents regardless of nationality. However, in Kuwait, while testing and treatment is likewise covered, an anti-immigrant politician, along with other public figures, seized on the crisis to call for the immediate expulsion of guest workers. The government has responded by facilitating the departure of illegal foreign workers while the parliament has been taking the opportunity to press forward with long-sought legislation to prosecute visa traffickers. As the Coronavirus has spread into the segregated and very crowded neighborhoods of foreign workers in Qatar, Saudi Arabia, and the UAE, these governments have ramped up efforts to repatriate them, straining relations with labor exporting countries. These inequalities pose a daunting health challenge and underline the abuses that plague the guest worker systems.
The course of the pandemic in the Gulf has also risked exacerbating communal divisions, as many of the early cases of Covid-19 in the Gulf came via nationals returning from religious pilgrimages in Iran. Given the current hostilities between Iran and many Gulf countries, the risk of increased acrimony as well as elevated suspicion of Shia communities is real. The Saudi Ministry of Foreign Affairs accused Iran of bearing responsibility for the spread of the virus due to its failure to stamp passports of Saudi visitors, a policy Bahraini authorities said amounted to “biological aggression.” However, while Saudi Arabia was quick to quarantine the mostly Shia region of Qatif where the initial cases were found, it did not escalate. Shia citizens who returned from what are considered illegal trips to Iran were pardoned if they acknowledged their visit and went under quarantine. Bahrain likewise had a logistical – and political – challenge as over a thousand of its citizens were left stranded in Iran during the outbreak. Without diplomatic relations or flights between the two countries, the Bahraini authorities delayed their return, leaving many at increased risk, with reports that several have died.
The challenge ahead
The Covid-10 pandemic hit the Gulf at a critical time of transition both in the rentier economies of the Gulf states and in the relationship of the state with its residents, both citizen and non-citizen. While the positive performance of the Gulf governments has provided opportunities to enhance international stature and internal legitimacy, it has also revealed social fissures and weaknesses in economic strategies. The new emphasis on nationalism that has helped to mobilize support for fighting the pandemic will be tested in new ways as states face the economic challenges ahead.
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