Paper: Low oil prices provide limited window of opportunity for Arab Gulf states leaders

While low oil prices have created a window of opportunity in Arab Gulf states for “visionary” leaders to think outside of the box and push through reforms, this window is not open-ended and must produce results sooner rather than later, according to a new paper from Rice University’s Baker Institute for Public Policy.

Flags of the six Gulf Cooperation Council member countries. Credit: University

Flags of the six Gulf Cooperation Council member countries. Credit: University

“The Politics of Economic Reform in Arab Gulf States,” authored by Kristian Coates Ulrichsen, analyzes the political and economic implications of the various measures Gulf states such as Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates have taken in response to the fall in oil prices and government revenues and offers recommendations for sustainable economic reforms.

Ulrichsen’s paper comes in the wake of an expansive long-term plan, “Saudi Vision 2030,” which was laid out April 25 by Saudi Arabian Deputy Crown Prince Mohammed bin Salman Al Saud and is intended to transform the Saudi economy and accelerate the transition toward a post-oil era.

“Above all, policymakers must (and in fact do) acknowledge that the moment for reform has arrived,” said Ulrichsen, who is the fellow for the Middle East at the Baker Institute. He specializes in the political, economic and security trends of the Middle East and the changing position of Persian Gulf states in the global order. “The fact that oil prices have fallen so far and have remained low for so long opens up a window of opportunity for policymakers to announce measures — such as subsidy reform — that would have been almost impossible to push through while oil was over $100 a barrel.”

The first part of the paper focuses on the political economy implications of the decline in oil prices and government revenues for the Gulf states. It begins with an overview of the economic volatility that has buffeted the Gulf states since oil prices began to fall in July 2014 and assesses the implications for the so-called “ruling bargains” based on the redistribution of oil wealth from state to society. The first part concludes by analyzing two of the initial policy responses to fiscal pressures — the issuing of debt and the scaling back of energy subsidies. Ulrichsen argues that while these policies have enabled governments to put off more politically sensitive measures, they are by themselves unlikely to resolve the underlying challenges facing Gulf economies.

The second part of the paper suggests incentives and recommendations for sustainable reform that can translate policymakers’ aspirations into successful policy implementation. It starts by placing “Saudi Vision 2030” in the context of the poor record of achievement of other long-term comprehensive economic “visions” unveiled elsewhere in the Gulf over the past decade. “For the Saudi plan to succeed where most others fell short, it is imperative that it be underpinned by a set of plans that spell out the detail and the mechanics of the policy changes, but the National Transformation Plan intended to accompany Vision 2030 has been repeatedly delayed,” Ulrichsen wrote. He analyzes in depth the need for policy planning as well as the importance of securing strong local buy-in and dislodging vested economic and political interests that otherwise can obstruct and even defeat policy reforms.

“The urgency of some of the fiscal pressures outlined in this paper also means that policymakers no longer have the ‘luxury’ of the slow pace of incremental change that has characterized previous episodes of reform in the Gulf,” Ulrichsen concluded. “Sustained and transformative outcomes of reform processes will have to unfold in a period of accelerated change and heightened regional uncertainty, but they are necessary if Gulf Cooperation Council economies are to become more sustainable and less vulnerable to external sources of volatility.”

About Jeff Falk

Jeff Falk is associate director of national media relations in Rice University's Office of Public Affairs.