The Arabian Peninsula — (1) Power

Tarek Osman
Tuesday 30 May 2023

The resources now available to the states of the Arabian Peninsula make them serious players on the international scene, writes Tarek Osman in the first in a series of articles


Power is compelling. For decades, the states of the Arabian Peninsula have exercised a decisive sway over international energy markets, and today energy availability and costs are at the core of the national security of all major countries in both the West and Asia. 

The states of the Arabian Peninsula also control colossal liquid budgets that have a major bearing on key industries and markets, including the ultra-important sovereign bond market. Relative to their demographic size, these states are among the most influential in the world today in important international political and economic dossiers. 

Power is also seductive. The states of the Arabian Peninsula have for over two decades been building some of the world’s most glamorous urban spaces, positioning themselves as key transportation, shopping, and increasingly entertainment hubs for the Middle East, East Africa, and West Asia. 

Over the past decade, almost all of them have been boldly introducing modern norms of living that are vastly different from those that have long dominated their societies. Not surprisingly, these countries are emerging as sought-after destinations not only for talent from the Middle East and the Indian Sub-Continent, as they have been for half a century, but increasingly also from Europe and most of Asia as well. 

This is a new form of power that the states of the Arabian Peninsula have never enjoyed before. In the 50 years since the meteoric rise of oil prices in the mid-1970s, and despite the fluctuations in energy prices, these states have experienced repeated waves of major petrodollar windfalls. But these have hardly ever translated into serious power on the international scene.

Four reasons have hampered their rise over the past half century. First, for most of that period, the states of the Arabian Peninsula have had to allocate significant portions of their wealth to investments in domestic infrastructure to create or sustain modern urban spaces, often in sparsely populated areas. 

Second, these states have witnessed dramatic population increases over the same period. And as their social contracts were anchored on the state providing citizens with effectively everything with hardly any form of taxation, significant percentages of their national budgets went towards these social obligations. 

Third, in the decades after the Iran-Iraq War in the 1980s and the war to liberate Kuwait in 1991 there was a sense of impending danger such that the states of the Arabian Peninsula invested heavily in highly expensive defence programmes. And fourth, since the early days of oil revenues, these states have directed a major part of their incomes to long-term international investments, primarily in the West. 

Things began to change 20 years ago, with the pace of transformation gaining serious momentum over the past few years. 

The infrastructure in the Peninsula has already come close, and in some cases surpassed, that in most Western countries. Investments continue to be poured into infrastructure, but most of the new spending is discretionary and is often to create ultra-luxurious or innovative projects, rather than being a requisite for basic development. 

Socio-demographic trends have also been changing. The new generations in the region, including in Saudi Arabia – by far the most populous of the Arabian Peninsula states – are, like in most wealthy societies, marrying later in life and having smaller families. The pressures on the budget to sustain the social contract that has prevailed in the region over the past decades are thus getting lighter. 

Defence spending continues, however, and in some cases is rising. But so are oil and gas revenues. And several of the Peninsula states are trying to extend their revenue generation to the hydrocarbon industries’ value chains, increasingly investing in refineries in the countries that import most of their oil, particularly in Asia. The objective, which seems realistic, is to significantly increase and diversify their revenues and reduce the burdens of what they consider to be crucial spending, such as on defence.

Investment strategies are also changing. Long-term, low-yield strategies, for example investing in real estate, have for several years now been diluted in favour of investing in technology transfer and in potentially high-yield, transformative industries such as quantum computing, bio-technology, and artificial intelligence. Investment returns over the past few years have been significantly higher than they were over the past four decades. 

Their wealth is also relative. The states of the Arabian Peninsula have, for over half a century now, been much richer than their fellow Arabs and their neighbours, such as Iran. Increasingly, however, they are becoming richer than many Western and Asian societies as well, especially in terms of purchasing power and material living standards. 

Such prosperity often begets pomposity. This includes the frenzy to buy trophy assets, such as European football clubs and chateaux, or to build the largest and tallest structures. But it also begets confidence. Whether in their decisions concerning the dynamics of the global energy market, or in their interactions with major powers in the West and Asia, the states of the Arabian Peninsula are increasingly much more assertive in pursuing their own interests than at any other time in the past half century. 

Saudi Arabia, the UAE, and Qatar are not India or Brazil, however. They lack these countries’ demographic weight, political gravitas, civilisational depth, and, crucially, defence capabilities. Still, the resources currently available to the states of the Arabian Peninsula, along with their new modus operandi in investing and foreign affairs, make them serious players on the international scene. 

But there is still confusion about their objectives. Some think they are trying to balance their historical dependence on the West, and primarily on the US, with new multi-faceted, mutually beneficial relationships with China, Russia, and emerging regional behemoths such as India. Though partly true, this confuses medium-term tactics with long-term ends. 

They correctly assess that the world is entering a new phase, likely to see a strategic confrontation between the US, and behind it the West, and China, and with it a set of countries with acute grievances about the world order that has prevailed since the end of World War II and particularly in the 30 years since the end of the Cold War. There are voices in the Arabian Peninsula that think they can become poles in the emerging international landscape – though these are wrong.

Wise thinkers in the Arabian Peninsula, some of whom are close to decision-making circles, aim to alter their countries’ position in this new world order. They want to put an end to the old paradigm of oil-for-security, upon which their relationships with the US, and their foreign policies, have been anchored for the past seven decades. But they do not want to create new dependencies on China or other powers. 

What they want is strategic autonomy, whose scope and parameters the next article in this series will present.

* The writer is the author of Islamism: A History of Political Islam (2017) and Egypt on the Brink (2010).

A version of this article appears in print in the 1 June, 2023 edition of Al-Ahram Weekly

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