Affecting all six Gulf monarchies are their declining hydrocarbon reserves and rising patterns of domestic energy consumption, coupled with their rapidly increasing indigenous populations—most of which are now under the age of twenty-one. This is already placing great strain on these states’ ability to keep fulfilling their citizens’ economic expectations, while their welfare states and distributive systems are also feeling the strain, even in the wealthier Gulf monarchies, due to the costs of perpetually subsidising their populations. Connected to this has been the structural problem of ‘voluntary unemployment’: despite frequent labour nationalisation initiatives, most Gulf monarchies remain unable to motivate their citizens to gain meaningful employment and contribute to the national economy given their reliance on state welfare and expectation of automatically remaining members of a wealthy national elite, courtesy of their citizenship. Exacerbated by the lack of transparency in these monarchies, other pressures on their increasingly limited national resources include the ongoing financing of prestige projects, the squandering of government spending, and the accumulation of vast wealth by the ruling families and their closest allies.
Already apparent in the poorer Gulf monarchies has been the increase in poverty among citizens, with real unemployment increasing as states can offer no longer the same kind of economic opportunities as in the past. This is leading to stark wealth gaps emerging between the wealthiest and poorest families in some of the national populations, which in turn is undermining any sense of equality between them and thus jeopardising the tribal heritage and religious legitimacy resources that the rulers have previously enjoyed. Widespread, and in many ways state-sanctioned, discrimination against large sections of the Gulf monarchies’ national populations is also on the increase—again undermining the ruling families’ credentials—with hundreds of thousands of stateless persons now probably further away from being naturalised than ever before, and with substantial indigenous Shia populations—especially in Bahrain and Saudi Arabia—now firmly relegated to second class citizenship. Of equally great concern, and similarly weakening the ruling families’ ability to uphold their social contracts and maintain legitimacy, has been the reliance on increasingly repressive forms of censorship—in some cases long before 2011. Affecting citizens and expatriates alike, this has choked off most remaining channels of expression and discontent, and is thus making it much harder for the Gulf monarchies to keep disguising the authoritarian nature of their polities.
Resources, populations, and subsidies
Although some Gulf monarchies still command substantial hydrocarbon resources, even these will face pressure to maintain the same level of subsidies for their populations in the coming years, especially as reserves rapidly deplete and meaningful diversification of their economic bases remains limited. Meanwhile, those monarchies that are already suffering from severely depleted reserves are now failing to maintain certain subsidies. Given the obvious political ramifications of declining benefits and any cutbacks to their welfare states, the Gulf monarchies have been understandably sensitive and often secretive with regards to their remaining resources. According to US diplomatic cables despatched between 2007 and 2009 it was claimed, for example, that Saudi Arabia may have been overstating its crude oil reserves by as much as 300 billion barrels—or 40 per cent. Quoting a senior geologist, the cables disagreed with Saudi Aramco’s senior vice president for exploration, who claimed in 2007 that Aramco had 716 billion barrels of total reserves, of which 51 per cent were recoverable, and that in twenty years Aramco would have 900 billion barrels of reserves. Instead it was argued that Saudi Arabia will soon reach a plateau in total output that will last only fifteen years before beginning to decline.1
Importantly, cables from 2009 also noted that Saudi Arabia’s ability to export oil (and thus keep financing the welfare state and providing subsidies) will decline as its domestic energy demands rapidly increase. The cables stated that ‘…demand [for electricity] is expected to grow 10 per cent a year over the next decade as a result of population and economic growth… as a result [Saudi Arabia] will need to double its generation capacity to 68,000MW in 2018’, while also claiming that various major project delays and accidents in Saudi Arabia are ‘evidence that Saudi Aramco is having to run harder to stay in place—to replace the decline in existing production’.2
In the weakest position has been Bahrain, where as early as 1965 half of its onshore oil reserves were already thought to have been depleted and in 1987 production from its offshore Abu Safah field (shared with Saudi Arabia) began to slow. Since then Bahrain has had to rely heavily on about 147,000 barrels per day (about 77 per cent of its total output) from Saudi Arabia,3 as compensation for this loss. In 1993 Bahrain’s remaining reserves were estimated at just 200 million barrels with total depletion expected in 2005.4 Although this may have taken place, it has been somewhat disguised by Bahrain’s oil-refining capacity, which now primarily refines Saudi oil. As with many other Gulf monarchies, Bahrain is now a prominent gas producer, but again it is estimated that an increasing proportion of its output will be required by the domestic sector.
Similarly Oman is believed to have shrinking oil output,5 with recent discoveries having either proved commercially unviable or on a much smaller scale than in the past.6 In total it is thought to have only 5.5 billion barrels of oil in known reserves—most of which are spread out over disparate fields. This means Oman will soon become a net hydrocarbon importer7 as its domestic energy consumption has more than doubled over the past decade.8 While Abu Dhabi still has a few decades of oil reserves remaining—with an estimated 98 billion barrels of oil left,9 its gas production is hampered by high sulphur rates and is increasingly being earmarked for the domestic sector. Abu Dhabi is already importing Qatari gas via the Dolphin pipeline—a joint project with Qatar and Royal Dutch Shell originally conceived in 1999. But most problematic for Abu Dhabi is the increasing amount of energy it has to supply to the six other UAE emirates as their demands also increase. Although the poorest four emirates have never had significant hydrocarbon reserves, both Dubai and Sharjah were once oil and gas producers. Sharjah’s production is now minimal, and in 1995 Dubai’s daily oil output slowed to just 300,000 barrels.10 Although the ruler of Dubai made an announcement in early 2010 that a new offshore oilfield had been discovered,11 this seemed to be primarily a political move as the emirate was trying to restore investor confidence following the difficulties it faced in late 2009. Indeed, analysts quickly expressed doubts over the commercial viability of the field and described the find as ‘a drop in [Dubai’s] ocean of debt’.12
Kuwait is in a much stronger position, with official estimates of 100 billion barrels of oil remaining, most of which will come from the massive Burgan field—the second largest in the world. However, some analysts and Kuwaiti members of parliament have disputed this figure, claiming Kuwait has only about 48 billion barrels remaining, while several of its other onshore fields are now nearly seventy years old and maintaining existing levels of production will become increasingly difficult. Since 2008 Kuwait’s consumption of gas has exceeded its production, requiring the emirate to import. This shortfall is likely to increase over the next few years, as domestic electricity demand is believed to be increasing by 8 per cent per year, having eliminated what was once a comfortable reserve margin.13 In the best position of all is Qatar, which has a much smaller population and massive gas reserves which will likely allow it to keep exporting substantial quantities of gas for several more decades. As officials have claimed, Qatar could even ‘…meet all of the UK’s gas needs for 250 years’.14 Nonetheless the emirate will soon face pressures with regard to oil consumption, as it only has about 25 billion barrels of oil reserves—making it the second smallest OPEC oil producer. Since 2000 its domestic consumption of oil has tripled and is likely to rise by 5 per cent per year over the next decade due to its rapidly growing economy and in particular growing demand from its transport sector.15
In tandem wi
th these declining reserves, and already placing pressure on the wealth distribution systems are the Gulf monarchies’ rapidly increasing indigenous populations. Although often overlooked, given the large size of their urban expatriate communities, the number of nationals in these states has also risen substantially in recent years. This is due to indigenous communities not only living longer, due to vastly improved healthcare, but also because of some of the highest fertility rates in the world, mostly due to the various economic benefits still on offer. Saudi Arabia has always had the highest ratio of nationals to expatriates in its total population, with the former accounting for about 70 per cent of the total, or 19 million persons, according to the 2010 census.16 Significantly, 47 per cent of Saudi nationals are now thought to be under the age of eighteen, with 80 per cent under the age of thirty, thus making the Saudi population one of the youngest in the world.17 An exact fertility rate is hard to measure for Saudi nationals—and for all Gulf nationals—due to most statistics being based on total resident populations (and thus being artificially lowered by the inclusion of the much lower expatriate fertility rates).18 Nonetheless it is likely that it is still much higher than in developed states, while life expectancies have become comparable with those in developed states. Similarly, the national populations of the other five Gulf monarchies also have very high growth rates, with modest or high fertility rates and greatly increased life expectancies. Although a recent UN report discussing the UAE claimed that the country’s birth rate has halved over the past thirty years and is now the lowest in the region, it erred by combining the national and expatriate populations. With the UAE having the highest ratio of expatriates to nationals in the region, this has obscured the fast growth of the indigenous population, which is likely growing just as fast as those of the other Gulf monarchies.19
Symptomatic of the strain engendered by these declining reserves, increased domestic energy consumption, and rising populations have been the frequent failures of governments to maintain cheap utilities and keep delivering low cost fuel and foodstuffs. These have historically been three of the most basic types of subsidies in the Gulf monarchies and continue to be regarded as an indispensable birthright by most nationals, especially the younger generations who have no living memory of the pre-oil era and the region’s earlier poverty. They largely expect indefinite subsidies and, unlike their grandparents, rarely view them as gifts from rulers that have led to their lives being transformed. For expatriates, there are fewer political implications, yet it is undeniable that the Gulf monarchies must remain comparatively attractive and competitive places in which to live and work. With regards Saudi Arabia, a recent Brookings Center report argued that the ‘burgeoning youth population’ is now ‘straining the capacity of the Saudi welfare state… characteristics of other societies that have experienced political upheaval’.20 And in early 2011 a more specific BBC report claimed that Saudi Arabia was grappling with food price inflation of over 9 per cent, with some items such as beef, chicken, and vegetables having doubled in price over just a few years, presumably as a result of increased production and transport costs.21 In Kuwait, the most obvious problem has been the increasing frequency of rolling electricity blackouts during periods of peak demand, especially during the summer. This led the Energy Information Administration to conclude in 2011 that Kuwait is now in a ‘perpetual state of electricity supply shortage’.22
The UAE offers even clearer examples, not least because it is usually perceived as a wealthy state. After several summers of blackouts in Sharjah, due to increased demand and its government’s inability to meet electricity costs, the Sharjah Electricity and Water Authority announced in 2009 that electricity charges were to be increased by 50 per cent—including those levied on UAE nationals. This led to much complaint, mainly from nationals, who claimed that the authorities were unable to cope with an expanding population. Since then blackouts have continued in the emirate, often forcing businesses to close due to lack of air-conditioning.23 The Dubai and Abu Dhabi governments have also begun to falter, especially with regards to subsidising state-backed retail petrol companies such as the Emirates National Oil Company and the Emirates Petroleum Products Company (both owned by Dubai) and Emarat (owned by Abu Dhabi). In 2010 these companies’ roadside petrol stations began to experience fuel shortages—a situation that continued well into 2011. Initially the shortages were blamed on logistical problems, but it later transpired that deliveries were not being made due to the companies’ inability to make payments. Although fuel price hikes have taken place in recent years, most of which proved extremely unpopular with UAE nationals, there appeared to be no alternative as the various emirate-level governments had begun to phase out fuel subsidies on the grounds that they were costing the country hundreds of millions of dollars per year.24 Indeed, at a secret meeting with Ministry for Finance and Industry officials both ENOC and EPPCO recommended removing the cap on fuel prices completely, which would have led to an immediate tripling of petrol prices from nearly $2 per gallon to nearly $6 per gallon. In 2011, however, due to the perceived political backlash of further price hikes in the wake of the Arab Spring, and the rising popularity of various opposition groups in the UAE, the Abu Dhabi authorities performed a u-turn by providing Emarat with even more capital. Meanwhile the federal government cancelled the licences of both ENOC and EPPCO given the Dubai government’s inability to provide a comparable bailout, with the Abu Dhabi National Oil Company eventually taking over the running of their petrol stations.25 Moreover, ministry officials even suggested introducing a new $550 fuel allowance specifically for UAE national families in order to cover future increases.
Voluntary unemployment
Although the poorer Gulf monarchies—which have fewer resources to finance public sector jobs for nationals or to provide incentives for their private sector employment—tend to have a more balanced workforce, the wealthier monarchies are increasingly faced with high levels of voluntary unemployment among their young national populations. In many ways, although there are some exceptions, the described cultivation of a national elite over the past four decades by these states has led to citizenries that are now not only accustomed to material benefits and to no forms of extraction, but are also—with all the various sponsorship systems, soft loans, and public sector employment opportunities—being deprived of any motivation to gain meaningful qualifications or enter into a more competitive job market, or even any form of private sector job. In other words, there is an increasingly significant drawback to the political benefits derived from cosseting the national population, and in many ways this is already leading to nationals in the Gulf monarchies’ largest cities becoming little more than bystanders on the sidelines of their countries’ development. Furthermore, there is evidence that this may be leading to a generation of Gulf nationals that are frustrated, bored, restless, and on occasion even delinquent.
In the mid-1990s even the ruler of Abu Dhabi warned of the phenomenon—seemingly oblivious that it was a problem partly of his government’s creation—by criticising the inactivity of young nationals who should be gainfully employed. He stated that he ‘could not understand how physically fit young men can sit idle and accept the humiliation of depending on others for their livelihood’.26 Similarly, in the late 1990s the crown prince of Dubai seemed unaware of the root causes of the problem when he complained of ‘voluntary unemployment’ in his emirate, stating that ‘unemployment is a waste of natural resources and is wrong when the UAE is providing all its sons and daughters with opportunities that were unattainable a generation ago’.27 Writing in his memoires at about the same time, one of Dubai’s veteran merchants predicted that ‘…of Dubai’s young nationals, probably only 20 per cent will be worthwhile, becoming academics and professionals, and businessmen. About 60 per cent can probably be written off, the consequences of the all-too-easy acceptance of the pleasures which will be handed out to them’.28 Similarly realistic, when the former ruler of Qatar29 fell ill in the mid-1990s he repor
tedly expressed more shock at the fact that his paramedic was actually a Qatari national than over the actual heart attack he had just suffered.30
Although a number of labour nationalisation strategies have been implemented in the more resource-rich monarchies—‘Saudification’, ‘Emiratisation’, ‘Kuwaitification’, and ‘Qatarisation’—they have in many ways only compounded the problem. In most cases they have avoided addressing the structural problem of most citizens being dependent on a distributive economy, and have served only to keep pricing nationals out of the market, which in turn has made them even less attractive employees. In particular, labour laws guaranteeing access to special pension funds and limiting working hours have greatly increased the cost of hiring nationals.31 Even more heavy handed have been the aforementioned quota systems and job protection schemes for nationals imposed on certain industries.32 These have often made expatriate colleagues resentful of their Gulf national counterparts and have made employers increasingly wary. As one recent report observed ‘…across the Gulf, and especially in states where rapid growth is driven by oil and gas, locals rarely have hands-on jobs in health—or anywhere in the private sector. In an unspoken pact between rulers and ruled, Gulf citizens seem all too happy to fill plush government jobs, where the pay is high, the hours short, and the work sometimes nonexistent. In the private sector, job after job is filled by South Asians, non-Gulf Arabs and Westerners’.33
After the Sheikhs Page 16
