THE RISE OF THE GULF STATES AND THE USG POLICY

S E C R E T SECTION 01 OF 03 DOHA 000252 SIPDIS DHAKA FOR POL/ECON E.O. 12958: DECL: 04/13/2019 TAGS: PREL ECON ECIN EAID ENRG EFIN EINV PGOV QA ZP SUBJECT: THE RISE OF THE GULF STATES AND THE USG POLICY RESPONSE Classified By: Amb. Joseph LeBaron for Reasons 1.4 (b) and (d). ¶1. (U) The Embassy Doha analysis below is designed to contribute to the discussion and debate about the future of the region and the U.S. government response to it. -------------- Introduction -------------- ¶2. (C) The "Rise of the Gulf" is one of the most prominent features of a changing Middle East strategic landscape. On economic and infrastructure investment matters, the Arab world's center of gravity is clearly moving south-east, to the Arabian Peninsula. ¶3. (C) The balance of regional political influence remains an open question. But increasing Gulf economic power is likely to be followed by greater political clout in the years ahead. The fact that tiny Qatar - host of this year's Arab League summit - could even attempt to displace Egypt as the Arab power-broker on several regional issues may be one harbinger of such a shift. ¶4. (C) This rise of the Gulf calls for an appreciation of regional trends at work. It also requires a USG policy response that is tailored to each Gulf state's unique circumstances. This state-by-state approach will be necessary because the orientation towards Westphalian sovereignty still dominates in the Arab world, no matter how much we would like to see greater regional integration. -------------- The Crucial Role of the U.S. Military Presence in the Rise of the Gulf -------------- ¶5. (C) When the six Gulf Cooperation Council (GCC) members signed their original charter in May 1981, their primary concerns were two: external security -- protection from larger, potentially hostile neighbors such as Iran and Iraq; and internal security -- strengthening the conservative Sunni monarchies from Shia populations thought to be radicalized by the demonstration effect of Iran's revolution. ¶6. (S) Over time, however, these threats proved containable as expanding alliances with the United States shored up the GCC's security position. In contrast to the early 1980s, when small numbers of U.S. military forces were primarily "over the horizon," CENTCOM numbers from early April show there are now 28,474 U.S. personnel in the GCC states and another 4,129 afloat in the Gulf, for a total of 32,603 U.S. military members in the region. ¶7. (C) This steady and robust U.S. security umbrella is arguably one of the key reasons that, unlike in the last oil boom (1970s),the Gulf states committed a large portion of their recent surpluses to developing their own economies and infrastructure, and in other regional investments, instead of just parking their wealth far off-shore, away from regional political risk. -------------- -------------- The Economic Growth Ahead -- For the Gulf and Beyond -------------- -------------- ¶8. (C) This surge in domestic investment, underpinned by the U.S. military presence, has produced some non-trivial statistics. Total Gulf GDP topped USD 1 trillion last year, and the stock of Gulf foreign assets increased to USD 1.47 trillion, according to the Institute of International Finance (IIF). The current global economic crisis and the drop in energy prices since mid-2008 will slow the Gulf states' economic rise in the short-term, but the world's long-term demand for energy resources, and the GCC's comparative advantage as exporters, will ensure that the Gulf continues to become an even more formidable economic powerhouse over the long-term. DOHA 00000252 002 OF 003 ¶9. (C) In fact, the GCC is projected by the Economist Intelligence Unit to be a USD 2 trillion economy by 2020, and to provide nearly one-quarter of the world's energy supplies. Also, trends in regional investment flows show that the Gulf is an increasingly important hub for both inward and outward Foreign Direct Investment (FDI). ¶10. (C) Much of this money is staying in the Arab world. That will help make the Gulf States the engine for growth throughout the region. The IIF estimated that from 2002-2006, the GCC invested some USD 60 billion in other parts of the Middle East (this dated number misses sizable investments from the last two years). Gulf investors are active at an unprecedented level in multiple sectors, including industry and manufacturing, tourism and real estate, telecommunications, and finance. This activity extends beyond FDI to include portfolio investment - even an emerging private equity industry and increasing stock market activity. ¶11. (C) Forecasting the continued economic rise of the geologically-lucky Gulf states is easy. Predicting the political ramifications is less straightforward. -------------- The Regional Politics of Gulf Nation States -------------- ¶12. (C) Real power in the Gulf subregion will continue to reside at the nation-state level. Future political expression in the Gulf will vary by country; it will depend on each state's economic resources, social dynamics, and the ideology and politics of its top leaders. ¶13. (C) There are several reasons for this: Hydrocarbon wealth is distributed unevenly among the Gulf states. Bahrain and Oman's best days may be behind them, while the undisputed hydrocarbon king, Saudi Arabia, faces heavy demographic pressure. The smaller Gulf states of the UAE, Kuwait, and Qatar - blessed with large hydrocarbon reserves relative to small populations - may be best positioned to nimbly deploy their wealth in the pursuit of political ends. ¶14. (C) Even those three states, however, have shown markedly different regional policy approaches as they translate wealth into other forms of power: -- Kuwait has long eschewed an activist foreign or investment policy, and now appears enmeshed in internal politics. -- The UAE's massive investments find their way around the world, and its low-key political engagement appears designed to strengthen the forces of moderation, thereby protecting its financial interests. -- Qatar plays the often unpredictable maverick. Politics and investment are tied closely together. Hydrocarbon interests often drive its regional politics. Large annual surpluses also manifest in other forms of political expression, such as the state's continual support to Al-Jazeera, the bane of many regional regimes and a primary shaper of regional public opinion. -------------- The U.S. Policy Response -------------- ¶15. (C) These state-level differences call for a U.S. policy approach that will need to be tailored to each state's circumstances, regional strategies and strategic wealth and hydrocarbon management. Stepped up bilateral engagement, not focused on foreign assistance, but on identifying common ground and symmetry of interests, will be the most effective regional policy course. The GCC, as an organization, will remain too limited and too weak to serve as a mechanism for subregional politics. DOHA 00000252 003 OF 003 ¶16. (C) Most of the Gulf states have excess, deployable cash. They will spend it, but (usually) not just because we asked them to. For example, the U.S. and GCC are both interested in funding the reconstruction of Gaza. The reaction to our recent engagement on this issue, however, suggests that GCC views and concerns on the PA's capability in Gaza must be addressed if Gulf checkbook diplomacy is to be bent to our purposes. ¶17. (C) The list of regional issues that matter politically and economically to the GCC states is long. It includes Iran, Iraq, the Arab-Israeli peace process, Afghanistan and Pakistan, and the Horn of Africa. The GCC states often do not have common views, however, and they often act either unilaterally or with the loosest coordination. That said, the Gulf states' investments at home and in the broader Middle East amplify their self-interest in regional stability. The rise of the Gulf - economic, and increasingly, political - provides the U.S. with a golden opportunity. Engagement that is sensitive to each state's specifc interests and goals will help support the proces of the Gulf becoming a vehicle for and anchor o stability in a volatile region, and in the procss support our own regional objectives. ¶18. (C Embassy Doha will produce a follow-up cable with suggestions on how this approach could be appliedto Qatar. LeBaron