The GCC in 2021: Outlook and key challenges

Chatham House experts look ahead at what’s in store for the GCC (Gulf Cooperation Council) countries in 2021.

Expert comment Published 29 January 2021 Updated 7 July 2021 3 minute READ

US-GCC relations

Sanam Vakil

The departure of the Trump administration will be felt across the GCC as the incoming Biden administration is expected to change US policy on Iran, renew conflict management efforts in Yemen and prioritize human rights concerns. President Trump, whose first foreign trip in office was to Riyadh, was well received in the Gulf for his maximum pressure campaign against Tehran, support for Saudi Arabia’s position in the Yemen war and defence of Saudi Crown Prince Mohammed Bin Salman after the killing of journalist Jamal Khashoggi.

The Trump administration’s role in facilitating the normalization of ties between the UAE, Bahrain and Israel will also be warmly remembered by Gulf states. The UAE and Israel share both threat perceptions and an ambitious regional vision, alongside their growing economic ties, and will both aim to coordinate and manage their broader regional involvement in line with the Biden administration’s Middle East strategy.

While keeping an eye on developments in Washington, the GCC also sought to start 2021 off on a positive note at home. Although unity on Iran policy seems far off for the time being, the successful resolution of the Qatar blockade will help bring more stability and allow the GCC countries to focus on their economic diversification agendas, attracting foreign investment and delivering the October 2021 Dubai Expo and 2022 football World Cup.

A new hope for Yemen?

Farea Al-Muslimi

In the final days of 2020, a new Yemeni cabinet was formed and flown into Aden from Riyadh, ending months of infighting within the internationally recognized government in the south of the country. Furthermore, more than 1,000 prisoners were released, the Gulf reconciliation started to pick up and, most importantly, a new US administration was elected with a very different policy towards the war in Yemen. This all adds up to a much more positive outlook for Yemen in 2021 and will likely lead to a new round of peace talks, more prisoner exchanges and a possible economic de-escalation.

The UN Security Council is scheduled to renew its resolutions and sanctions on Yemen in February 2021 and its decisions could make all the difference to the people of Yemen. Moving away from the usual approach and instead adopting a new resolution could increase the chances for peace, building on the positive developments mentioned above. Anything short of that will drag the war on further and will likely lead to the resignation of the UN envoy, thus taking the peace process back to square one.

Energy dynamics

Neil Quilliam

There is a contradiction at the heart of the GCC transition away from hydrocarbons – a need to break the habit but, at the same time, a dependency on hydrocarbons to make the transition happen. The UAE is very open about this contradiction and has recently announced its goal of increasing oil production capacity from 3 million barrels per day to 5 million barrels per day by 2030. The move sends a strong signal that hydrocarbons will remain a dominant part of the UAE’s economy for some time to come, and most likely that of other Gulf Arab states too. This runs counter to comments made by UAE Climate Change Special Envoy Sultan al Jaber – who happens to also be ADNOC CEO – at Abu Dhabi Sustainability Week about the UAE’s commitment to tackling to climate change. Talk about a juggling act.

While GCC states have made impressive commitments to increase renewables in their energy mix and tackle climate change, they will also continue to increase their oil production capacity in a bid to secure a bigger share of a shrinking oil market post-2050. As the world’s lowest-cost producers, Saudi Arabia and Abu Dhabi are better positioned than most to continue pumping oil when renewables compete on price and high-cost producers fall by the wayside. Both will continue to undercut their competitors until Saudi Arabia eventually outlasts the UAE. It is therefore not surprising that Abu Dhabi wants to leave OPEC and maximize production before it is too late and, ironically, ensure the energy transition is affordable.

Transforming Gulf economies

John Sfakianakis

The COVID-19 pandemic has accelerated the need for structural transformation in Gulf economies. Going forward, certain trends will become even more accentuated.

First, the role of the state as a conduit of economic policy, along with less willingness for debate, will take centre stage as the prevailing orthodoxy in the Gulf and other emerging markets.

Second, while the state will dominate economic action, the private sector is paradoxically being touted as a central pillar of growth and creator of jobs, even though the sector itself is actually weakening.

Third, there is a need for new sources of wealth as hydrocarbon prices will not suffice given high expenditure commitments and a large public sector. At the same time, although credit is still affordable and available, Gulf sovereigns are relying on more debt as a source for local and international investments.

Fourth, the fiscal realities of the Gulf require less profligacy, increased geopolitical stability and a restructured social contract, along with a leaner public sector.

Fifth, financial investments abroad could create a medium-term fiscal buffer for the smaller Gulf states, but less so for the larger ones.

Sixth, the Gulf’s prospects will largely be determined by Asia’s demand for hydrocarbons.

Finally, the Gulf will have to think even harder about its value proposition to an ever more competitive world.

Following the oil slump of 2014, the road has been bumpy and is likely to become even more precarious in the future. Catching up with the rest has never been more challenging.

After the blockade

Kristian Coates Ulrichsen

Now that the Qatar blockade has been lifted, thus ending the deepest – and longest – rift in the GCC’s 40-year history, a key focus for the organization in 2021 is likely to be strengthening its framework to ensure that future disputes are handled within existing mechanisms. While the GCC charter does contain a provision for dispute resolution, it has not been institutionalized and was not used during the two most recent GCC disputes in 2014 and 2017.

The fact that the GCC secretary-general, Nayef al-Hajraf, is from Kuwait, one of the two member states (the other being Oman) that has traditionally tried to balance regional relationships, could provide some impetus to rethink the role of the GCC at an institutional level and vis-à-vis its member states.

An early test for the GCC in 2021 could be when the US Biden administration re-engages with the JCPOA and looks to secure regional buy-in to any further dialogue with Iran. As immediate neighbours of Iran, all six GCC states have an interest in what comes next, but their leaders may choose to prioritize national responses over leveraging their collective influence.