US Diplomacy's Decline

Saudi Arabia’s recent external pagecallcall_madeto create “a unified and a joint vision” to deal with the “Iranian challenge” signals the growing assertiveness of Gulf diplomacy. It is the latest and most strident of numerous diplomatic measures pursued by Gulf states over the past few years. This emerging dynamic is a direct result of the decline in US political capital in the region, combined with the concomitant growth in the economic power of the Gulf. This assertiveness poses significant challenges to the Obama administration, as it seeks to disentangle former President George W Bush’s disastrous foreign policy legacy in the region. 

Deepening malaise

The demise of Egypt's charismatic leader and pan-Arabist Gamal Abdel Nasser, coupled with Anwar Sadat’s subsequent peace accord with Israel, significantly diminished Egypt’s role as a regional power broker, leaving Saudi Arabia as the only Arab country with any effective regional authority. However, Saudi Arabia’s diplomatic and foreign policy could best be described as discreet. More often than not it acts in secrecy and mostly only reactively.

However, since 9/11, the Saudi government’s stance has changed. If the actions of Al-Qaida exposed the deep fissures within Arab society, President Bush’s response to the attacks exacerbated them. In Saudi Arabia, the government was faced with the increasingly overt radicalization of the country’s youth, while elsewhere around the region street-level discontent with state authoritarianism and connivance with despised US policies prompted a rise in social tension along religious, sectarian, ethnic and political fault lines.

The Israeli-Palestinian conflict lies at the core of this discontent. Arab states deeply believe it is the single most important contributing factor to militant radicalism in the region. But for the Gulf states, Iran is also a genuine cause for concern. They increasingly view Iran not only as a political threat to Arab regional hegemony but also as an existential threat to regional security.

Gulf governments believe that these twin threats have never been more pronounced and are a direct result of the failure of US foreign policy in the region. Furthermore, President Bush’s disastrous policies have led Arab states to believe that the US no longer has the capability to confront these threats. This exasperation with, and diminishing regard for, US leadership in the region has been building for some time and has been the primary underlying driver for more public Arab — and especially Gulf — diplomacy, based on two very clear themes: cooperation and independence.  

Cooperation and independence

In 2002, Saudi Arabia presented the Arab League Summit in Beirut with the Arab Peace Initiative, which was subsequently accepted. The Arab League re-endorsed the plan in 2007, and it remains the only viable document that all Arab states have signed-up to and has also received widespread international approval. Israel recognizes its importance and significantly has not rejected it.

More latterly, in 2007, Saudi Arabia brokered the Mecca Agreement, which sought to reconcile internecine Palestinian rivalry. However, it foundered primarily because the US refused to support it, since it contravened Washington’s policy of ‘rejectionism’ — the idea of non-negotiation with extremist organizations. But despite its failure, the Mecca Agreement, along with the still-extant Arab Peace Plan, remains hugely symbolic, for they indicate, on the one hand, Saudi Arabia’s ability to deliver Arab unity and, on the other, its preparedness to act against the policies of Washington.

The twin dynamics of cooperation and independence (increasingly in evidence) have been reflected in recent foreign policy initiatives of Gulf states. In 2008, Qatar brokered the Doha agreement, which brought an end to the political impasse and outbreak of violence in Lebanon. As such, it was the first major success of Gulf diplomacy in recent years. And it was notable for the fact that once again Gulf states were prepared to diverge from US ‘rejectionist’ policies. The US refused to talk to Hezbollah, while Qatar’s solution was to integrate the group into the political process. Furthermore, Saudi Arabia’s decision to stand aside and let Qatar take a leading role in negotiations after its own partisan efforts failed, illustrated the new cooperative dynamic in regional diplomacy. While sensitivities remain over smaller regional actors assuming larger roles, pragmatism has prevailed and clearer heads in both Cairo, and particularly Riyadh, accept that results matter more than means.

Meanwhile, Egypt has been working hard to reinvigorate elements of the Mecca Agreement to rebuild the Hamas-Fatah relationship. Saudi Arabia has been consorting with Jordan, Egypt and others in order to bring Syria back into the Arab fold and undermine Iran’s influence. It is still early, however; disagreements in the run-up to the Doha Arab League Summit at the end of March have made clear that perfect Arab unity remains a distant dream. However, there is a groundswell of renewed belief and confidence in Arab diplomatic circles — led primarily by the Gulf — that it is possible to develop a regional modus operandi, which can attain universal Arab acceptance and present a unified front (if not an entirely unified rear).  

Confidence and self-interest

This renewed confidence has been in ample evidence this year. In an unprecedented attack on the US, the former Saudi ambassador to Washington, Prince Turki al-Faisal, wrote in an extraordinary external pageOpEdcall_made in the Financial Times in January that President Bush had left a ”sickening legacy" in the Middle East. He claimed that the prospects for Arab-Israeli peace were “growing dim” and stated that “America is not innocent in this calamity.” He warned that the Saudi kingdom had strongly resisted popular calls for a holy war against Israel but added that “every day this restraint becomes more difficult to maintain.”

More recently, in March, the head of the Arab League, Amr Moussa, publicly external pagedemandedcall_made that “no foreign [power] talks to Iran without Arabs being aware of it and having a role in the process.” US Secretary of State Hillary Clinton responded by assuring Arab governments that the US would include Gulf Cooperation Council (GCC) states in any diplomatic overtures toward Iran.

However, Gulf governments continue to reserve judgment on Obama’s administration. Consequently, they retain deep reservations over Washington’s ability — or indeed readiness — to resolve its standoff with Iran without harming their interests. These residual concerns, combined with a renewed confidence, have given the Gulf states the impetus to take a lead in regional diplomacy, a lead which impels them to act in their own self-interest rather than be subjected to the self-interest of the US.  

It’s the economy, stupid

While some of the Gulf states’ confidence to operate independently comes from the relative degree of success it has had in building regional diplomacy, it more readily stems from the region’s much greater economic clout. If misguided US policies created the circumstances in which the Gulf states were finally prompted to take matters into their own hands, then the oil windfall of recent years has provided them the wherewithal to act. With economic strength comes political leverage.

No previous US administration has faced such powerful confluence of political and economic dynamics in the Gulf, not even during the 1970s, when Gulf producers resorted to the ‘oil weapon’. Their power today is more deeply entrenched and will be far more subtly wielded. President Obama will need to understand quickly that if the solution to the Middle East conundrum lies in Jerusalem, then the road to it passes through the Gulf.  

Petro-diplomacy

Yet already some of Obama's policies are causing concern in Riyadh and Abu Dhabi. One of his administration’s five primary policy goals is to lead the US toward energy independence. He intends to develop renewable energy, encourages the increased use of fuel efficient cars on US roads and envisions 85 percent of cars in the US powered by a fuel other than oil or gas within 20 years. More ominously for the Gulf states, he external pageaimscall_made to “eliminate our current imports from the Middle East and Venezuela within 10 years.”

Clearly alarmed, Saudi oil minister Ali al Naimi recently external pagesaidcall_made that “oil is expected to maintain its preeminent position as the world’s largest single source of energy.” Al Naimi further argued that alternative energy sources should be viewed as “supplemental” to oil and that any premature switch and over-reliance on renewables could be “catastrophic.”

Al Naimi’s alarm was less likely about falling US demand for oil, for that is expected to be more than offset by increased Chinese energy consumption. Underlying his remarks was the concern that a diminished US reliance on oil would lead the superpower to re-evaluate its long-standing strategic agreements with Gulf states, by which it acts as a guarantor of their security and ultimately the secure supply of oil. For all the Gulf states' newfound confidence and independent spirit, they still need the US’ protection.

But US strategic designs in the region are more directly related to the petro-dollar than specifically to oil itself. Even if its own reliance on oil was reduced, it would still need to ensure the security of oil supply in order to sustain the global demand for dollars. The petro-dollar has underpinned US economic strength since the establishment of the dollar as the global reserve currency in the early 1970s.

But the gradual build-up of the now chronic US trade deficit has resulted in the relentless weakening of the dollar, which many economists — and governments — around the world believe to be a long-term trend, in spite of the recent dollar rally. As a result, central banks are reducing the amount of dollars they hold in reserve. Already, some Gulf states have indicated that they are reducing their exposure to the dollar, both in terms of their investment portfolios and foreign currency reserve holdings. The gradual sell-off of dollars will force its value down even further. But while a global exodus away from the dollar is not immediately likely, recent remarks by China’s Central Bank indicate that the world needs a new reserve currency regime — and debate and eventual action is headed that way.

This development raises question marks over the continued viability of the petro-dollar, not least since it makes no sense to sell a commodity in a currency which immediately declines in value. But increased cooperation among Gulf states, which will likely result in the introduction of a single currency in the GCC, will place further pressure on the dollar, since a single currency will most likely result in the dismantling of the Gulf currencies’ dollar peg. Through cooperation, the Gulf states can gain monetary independence.

A free-floating Gulf currency would argue strongly for a move away from the petro-dollar. It would make much greater sense to sell oil in a basket of currencies which reflect the region’s trading focus, such as the euro and the yuan. That basket could also contain their own currency, which would help create global demand for it, boosting the regional economy.  

The ties that bind

But in late March, Saudi Arabian central bank Governor Mohammad al-Jasser emphasized his country’s continued commitment to its dollar peg. Indeed, Saudi Arabia will be the chief Gulf defender of the peg, since it still places great store in its strategic bond with the US. But with the continued decline of the dollar, the economic costs of maintaining this strategic relationship will grow considerably. Combined with an eastern shift in the Gulf’s geopolitical alignment, which may provide alternative strategic options in time, the Gulf states may themselves seek to re-evaluate their relationship with the US. Particularly so if President Obama is unable to deliver peace in Israel-Palestine and to alleviate the Iranian threat.

Dismantling the oil-dollar link would significantly undermine the role of the US on the global stage, most likely precipitating the loss of the dollar’s status as the global reserve currency. In turn, this would considerably diminish the superpower status of the US. To consider such a scenario even five years ago would have been fantasy. And while such a development is highly unlikely within the next five years — the Gulf states have recently announced further delays to their monetary union — it is conceivable within the next ten. This raises the possibility that President Obama will have to contend with a power broker in the Middle East which is capable of undermining the US economy at a stroke. This will refocus not just his regional, but also his global priorities.

President Obama may well be exercised by crises in Tehran and Jerusalem, but if he fails to manage them adequately, he will be faced with far more significant developments in Riyadh and Abu Dhabi during his second term.