When the world’s powers gather together during the month of November in the United States to begin a series of meetings to discuss the global financial crisis, the Gulf Cooperation Council states (GCC – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) will be an important component of the discussion. While Saudi Arabia will be an active direct participant, the other GCC states will be keen listeners. To be sure, these states are impacted by the financial crisis just as much as other countries despite having large financial reserves based on their position as the world’s most significant oil producers. In fact, the GCC states are likely to face a certain degree of pressure for an anticipated constructive role they will be expected to play. For example, US President Bush has already been suggesting that he is looking forward to the involvement of the Kingdom of Saudi Arabia in the summit. Similarly, British Prime Minister Gordon Brown has called for the Gulf States to contribute to a new fund facility being created within the International Monetary Fund.
In this context, it is important to remember that the GCC states have traditionally played a stabilizing role whether in terms of financial markets through their investment decisions or by maintaining price equilibrium and stable supplies to the world’s energy markets. This position will not change. However, it is important that the discussions on the current financial crisis not be limited to the present economic agenda only but that the meeting also considers the broader political context in which this crisis is occurring and being handled. For the GCC countries this is an important item on the overall agenda and it will be necessary for other participating countries, including the United States, to comprehend that solely seeing the position of the GCC states in economic terms is no longer sufficient.
The reason for a broader agenda is that the current global financial crisis cannot and should not be seen in isolation. It is indeed the culmination and manifestation of a series of interrelated unresolved problems, which have led to accumulated tensions in the international political, security and economic system, tensions that are causing deep fractures in the system itself. One way to compare the situation is to relate it to how earthquakes occur. Here, tectonic plates are constantly in movement, getting closer or farther from each other. Such movements create growing stress at the points of juncture between plates, stress which must be released either through multiple smaller adjustments (small earthquakes) or through a major, sometimes catastrophic event.
Today, we are witnessing a major earthquake whose epicenter is in the United States and in the financial system, but its origins are not exclusively in either of the two.
The global system has accumulated stress in many of the plates that constitute it. This includes the following, not necessarily exhaustive, list:
The international trade plate has seen rapid progress towards globalization, with shifting production of material goods from the traditional industrial countries to new emerging countries, creating greater and greater trade imbalances with growing problems for employment in the industrial countries and the progressive disappearance of industry. These trends are not sustainable, in the sense that if one extrapolates them into the future, one comes to a vision which is paradoxical and clearly unacceptable. So, something must be done: not necessarily a complete reversal of liberalization, but surely a less ideological implementation of free trade, with exceptions and a degree of state re-involvement in the economy. Signs of that are already evident.
The international energy system is characterized by a huge imbalance in the level of per capita energy consumption between the US and the rest of the industrial countries; between the industrial countries and the emerging countries; between even the emerging countries and the poorer countries, including almost the whole of Africa, where billions of people do not have access to commercial energy at all. Available reserves of fossil fuel together with environmental considerations clearly tell us that the current pattern of energy consumption in the industrial (and the GCC) countries is unsustainable. Something must change very radically if one wishes to be able to envision an acceptable scenario of the future.
The international security system has been characterized by the unchallenged and unchallengeable supremacy of a single superpower, but whose immense military might has proven totally ineffective to achieve the objectives that matter. The US has not been able to win the war either in Iraq or in Afghanistan and has found its hands tied with regard to Iran. As a result, the US is looking like a useless superpower – it has the might to destroy the world but cannot impose its will unilaterally. This is an untenable position in the long run. The non-proliferation file will probably be one on which things must change quite rapidly. Faced with the resurgence of interest in nuclear energy and the impossibility of keeping nuclear ambitions in check in Iran or North Korea or elsewhere, the nuclear powers will either have to admit defeat or finally accept a substantial reduction in their nuclear arsenals. A complete rethinking of the US military strategy in the coming months and years is one aspect that can be anticipated.
The international financial system is the easiest to understand just now. For years, the system has been based on deregulation and the massive encouragement of indebtedness for US consumers and enterprises, paralleled by growing government debt and trade deficit – all based on the thinking that this was the rest of the world’s problem, not the US’s. The rest of the world was expected to be forever happy to buy US assets – and it has been by and large, except that the system within the US itself at some point collapsed. It is very interesting that the crisis originated out of the mortgage market, not out of a global crisis of confidence in the US economy or the US dollar. That the US financial posture was untenable has been evident for years – but the IMF and everybody else hoped for a soft landing. Instead, the soft landing has turned into a crash with the result that the international financial system will have to obviously be established on new bases.
All of the above only substantiates the claim that one cannot simply tackle the financial crisis without at the same time also addressing some of the political issues. For the GCC states, this means that they must concentrate on a few key points:
Get from the United States a clear commitment that they will support regional integration – within the GCC and with the rest of the Arab countries. The US has been systematically sniping at the GCC and this must stop. In line with the above, the GCC states should seek a commitment to honestly work towards a regional security system that is based on progressively building mutual trust rather than on the military presence of the US in the region.
Get assurances that the trade system will be redesigned in a way that is not contrary to the interests of the GCC countries. This means a combination of openness to international trade with tolerance of state intervention which is geared to achieving developmental objectives. While this is very difficult to articulate in practice, the general idea is clear.
Get assurances that a major effort will be made to put the non-proliferation train back on track, which includes negotiating a substantial cut in the arsenal of the nuclear powers and putting pressure on all countries to become parties to the NPT
Get assurances that the new international financial system will not tolerate systematic imbalances, not even in the US, and that international investment will be free within well understood rules. There should be no discrimination against Sovereign Wealth Funds (SWFs).
Ask for US support for the four key diplomatic initiatives of Saudi Arabia with respect to regional crises:
King Abdullah’s peace plan to solve the Israeli-Palestinian conflict.
King Abdullah’s diplomatic initiative to start a dialogue between the Afghan government and the Taliban.
The Saudi position towards a united Iraq in which all components share in power.
The engagement of Iran in a regional context.
All of the above are essential points and they represent a comprehensive framework that the GCC states should pursue as the discussion about resolving the present global financial crisis proceeds. Isolated and single point solutions will not work and it is time to adopt a broader approach.