Six Arab oil-producing nations, which together control half of the world's known oil reserves, moved toward stabilizing their chronically unstable region in the waning hours of 2001.
Leaders from Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE agreed at an annual Gulf Cooperation Council summit in Oman Dec. 31 to speed the start of a region-wide customs schedule by 2 years.
Goods imported from outside those countries will be subject to a 5% tariff by Jan. 1, 2003, instead of 2005. The countries also will establish a single currency, similar to the European Union's new euro, by 2010. Eventually the six nations, which formed the GCC in 1981, plan a free-trade zone with the EU, the Middle East's biggest trading partner.
The GCC's action to liberalize trade comes at a critical time. Oil revenues, which make up more than 80% of the income of GCC states, are expected to drop 25% this year.
First steps
Lowering trade barriers is an important first step toward economic health, according to an International Monetary Fund report reviewed by the GCC in Oman.
The IMF says more drastic and politically unpopular measures are still needed, including higher taxes and less lavish welfare systems. GCC leaders fear the medicine IMF is recommending may make their own regimes less stable by deepening civil unrest.
IMF officials, along with the oil industry and other business sectors that would benefit from a stable Middle East, know change takes time.
But along with political realities are economic realities: oil is forecast to average $21/bbl (OPEC marker basket) this year. Meanwhile, world oil markets appear to be experiencing boom-to-bust cycles with greater frequency. That's all the evidence that some observers think these nations need to see: time has become an even more precious commodity for the countries than the crude pumped from their ground.
“GCC states should step up reforms, lower subsidies, upgrade the financial system and the stock market, and allow foreigners to fully own projects,” the IMF report said.
Saudi role
Saudi Arabia, a key GCC member, may be moving toward reform, although still not as quickly as multinational oil companies would like.
Senior Saudi and US officials are holding a joint business conference in Riyadh Jan. 15 that is billed as a “confidence-building” exercise, in light of the Sept. 11 terror attacks on the US.
The Saudis also have promised to finalize $30 billion gas exploration deals with eight international oil companies this March. The gas initiatives represent the first time foreign oil companies have been allowed to invest in the kingdom's upstream in 25 years.
Perhaps the best is yet to come, but international oil companies say they can't afford to wait.