The oil-rich are on a slippery slope

The global economy has been shaken in recent days by an unprecedented fall in oil prices. This is particularly so in our oil rich Persian Gulf neighbourhood, from where a substantial share of global oil exports emanates. The economies of other major oil exporting countries such as Russia and Venezuela have also been shaken by falling revenues from oil exports.

Saudi Arabia, which hosts two million Indian workers and was till recently our largest supplier of oil, has played a dominant role in determining global oil prices. Its economic growth has fallen from 7 per cent to 3.4 per cent in 2015, and is set to fall to 2.3 per cent in 2016. With half its population aged below 25 years, youth unemployment in Saudi Arabia is unacceptably high. Moreover, with 75 per cent of its budget met from oil revenues, Saudi Arabia has been forced to take harsh measures which will spiral inflation, even as its foreign exchange reserves fall steadily. Other neighbouring oil rich Arab Gulf states will face similar challenges.

Signs of discontent There are signs of domestic discontent in Saudi Arabia, amidst this difficult economic situation. The Shia population located in the oil rich areas there has been infuriated by the recent beheading of the influential Shia cleric, Sheikh Nimr Baqir Al-Nimr. Worse, the kingdom is now embroiled in an unpopular military intervention in neighbouring Yemen, to restore a former president to office. Saudi Arabia is being assisted by Sunni Arab states such as Egypt, Jordan, Kuwait, Bahrain, the UAE and Qatar, in this military intervention. It has mounted relentless air strikes in Yemen, resulting in the displacement of 2.5 million Yemenis. 78 per cent of the Yemeni population is in desperate need of water, food and medical assistance. To add fuel to fire, American defence companies have reportedly supplied weapons and equipment to Saudi Arabia, at an estimated cost of $1.29 billion, for precision bombing

Iran has been blamed for supporting the opposition to the Saudis mounted by Yemeni Shia Houthis. Iran has partnered Shia-dominated Iraq, the Bashar al-Assad-led Shia dominated government in Syria, and the Shia Hezbollah in Lebanon, to challenge the Sunni armed opposition in Syria, which is backed by Saudi Arabia, Qatar and Turkey. These developments have followed the American invasion and ouster of Saddam Hussein’s Sunni-dominated government in neighbouring Iraq and its replacement by the Shia-dominated regime of Nouri al-Maliki. The Maliki dispensation disempowered Sunnis, triggering a civil war and the emergence of ISIL. Moreover, ill-advised American support for the effort to overthrow the regime of al-Assad has led to the exodus of millions of Syrians from their homes. It has also triggered a refugee exodus into the heart of the European Union. The ISIL has, meanwhile, emerged as a potent force, creating prospects for strife across the Islamic world, which threatens regional and global security.

Mistaken view Washington may believe that this situation will end by crushing the ISIL militarily in Iraq and Syria, which it may well succeed in doing in year or more. But, the ‘Jihadi Johns’ from Europe and their jihadi comrades who have come from fellow Arab/Islamic countries to make common cause with the ISIL, will disperse to havens in Libya and elsewhere, including in their own countries. The flow of ISIL supporters to Libya, which was torn apart by American, French, and British military intervention, will inevitably result in efforts to destabilise Saudi Arabia and many of its Arab partners. In his last State of the Union address, President Barrack Obama presented a bleak picture of the prevailing situation in the Islamic world, extending from Pakistan and Afghanistan, to Turkey. He proclaimed: “Instability will continue for decades in many parts of the world — in the Middle East, in Afghanistan and Pakistan, in tracts of Central Asia. Some of these places may become safe havens for new terrorist networks; others would fall victim to ethnic conflict, or famine, feeding the next wave.”

Interestingly, these developments have led to a tacit alliance between Saudi Arabia and Israel. One sincerely hopes that Iran will not return to the rhetoric of the years of President Ahmadinejad, who spoke of “wiping Israel off the map”. With the end of sanctions on Iran, the US would try to become more even-handed on Saudi-Iranian rivalry. But, the Saudi-Israeli partnership will carry considerable clout in Washington. Saudi efforts to forge an alliance of 34 Sunni Islamic countries, ostensibly to deal with the challenges posed by ISIL and Iran, have, in the meantime, not succeeded in getting firm commitments of military support from its members. Pakistan has two defence agreements with Saudi Arabia, signed in 1982 and 2005, to provide Riyadh with military assistance if its security is threatened. Nawaz Sharif has, however, endeavoured to be seen to be even-handed in conflicts between his two “Muslim brothers” during his recent visits to Riyadh and Tehran.

With nuclear sanctions against Iran having been lifted, the entire region is now the subject of global attention, with President Xi Jinping visiting Saudi Arabia, Egypt and Iran. The Emir of Qatar has visited Moscow, primarily to discuss the Syrian crisis — Qatar hosts the US central command. With Obama determined to showcase normalisation of relations with Iran as a major achievement, the unease in Riyadh and Doha is palpable. Both Iran and Saudi Arabia have made it clear that they see China as their primary market for increased oil exports. India will have to move dexterously in meeting these challenges in its western neighbourhood.

Being prepared While moving ahead with strengthening its close relations with Egypt, Saudi Arabia, Iran and Israel — the major powers in West Asia — New Delhi will have to prepare for contingencies affecting the safety of its nationals living in the region. With falling oil prices, India’s partners in the Arab Gulf Cooperation Council will be unable to increase the recruitment of expatriates from India. The flow of remittances from Indians abroad will not increase, as in the past. While the end of sanctions against Iran will lead to an increase in its oil revenues, the main beneficiaries of greater interaction with Iran will initially be China and the European powers. We share common interests with Iran on Taliban extremism in Afghanistan, and transit to Afghanistan and Central Asia. It would serve our interests well if, this year, the Prime Minister visited Saudi Arabia, Iran and Oman, whose leadership has been consistently friendly to us.

The writer was High Commissioner to Pakistan

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