Published in Portfolio
News analysis: Gulf Summit in Qatar
Published by Current on 2007-12-03
The leaders of the six Arab nations that form the Gulf Cooperation Council who are gathering in the Qatari capital of Doha today for a two-day summit will tackle two thorny issues - how to deal with the precipitous decline of the value of their dollar holdings at a time of unprecedented high oil revenues; and how to deal with a non-Arab guest that they themselves invited.
The guest is President Mahmoud Ahmadinejad of Iran. And although Iran qualifies as a "Gulf state" - and is also an Islamic country like the six GCC members, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates - Iran had never been asked to attend the group's meetings since the GCC's formation in 1981. Of course, Iran is almost totally a Shia state, while the native populations of the GCC countries are largely Sunni - although Iranian emigres constitute significant trading and mercantile constituencies in nearly all of them. (In the U.A.E., for example, some 500,000 of the country's total population of 4 million are people of Iranian origin.)
Ahmadinejad is not especially popular with the GCC leaders, not the least because of their private concerns that Iran might work toward destabilizing, or even toppling, the monarchies that govern the six states, whose total population is 33 million (of which 13 million are expatriates). Iran, with a population of 71 million, has long been suspected of harboring hegemonistic ambitions, even though Iranian leaders frequently point out that in their nation's 2,500-year history, Iran - also known historically as Persia - has never invaded another country.
Indeed, Gulf security - including Iran's purported nuclear ambitions -- is among the issues on the table at the GCC summit, according to the organization's secretary general, Abdul Rahman bin Hamad al-Attiyah of Qatar. And while Ahmadinejad hasn't made any reference to it, he's surely mindful that Saudi Arabia supported Iraq's Saddam Hussein during the Iraq-triggered war with Iran over the Shatt al-Arab waterway. That war lasted from September 1980 to August 1988, took more than a million lives on both sides, and cost nearly $500 billion.
On Iran's side, trade will be an issue that Ahmadinejad is likely to bring up. Iran has proposed a regional free-trade pact with the GCC: Of Iran's global exports of $100 billion annually, about $2 billion go to the U.A.E. - mostly agricultural products, including pistachios - while Iran imports more than $10 billion worth of electronic and other manufactured goods from the U.A.E., mainly through Dubai. Iranian officials have said that Iran has invested more than $120 billion in the U.A.E. economy through various entities. But since Iran, like most of the GCC countries, is primarily an exporter of crude oil and natural gas, it is difficult to see how a wider trade arrangement can be fashioned regionally that would benefit both sets of players. After all, GCC countries have very little by way of indigenous manufacturing; their outbound non-oil trade tends to consist mainly of re-exports.
Still, if the United States and the European Union impose economic sanctions on Iran on account of its nuclear program, Iran may seek to import more goods from the GCC countries. Whether they would agree to enhanced trade is an open question, however, because all of them are closely allied with Washington, military and economically. They may feel diffident about doing an end run around Western-imposed sanctions. Of course, goods can always be smuggled across the Persian Gulf to Iran in the time-honored practice sustained by the sturdy dhows that regularly ply the waters.
But summits are traditionally occasions where politeness, not political realism, is the norm. And so President Ahmadinejad may well come away with an understanding that the trade issue would be discussed at a later point at the ministerial level, not at the head-of-state level.
The other issue that's probably more pressing for the GCC summiteers concerns the growing pressure for them to abandon their pegs to the falling U.S. dollar. The chairman of the Abu Dhabi-based Arab Monetary Fund, Jassem Al-Mannai, said last week that the GCC countries should switch to a "managed float" or peg their currencies to a basket, including the euro, British pound-sterling and the Japanese yen, all of which have been strengthening in recent months while the value of the U.S. dollar has declined by more than 10 percent since 2000.
"There is no currency exchange system suitable for all ages and places ... In the past GCC economies were negligible and now they have to adopt polices that suit their economic progress," Al-Mannai said, adding that the EU was now the main trading partner of the GCC countries, with some $165 billion in trade annually, or 35 percent of their overall foreign trade. Asian countries accounted for another 30 percent of trade, and the U.S. only about 10 percent.
In fact, the U.A.E,, the second largest economy in the GCC after Saudi Arabia, has called for all Gulf oil producers - which possess 38 percent of the world's proven crude-oil reserves of 1.3 trillion barrels -- to switch from fixed exchange rates to currency baskets.
"Revaluation will not be in the interest of Gulf countries, and it will not help solve the problems that they are facing, because nobody can give us guarantee for the dollar not to fall further," Al-Mannai said. "It will not give these countries the freedom to fight inflation which is posing a growing threat to their economies."
His reference was to the fact that inflation is at a 10-year high in Saudi Arabia, a 16-year peak in Oman, a 19-year high in the U.A.E., and near a record in Qatar. Al-Mannai, whose organization was founded in 1976 with the goal of creating a single currency among 22 Arab states and promoting trade among them, said that the U.S. Federal Reserve was cutting rates "to contain the fallout from a mortgage debt crisis," and that Gulf central banks were following suit "despite the risk of stoking inflation."
Although official figures cite an inflation rate of about 10 percent in the GCC region, private-sector analysts assert that the figure is closer to 25 percent. In Dubai, for example, rents have doubled in the last two years; and gasoline prices have risen by as much as 40 percent.
According to a report in Reuters, rising prices of essential commodities have triggered calls for a national wage hike in Saudi Arabia, demands for price controls in Qatar and Oman, and demand for higher pay by migrant workers in the U.A.E. Indeed, Sultan Nasser Suweidi, the governor of U.A.E.'s central bank, recently cited inflation in his call for reform, saying dollar pegs have forced Gulf central banks to track U.S. monetary policy to maintain the relative value of their currencies, Reuters said.
Of the six GCC countries, Kuwait has already begun pegging its currency - the dinar - not to the U.S. dollar but to a currency basket.
The question of de-pegging local currencies has taken on special urgency because of the vast remittances by unskilled workers to their homelands, mostly in Asia. According to N. Janardhan, a U.A.E.-based analyst, these remittances amount to more than $30 billion annually. But the decline in the value of the U.S. dollar has affected the net worth of the money they send home. Holiday plans are being canceled, and many unskilled workers have sent their families back home because the cost of living has become unaffordable.
In fact, Janardhan said, in the last few days, currency dealers in the region have stopped converting U.S. dollars in anticipation of what would amount to a revaluation of roughly 5 to 8 percent of local currencies through a de-pegging to the dollar.
But the GCC leaders who are gathering in Doha today surely would know that de-pegging their currencies to the U.S. dollar is easier said than done. After all, oil - which provides their livelihood - is still traded in dollars. Moreover, the OPEC countries have more than $4 trillion invested in various projects globally, not to mention in U.S. treasury bills, which helps America cope with its nagging trade and budgetary deficits. And there's the political reality that, in the final analysis, the U.S. is the guarantor of the security of GCC countries - and that it may be politically unwise to challenge Washington.
So will the GCC leaders still go ahead with a de-pegging? The chances are that a decision has already been taken behind closed doors, and the summit would be a venue to showcase it. Whatever the decision of the GCC leaders, it would be a collective one. And not the least because Mahmoud Ahmadinejad of Iran will be right there, watching with a gimlet eye.
Senior Writer and Global-Affairs Columnist