The Impact Of Rentier States On Political Economies Of The Arabian Peninsula; Past, Present And Future

The Arabian Peninsula, located in Western Asia, is the largest peninsula in the world with a population of 86.2 million citizens. The peninsula consists of the countries Kuwait, Bahrain, Qatar, United Arab Emirates, Oman, Yemen, and Saudi Arabia. These states are rich in two specific resources with the greatest value, oil and gas. The peninsula has the largest oil reserves in the world. Due to this large production of resources and trade, the Arabian Peninsula gains much of its GDP from external states. This is known as rentierism. Rentierism can be more closely defined as “a state that receives, regularly, substantial amounts of external rent… from the sale of natural resources.” Rentierism in the Arabian Peninsula has had a key impact on the political economy since revenue flows directly to the state, which creates a social dependency on the state, resulting in a more authoritarian structured economy.

The large output of the natural gas and crude oil reserves from the Arabian Peninsula shows no end to the rentier system. This is significant on a worldwide scale because the Arabian Peninsula holds 37% of the world’s oil reserves and 25% of the world’s natural gas reserves. Another advantage stems from the large amounts of excess faloos (money) generated by industries associated with gas and oil production. Following the Arab Spring protests in the early 2010s, there was around $1.7 trillion in excess. This money has benefited the government greatly because it can be invested in a variety of ways. The Arabian Peninsula rulers have constructed insurance policies against the worldwide volatility that arose as a result of their wealth. All established sovereign wealth funds and government-owned entities have been tasked with making excess revenue into international investments. The Arabian Peninsula is continuously investing extensively in the West and has been able to gain significant influence from external nations as a result of these investments. However, they are careful not to over-invest because there is still the possibility of political strings being attached. As a reflection of their wealth, seven of the top 13 Sovereign Wealth Funds are owned by regions in the Arabian Peninsula. With this excess money, the Arabian Peninsula has been able to build megacities that cater to all areas of economic activity. These include several cities in Dubai dedicated to the media, internet, healthcare, and education, all of which have created job opportunities for citizens independent of oil rent. In addition, tourism has expanded significantly, with increased nightlife in Bahrain, luxury hotels in Dubai, and a variety of sports and music festivals across the region. The variety of investments across the Arabian Peninsula provides economic diversification, which benefits the states greatly because they can rely on other means aside from oil and gas resources to produce more revenue and widen their economic horizons in the near future.

Although this system provides many advantages for the Arabian Peninsula’s political economy and citizens, it also has several limitations that contradict these advantages. One significant drawback is that accountability of state generators has become a relativist concept. This means that the state is not liable for the quality of services delivered and is not be held accountable for any mistakes. This approach can lead to unclear disagreements between the generator and the utiliser on the standard of resources. As a result, there is a sort of social inequality between distributors and utilisers, which is a direct cause of the decline of client-patron relationships. The fundamental result of this relationship is a patronage system, which creates a conflict of interest between what citizens desire and what the authoritarian leadership wants. As a result, the international realm of politics is on one side of the spectrum, while citizens are on the other, affecting the country’s political culture. These power struggles are a limitation because oil rent equals societal dependence on the state, and when competing ideologies emerge, citizens begin to protest. This can be seen in the Arab Spring uprisings, where the government was forced to give more money to particular groups of people to effectively suppress their ideology and appease the desires of their people to maintain power. This demonstrates that there is little room to recognize ideological forms of protest, as protests are considered to be the outcome of material rather than political issues. Adding to the effects of rentierism on citizens of the Arabian Peninsula, these limitations can be reflected by the notion that oil rent equals social dependency on the state, as citizens rely heavily on the state’s oil production and trade to receive benefits in society. This allows the state to continue to run as authoritarian, giving the government power and control over its people. Furthermore, as a result of the rentier system, there are unequal dividends. On one hand, there is a rich group that obtains more rent because of their oil wealth; the Kingdom of Saudi Arabia, United Arab Emirates, Kuwait, and Qatar. On the other hand, there is a poor group that receives less rent and benefits as a result of their oil scarcity; Oman and Bahrain. This causes political turbulence since poor groups are more inclined to comply with GCC (Gulf Cooperation Council) agreements, leading to increased independence and poor economic performance.

The future of rentierism in the Arabian Peninsula can potentially be argued on the basis that the implementation of value-added tax does not signal the end of this system. In 2014, oil prices collapsed globally, primarily due to supply issues such as increased oil production in the United States and a shift in OPEC (Organization of the Petroleum Exporting Countries) policies. Since then, the Arabian Peninsula has started to look at different options for supplementing oil income. Actors in the GCC had considered the idea of tax which had not existed since the British started paying location and concession rent in the early 20th Century. All actors collectively decided that they would have a common agreement for value-added tax (VAT) which would tax goods and services. In 2016, they all agreed to have a common VAT of 5%. The response of citizens has been generally neutral as they do not see VAT as a tax. Instead, it is seen as the price of all goods and services going up by 5% and they will receive these services in return if they provide for the government. Currently, only four out of the six GCC states have implemented the VAT, with the United Arab Emirates leading, followed by the Kingdom of Saudi Arabia and Bahrain. Since this agreement, Oman was hesitant but eventually agreed to this implementation in 2021. This is a vulnerable moment for Omani’s to charge their people rather than give to their people because tax is such a new concept in the Arabian Peninsula. Oman, as well as Bahrain, are in much more difficult situations compared to the other GCC states, as the production of resources in these countries is not as rich. Politics in Oman is currently stagnant while they attempt to implement economic reform. As well as this, small companies are the future of Oman, and they should receive full support from both the private sector and government as this not only creates job opportunities but also contributes to raising the GDP of the region.

The possibility of rentierism failing must be considered in all regions of the Arabian Peninsula to allow for other beneficial alternatives and reformation of the system. These states must also assess under what conditions rent-seeking might exist and when political problems can be expected. As a result, ideology can prevail against rent-seeking as well as repression-induced opposition. This can be found in the ideological underpinnings of the Dhofar Rebellion. When we look at regions to weigh both benefits and limitations of the rentier system, we need to look beyond material factors and consider political discontent based on repression and ideology. Recalling theorist Al-Kawakabi, to escape tyranny, one must be conscious of the tyranny, engage in peaceful resistance, and evaluate all alternatives.

Looking at all of the aspects of rentierism discussed in this article, it is clear that the rentier system will continue to be the predominant agent in the Arabian Peninsula’s political economy. The history of rentierism has revealed a strong framework based on a diverse range of resources that are abundant throughout the peninsula. The impact of the discovery of oil was additionally a very rapid and fundamental transformation of the economic systems of the peninsula which created welfare systems that were state-dependent in terms of the way that the state took care of its citizens. The benefits of this system have been shown to increase the well-being of citizens who have become dependent on the state for all of their basic needs, which were previously much less structured before the emergence of the rentier system. In addition to its advantages for citizens, the rentier system has resulted in significant amounts of excess money that has been invested in a variety of industries ranging from financial enterprises to tourism, hospitality, and the construction of material-specific megacities.

On the contrary, this arrangement harmed both interdependence and the relationship between the state and society. Because of its authoritarian regime, governments and wealth generators retain control over their citizens to suppress any resistance to the rentier system. This repression creates a conflict of interest, which may generate uprisings similar to those seen during the Arab Spring if a social compact is not developed. With the implementation of a social contract, the gap between the state and society will be narrowed as agreements and, presumably, open conversations from both sides will be accepted. With the GCC’s implementation of a value-added tax in 2016, the future of the rentier system could be reformed. This could be accomplished by conducting more open conversations among GCC members on how to develop alternate arrangements for further distributing their rent to society, which would strengthen the political and socioeconomic economies of all governments on the peninsula. To summarise, the benefits of the rentier system on the political economy of the Arabian Peninsula exceed the restrictions, which only have a few short-term repercussions that can be readily solved if society’s opinions are acknowledged and their diverse beliefs are accepted with an open mind.

Mia Heaphy


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