Gulf State Saviors No More
Amy Guttman reports from Muscat, Oman
Ministers from the six member states of the Gulf Cooperation Council met in Oman this week to address key concerns in the region. The economy and tumbling oil prices was only trumped by the Israeli airstrikes in Gaza. The group issued a collective condemnation of the attacks and called on the international community to take action against Israel.
But back to the real reason the Heads of State from Oman, Qatar, Bahrain, Kuwait, Saudi Arabia, and the United Arab Emirates came together -- money. The oil business has proved to be a rollercoaster ride that's starting to make these leaders feel a bit sick. Prices have plunged so low, they're now roughly 70 percent lower than the summer highs that left consumers thinking twice about road trips. Arab officials are eager to come up with a way to stabilize prices that make both sides happy and bridge the gap between oil production and consumption.
And it's not only oil that's causing local leaders to worry. Heavy investment in US and European markets has left government funds vulnerable to the recession that began in the West. Stock markets across the Gulf have taken a tumble, responding to the volatility in the marketplace. Saudi Arabia predicts a fiscal deficit for 2009 and in an about-face, Kuwait just pulled out of a multi-billion dollar deal with Dow Chemicals.
So instead of throwing more money at the problem, Arab officials say it's time to keep the cash under the mattress, promising to invest in local banks instead. They're even playing it safe on home turf. The Oman government pulled out of a deal to sell its stake in a local telecoms company claiming the price paid would be too low now.
One thing the members of the Council do agree on is the creation of a Central Arab Bank and a regional unified currency to equalize foreign exchange fluctuation and rely less on the dollar.
As is the case with all dependant relationships, cutting the cord isn't easy. It'll hurt before it helps. But tying any one currency to another is never a good idea and this is just another example of the worldwide correction playing out as a result of the crisis.