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Oil monarchies without oil:  Omani & Bahraini security in a post-oil era

Marc J O'Reilly
Middle East Policy, Vol 6, Issue 3, Feb 1999


Abstract:

In twenty or so years, two of the so-called oil monarchs, Bahrain and Oman,
will enter the post-oil phase of their histories.  O'Reilly analyzes how
Oman and Bahrain are dealing with a newly emerging security environment
and each state's foreign and internal policies.

Copyright Middle East Policy Council Feb 1999

Full Text:

Steven David's term "omnibalancing" refers to the tendency of so-called
Third World governments to balance internal and external threats to their
rule.2 In the Arab Gulf states, the so-called oil monarchs have successfully
placated opponents by providing their subjects with jobs that pay well
and with excellent social services. In twenty or so years, however, two
of these countries, Bahrain and the Sultanate of Oman, will enter the post-oil
phase of their histories.3 Without oil income, it will be difficult for
each to satisfy the needs and wants of its population. Nor will preventing
outsidepower encroachments be easy, once oil resources have been exhausted.


Surrounded by more powerful states such as Iran, Iraq and Saudi Arabia,
each of which seeks to extend its influence throughout the Arabian Peninsula
while denying the others such a role, Bahrain and Oman must cope with a
volatile regional dynamic. Recent events in Iraq can only remind them of
their proximity to potential conflagration. Also, with ArabIsraeli relations
strained, Manama and Muscat must be aware that their U.S. ties can periodically
subject them to strident Arab-world invective. In Bahrain's case, its sectarian
makeup (Shiites constitute a majority of the population) ensures that its
feud with Iran will not ebb unless Tehran renounces its stated objective
of overthrowing what it calls "illegitimate" Gulf monarchies. The Islamic
Republic supported a 1981 Shia coup d'etat, which the Sunni leadership
in Manama thwarted. Though not beset with acute religious cleavages,4 Muscat
must be alert to potential spillover from politico-military clashes in
the upper Gulf and counter any hostile moves by Iran in the Strait of Hormuz
or the Gulf of Oman.

More worrisome, Oman and Bahrain have certain economic deficiencies to
overcome. Short on petrodollars, these small,5 vulnerable countries must
also contend with an unfavorable international political economy.' With
trade blocs in North America, Europe and Asia shifting to more mercantilist
policies, doubts abound. Can Bahrain and Oman complete their transition
to a post-oil economy, or will one or the other, or both, wither on the
vine of what Robert Gilpin calls "New Protectionism"?'

This article will analyze how Oman and Bahrain are dealing with a newly
emerging security environment. Using David's framework, I will examine
each state's foreign as well as internal policies. Such an approach aims
to uncover how these royal governments intend to uphold their political
legitimacy and survive despite intense domestic and international pressures
upon their regimes. While in democracies politicians can only lose their
office, autocrats can lose their lives. They must always balance threats.


"Omnibalancing," David asserts, "agrees with the central assumption of
balance of power - that threats will be resisted. But it departs from balance
of power in explaining Third World alignment decisions as a result of the
Third World leadership's need to counter all threats."' David thus takes
balance-ofpower theory one step beyond Stephen Walt, whose work revised
that of Kenneth Waltz, the founder of the structural-realist school of
thought in International Relations.9

Since many lesser developed countries (LDCs) experience instability, David's
proposition would seem logical. While most regimes can preserve their state's
security and sovereignty, some cannot repulse domestic enemies. A military
putsch or coup can be devastating. To avoid such an outcome, the leaders
of these countries must rule wisely or opportunistically."

The sultan of Oman, Qabus bin-Said Al-Said, and the prime minister of Bahrain,
Sheikh Khalifa bin Salman Al Khalifa - who rules in the name of his brother,
the emir, Sheikh Isa bin Salman Al Khalifa" - perceive threats to their
respective countries rather differently. Hence, their policy choices tend
to diverge. This is not to say, however, that similarities do not exist.
The Arab Gulf monarchs must carry out a number of common policies or else
risk civil strife or even revolution.

RECENT GULF HISTORY

The Gulf is renowned for its extensive petroleum reserves, its political
quarrels, and its proximity to the tides of instability that continuously
wash over the Middle East.l2 Having survived the perils of decolonization,
the Arab-Israeli confrontations, pan-Arabism (i.e., Nasserism, Baathism),
and Iranian Islamism, the Gulf monarchies cling to their power and rule
their countries without, for the most part, reforming their societies.
Almost defenseless, these states that make up the Gulf Cooperation Council
(GCC) - Saudi Arabia, Kuwait, Qatar, Oman, Bahrain and the United Arab
Emirates (UAE) - seek to prevent a repeat of Iraq's 1990 takeover of Kuwait.
They also strive to deny Iran its cherished historical role as the area's
ultimate geopolitical authority.

Years before the Iraqi blitzkrieg provoked Operation Desert Storm, royal
leaders spent their oil revenues lavishly. Starting in the 1970s, they
invested in modern infrastructures and imported Western materialism. As
the Middle East's creditors, these oil monarchies purchased their security;'3
cash-deficient states such as Iraq, which could invade the exposed littoral
countries to the south, ignored the monarchies in return for aid. Most
Gulf states devised foreign policies that assuaged their protectors, the
Iraqis in particular, who fought the Iranians throughout most of the 1980s.'4
The monarchies therefore denounced Iranian radicalism and opposed Israel.
They also backed away from U.S. support. Intent on keeping Western influence
out of the region, they rebuffed American efforts to man air bases and
pre-position materiel Washington's strategy of choice in case war choked
off oil supplies to Western Europe, Japan and the United States.

The Iran-Iraq War, in combination with the precipitous drop in the price
of crude in the early 1980s, jolted the GCC states. They turned to the
United States for protection while they continued to spend extravagant
sums on defense procurement and modernization projects. Decreased revenues
arrested economic development, however. After the Persian Gulf war, international
financial institutions, such as the World Bank, warned that the sheikdoms
would suffer economic setbacks without increased stringency.

Iraq's invasion of Kuwait and Operation Desert Storm belied any notion
that the GCC states could defend themselves and Western economic interests
without outside (i.e., American) assistance. Washington's spectacular enforcement
of the Carter Doctrine underscored its determination to keep enemies away
from GCC oil reserves. It also confirmed the superiority of American military
power. The stunning eviction of Iraqis from Kuwait City and its environs
impressed the oil monarchies, which promptly concluded bilateral treaties
with the United States to prevent any renewed violation of GCC territorial
integrity. Peace is not assured, however. Nor is economic success, which
Oman and Bahrain must achieve to deter outsiders who covet their resources
and may seek to dominate their societies.

EXTERNAL THREATS

Several states pose a threat to Manama and Muscat. Saddam Hussein's Iraq
continues to defy the United Nations. His recalcitrance resonates on the
"Arab street" but scares GCC rulers. With thousands of soldiers under arms,
Baghdad remains a menace. Iraqi weapons of mass destruction could serve
to intimidate the entire Arabian Peninsula. Baghdad's revisionist agenda
explains why the United States intends to box in Iraq until someone replaces
Saddam. American policy, therefore, should preclude Iraqi attacks upon
any of the oil monarchies. With the U.S. Fifth Fleet stationed in Bahrain
and with American materiel prepositioned on Masirah Island in Oman, Manama
and Muscat need not fear Iraq for the moment.

Unlike Baghdad, Tehran continues to export its ideology of "Islamic radicalism,"'5
despite its "postrevolutionary" status. President Mohammed Khatami and
other Iranian officials speak of reconciliation with the GCC countries,
while the Islamic Republic rapidly increases its military capabilities.'6
With the assistance of technicians from Russia and elsewhere, it is developing
a nuclear industry and, Western diplomats claim, building ballistic missiles."
Andrew Rathmell notes that "[i]t is... disturbingly likely that, whatever
positive noises [Khatami's] foreign-policy team makes, the old pattern
will repeat itself whereby the warm words of Iran's diplomats are undermined
by the disruptive actions of the Republic's defense forces and intelligence
services."'8 Mindful that its deployments irritate the West, Iran must
nevertheless show extreme care, or else the removal of crippling international
sanctions may not materialize. Above all, Tehran wishes for the Americans
to exit the Persian Gulf so that it can press its own regional ambitions.'9


Bahrain and Oman differ in how they perceive Tehran. Manama remains wary
of Iranian intentions.20 Iran's historic claims to Bahrain unnerve the
Al Khalifas, the island's ruling family.2' They worry that the Islamic
Republic continues to finance Shia opposition groups that seek the emir's
removal. Manama officials accuse Iran, for example, of funding Hizbollah-Bahrain's
illicit activities.2 Joe Stork, a critic of the Al Khalifas, points out,
however, that "Bahrain's political crisis does not display the footprints
of a well-armed and well-financed Iranian surrogate with more than three
years of training in Qom and Lebanon's Bekaa Valley, as the government
alleges."23 Unlike Manama, Muscat refrains from obsessing over Shia solidarity.
The sultanate's Ibadhi majority shows no sign of caving in to an Iranian
ideological offensive. Omani Shiites, who officially constitute only 5
percent of Oman's 2.2 million inhabitants but could comprise between IS
and 20 percent of the overall population, seem uninterested in, or incapable
of, forging a partnership with Tehran. While Muscat carefully monitors
Iran's naval maneuvers in the Strait of Hormuz and the Gulf of Oman,24
an Iranian invasion of the strategic Musandam Peninsula cannot be dismissed.
Isolated from the rest of the country, the peninsula ranks with Gibraltar
in geopolitical importance. By occupying Musandam, the Islamic Republic
would control the entrance to the Persian Gulf, through which a significant
portion (20 percent) of the world's oil flows (including 80 percent of
Japan's petroleum imports and 60 percent of Western Europe's).

Despite Iran's ominous military presence, Omani officials believe they
can uphold the current modus vivendi, whereby Omanis and Iranians share
responsibility for uninterrupted tanker passage through the Strait of Hormuz.
Until now, Tehran has respected Muscat's status as a Gulf sentinel. In
November 1998, Iran established a "military friendship committee" with
Oman.25 The Iranians, moreover, need trading partners. The sultanate can
fulfill this role as well as serve as a liaison between the GCC and the
Islamic Republic. One analyst notes that "Oman's relations with Iran have
been close, and Oman has served as the principal contact between Iran and
its Arab neighbors in matters concerning politics and oil. These links
have strengthened since the Iraqi invasion of Kuwait. "26

Both Oman and Bahrain disapprove of the oppressive U.S. "dual containment"
policy.2' Neither country trusts Iran or Iraq, yet Muscat and Manama agree
that Tehran and Baghdad must be included in any regional security framework.28
This kind of Realpolitik denotes prudent statecraft. The Omanis and Bahrainis
must contend with periodic anti-American backlash throughout the Middle
East while shoring up their military infrastructure. This dilemma can be
resolved by welcoming efforts to construct a viable strategic architecture
that includes local, regional and even extra-regional powers.

Achieving any kind of success will require a Bismarkian talent for foreignpolicy
calibration and what Machiavelli called fortuna. In steadfastly sticking
by Egypt following its expulsion from the Arab League, in asking sotto
voce for U.S. protection when the Iran-Iraq War inflamed the passions of
every Gulf monarchy, in preaching for the inclusion of Iraq and Iran in
the GCC's security calculations, and in seeking out commercial ties with
Israel in 1996, Sultan Qabus demonstrated surprising adroitness.29 A streak
of caution tempers his penchant for risky policy initiatives, however.
Acumen and patience make the sultan a shrewd practioner of diplomacy and
a respected statesman,3" qualities the emir and prime minister of Bahrain
lack. Embattled, Sheikh Isa exudes politeness when discussing most foreign-policy
issues, yet he excoriates his domestic opponents and their supporters,
especially Iran.3' He and his impulsive brother favor short-term rancor
over steps that could effect reconciliation: to wit, Bahrain's dispute
with Qatar over the Hawar Islands (now before the International Court of
Justice)32 resulted in Manama's boycott of the 1996 GCC summit in Doha.33
Nevertheless, the Bahraini sovereign and his prime minister tenaciously
defend their country's interests as well as their own. To preserve control
over their subjects, they have turned to the Saudis. According to Manama's
WAKH, Sheikh Isa referred to Bahraini-Saudi relations as "intimate, special
and distinguished." He added that these ties imply "cohesion and integration
on all levels."34 Riyadh considers Bahrain a protectorate of sorts,35 a
status the Bahrainis confirmed in the February 1998 U.S. confrontation
with Saddam Hussein, when they joined the Saudis in rejecting the American
and British requests for base privileges in the Gulf.36 A causeway, built
at Saudi expense, links Bahrain to the kingdom. Saudi Arabia, moreover,
provides its neighbor with financial assistance and allows it to keep the
revenues from the Abu Safa offshore oil field, which lies in Saudi waters.3'


In view of their country's size, opulence and clout, the Saudis believe
that they should exercise preponderant influence throughout the Arabian
Peninsula. The Al Khalifas befriend the Al-Sauds, but the Omanis and other
Gulf Arabs distrust them.38 Though settled for the most part, border disputes
continue to preoccupy GCC states. The latest confrontation, the 1992 Khafus
incident between Qatar and the kingdom, spotlighted Riyadh's desire to
impose its political will upon a weak state within its sphere of influence.39
In Oman's case, its historically checkered relations with the Saudis, evidenced
by, for example, the Buraimi Oasis crisis of the 1950s,4 serve as a reminder
of Riyadh's ambition and inhibit cooperation between the two countries.


Regionally, Israel remains the dominant country. Backed by Washington to
the tune of more than $3 billion per year in aid, Tel Aviv possesses the
bestequipped and best-trained military. Politically, the Netanyahu government's
bullying of the Palestinians has derailed the Arab-Israeli peace process.
Israeli vituperation not only irks the Arab states, including Oman and
Bahrain, but it also frightens them. Israel must be regarded as a major
threat to the GCC countries since its nuclear monopoly provides it with
"supremacy over all countries of the region combined, including Iran."4'


Military peril constitutes only one threat to the GCC. With a worldwide
trend toward economic polarization, the Middle East could lose out to those
countries that are members of either the North American Free Trade Agreement,
the European Union, or the Asia-Pacific Economic Community. In response
to the advanced economies' neomercantilism,42 less-developed countries
have adopted capitalist modes of production, although many reject Anglo-American
liberalism.43 They prefer the Asian corporatist model, characterized by
a public-sector/privatesector nexus, because they can exercise more control
over their country's economy. Thomas Biersteker points out that Near Eastern
states could evolve their own "development alternative at the margins of
the capitalist economy" consonant with Islamic values and traditions.'
For political and social reasons, leaders in those states want government
involvement in economic planning. These preferences clash with a bleak
economic future,45 however, one made worse by the current worldwide financial
crisis (particularly its Asian component) and the calamitous decline in
the price of crude in the last year.46

INTERNAL THREATS

At present, a paucity of oil reserves compounds balance-of-payments problems
in Bahrain and Oman. They, unlike the Saudis and the Kuwaitis, cannot rely
on oil income to maintain their substantial expenditures. Hence, Muscat
and Manama must seek out economic alternatives to provide their burgeoning
and increasingly well-educated populaces with continued employment and
extensive welfare services. Sultan Qabus, Prime Minister Khalifa and their
advisers must also secure income to stave off potential unrest.

In Bahrain, opposition groups representing a variety of both Shia and Sunni
interests remain bent on recovering their former privileges. Prominent
and vociferous by Arab Gulf standards, organizations such as the Bahrain
Islamic Freedom Movement, the Islamic Front for the Liberation of Bahrain,
the National Liberation Front, and the Popular Front for the Liberation
of Bahrain, call for the revival of the 1975 Constitution and the restoration
of the National Assembly. Though antigovernment movements marked the island's
earlier history,n? the so-called uprising of 1994 magnified the Al Khalifas'
struggle to legitimize their rule. Prime Minister Khalifa outwitted the
dissenters, however. He overcame Sunni dissatisfaction by jailing only
Shiites and by intimating that rebellion in Bahrain could spread to other
sheikdoms.41 Sheikh Isa and his brother alerted U.S. officials to Iranian
complicity, though no proof existed that Tehran supported HizbollahBahrain
or any other organization trying to overthrow the Al Khalifas.49 This kind
of suspicion continues to this day.50

Oman is not immune to internal disruption either. Fortunately for Muscat,
it confronts a far less outspoken opposition.5t In 1994, the same year
several prominent Sunni and Shia Bahrainis delivered a petition to the
emir outlining their economic and political concerns, Omani officials discovered
a plot involving members of the Muslim Brotherhood.52 Muscat instituted
a swift crackdown. Security forces arrested several individuals, some of
whom worked for the state. Sultan Qabus pardoned everyone, yet analysts
wondered why such an event occurred. Protesters expressed "anxiety about
the economy,"53 a refrain common to both Oman and Bahrain. With oil scheduled
to run out early in the next century, citizens in each country worry that
unemployment will increase noticeably and that standards of living will
tumble. To defuse a potentially explosive political situation and allay
their respective population's economic concerns, Manama and Muscat continue
their reliance upon a hybrid of social welfare and state capitalism. Following
Alexander Gerschenkron's thesis, Bahrain and Oman, as "late" developers,
prefer to carry out economic strategies which differ in important respects
from those employed by advanced economies.54 With their rentier societies
at risk,55 the island and the sultanate must seek out commercial ventures
that can make up for the expected decline and eventual loss of petroleum
revenues.56

Those individuals who favor state capitalism argue that "capitalist competition
is the most effective way to generate economic growth." They reject, however,
"the principle that the free market is the most efficient way to regulate
the economy."57 Gulf monarchs subscribed to this doctrine to monopolize
resources and safeguard their thrones. They adopted distributive policies
for the same reason, believing that billions in petroleum revenues could
underwrite elaborate welfare states in perpetuity. The decline in oil prices
in the 1980s, the costs of the Iran-Iraq and Persian Gulf wars, and the
expenditures required to rebuild Kuwait after March 1991, prompted a reassessment
of the Arab Gulf's mixed economies. As public debt mounted in the post-Desert
Storm era, sheikdoms reduced their expenditures so as to qualify for World
Bank and other international loans.

Currently, Sultan Qabus and Prime Minister Khalifa are searching for ways
to ensure "regime security."Ss Pressures within and outside their oil monarchies
are mounting, pushing these leaders to enact reforms that promise wealth
and stability. Manama and Muscat will have to privatize and semi-privatize
several state-owned industries to increase profitability and reduce public-sector
inefficiencies. Such choices will devolve economic responsibility and control
to outsiders and to private Omani and Bahraini interests, a development
which could render the Al Bu Saids and Al Khalifas more accountable to
investors and their own subjects.59 In Gregory Gause's words, "In their
effort to maintain their regimes' security, the Gulf rulers face a number
of what Marxist analysts used to call contradictions - conjunctions of
circumstances in which the pursuit of one goal makes the achievement of
other goals less likely, continuance of the status quo increases the pressures
for radical change in the future, and difficult choices have to be made."6"


Prime Minister Khalifa and Sultan Qabus must therefore proceed cautiously.
Privatization and increased trade should be a most welcome boon. They could
also embolden opposition groups if Manama and Muscat relinquish too much
economic power. Either way, Bahraini and Omani officials must improve the
overall performance of their economies. As Jane's Sentinel points out,
"The Gulf states provide lucrative export markets.''61 They also possess
well-developed infrastructures in most cases. Such endowments bode well,
as the economies of the region restructure themselves to cope with the
problems and opportunities of the coming century. Mohammed ElErian, co-author
with Susan Fennel of the International Monetary Fund's The Economy of the
Middle East and North Africa [MENA] in 1997, opines that "[u]nprecedented
opportunities have opened up for the countries of the MENA region to transform
their economies through accelerated growth."62 After several disappointing
years, Bahrain's economy is improving. A surge in the price of oil in 1996-97
provided Manama with increased revenues, which it spent on various projects
and welfare services. Elizabeth Mottershaw reports that "Bahrain has carved
out a niche as a regional services center. And despite the growing attractions
of Dubai, the authorities believe that the combination of banking, industry
and services remains a winning formula."63 With its diverse industrial
base, Bahrain can decrease its dependence on petroleum revenues. Officials
think that such a goal can be reached by zealously promoting development
projects, such as the power and desalination plant at Hidd.6

Foreign investment rates as another priority. Indian investors plan to
construct a $290 million sponge iron plant that expects to return $180
million a year in sales starting in early 2000.65 Manama is also strengthening
its trade and investment ties with countries outside the region, such as
the Philippines.' Finally, Bahrain possesses one of the world's foremost
aluminum smelters. It exports vast quantities of that product to Japan,
South Korea, the United States and Saudi Arabia.67

Despite improvement in the country's economy and its insistence that "privatization
is the government's primary economic strategy,"68 Manama still relies excessively
on the oil sector to spur economic growth; petro revenue constituted 20
percent of Bahrain's Gross Domestic Product in 1996. Government finances
appear sound, but current expenditures must keep pace with an expanding
population and the need to provide young Bahrainis with high-paying public-sector
jobs. Foreign labor constitutes another predicament. Manama must train
its students so that they can carry out many of the specialized tasks heretofore
only expatriates could perform.69 Whether or not Bahrain can implement
a post-oil economic strategy should hinge on how it tackles these structural
and institutional weaknesses. Oman suffers from many of the same problems
as Bahrain, but Muscat's tactics vary. In the early 1990s, the sultanate
overspent on military hardware and endured budget deficits. In the past
halfdecade, however, planners incorporated the World Bank's 1993 recommendation
that Oman reorganize its finances. As a result, the country's economy now
seems rejuvenated.'o

Muscat's blueprint, "Vision 2020," outlines the sultanate's objectives,
both short- and long-term." Oman's diversification strategy includes the
creation of a transshipment facility at Salalah'2 in the southern part
of the country, which can rival Dubai; a bullish stock market that, in
1997, stood out as the envy of the region;'3 sales, likely worth billions,
of liquefied natural gas (LNG) to South Korea, Japan and India in 2000
and beyond;'4 a $1.1 billion joint venture with two Indian companies under
contract to develop a fertilizer industry; and the construction of a $1.3
billion polyolefin complex and a $3 billion aluminum smelter facility.75
The sultanate is also cultivating relations with its partners in the nascent
Indian Ocean Rim Association for Regional Cooperation.'6

Though Oman and Bahrain emphasize different aspects of economic recovery,"
privatization emerges as a common theme. Each state is convinced that markets
provide the answer to its problems. Elizabeth Mottershaw notes that "[i]ndustrial
diversification and efficiency in the provision of services are high on
the new economic agenda. Governments are accepting the need to step aside
and let others take a more active role."'8 While cheered by officials,
the move away from etatisme seems perilous in that, as Kiren Chaudhry informs
her readers, "[t]o create competitive markets, it is not enough to smash
the state bureaucracy that owns, controls or regulates goods and services;
rather, the instruments of the state must be redeployed to perform the
much more difficult task of indirect regulation and administration."'9
Muscat and Manama champion markets while seeking to manage their economies.
Without oversight, they reason, their authority could be undermined. Privatization,
then, would appear incompatible with Oman's and Bahrain's political context.
Already, friction exists between private-sector interests and Muscat.so
Perhaps Sultan Qabus and Prime Minister Khalifa yearn for corporatism a
la South Korea or Taiwan, whereby policymakers establish an economic plan
and members of private industry execute it. The South Koreans and the Taiwanese
prospered under ruthless dictatorships, but they also eventually democratized.
Are the Al Bu Saids and Al Khalifas reconciled to this eventuality?

Sultan Qabus would seem better disposed than his Bahraini counterpart to
accept this spinoff of market capitalism. Political liberalization is proceeding
in Oman at a comfortable yet noticeable pace. Women are more involved in
the process; two sit in the Majlis Ash 'Shura, the Lower Chamber, four
in the Majlis Addawla, the Upper Chamber."' The sultan says, "We're making
progress, but quietly. Slowly. I believe in evolution, and not a sudden
evolution. But the progress we've made is irreversible."sz Sheikh Isa and
Prime Minister Khalifa exhibit different traits. They display misanthropy
and defiance, prefering to criticize rather than co-opt those individuals
who cross them. In this sense, Qabus conforms to the archetypal "charismatic"
leader, Isa and Khalifa to the "confrontational" type.

According to Monte Palmer, "the idealized image of a charismatic leader
is that of master tailor, skillfully blending new threads with old into
a fabric of unity and purpose.""3 As the incarnation of the so-called Omani
renaissance, which began when the sultan replaced his father, Taymur, in
a palace coup in 1970, Qabus commands widespread respect. His courage,
dexterity, fortitude and perseverance shaped the sultanate into a proud
and accomplished oil monarchy.84 He has made mistakes, some dangerous,
and shown poor judgment on occasion, yet most of his subjects regard him
as the paterfamilias of the Omani nation. He epitomizes what a head of
state should be: a national symbol who embodies the nation's spirit.

Khalifa and Isa seem determined to rule forcefully, if not by intimidation.
Without remorse, and perhaps with little thought to the future, they divide,
rather than rally, their people. They blame Iran for Bahrain's internal
turmoil and never assume responsibility for the state's shortcomings. They
refuse to resurrect the 1975 constitution and reinstate the National Assembly.
They apparently regard Bahrain's domestic situation as so prickly, and
their rule so tenuous, that they cannot afford to show compassion. Their
lack of political finesse could spell disaster for Bahrainis. They and
their family will not likely abdicate power without exhausting every option
- violent or otherwise - available to them. Notwithstanding each ruler's
leadership skills, internal threats to Bahrain and Oman stem from economic
uncertainty. Problems include distribution bottlenecks, high native unemployment,
access to resources, and nepotism. Oman's solution lies in marrying economic
liberalization with increased political openness, while Bahrain endorses
only the former.

CONCLUSION

Transition to a post-oil economy for Oman and Bahrain promises constant
refinement at the policy level and probable hardship, especially in the
current context of low oil prices, which makes it problematic for these
countries to finance non-oil projects.85 Privatization may offer relief
from some structural- and individual-level problems, such as chronic inefficiency,
bureaucratic duplication, cronyism and corruption in the public sphere,g6
yet such a panacea may only be a mirage. If market capitalism succeeds,
then Manama and Muscat may avert a wrenching economic crisis that could
tear asunder Bahrain's and Oman's delicate social fabric. The market must
co-exist, however, with an ever-present government apparatus prone to state
capitalism. This mixing of liberalism (or neoliberalism) with state capitalism
and social welfare will likely redefine the rentier identity shared by
Bahrainis and Omanis. Market capitalism empowers individuals, who, in turn,
may very well push for political rights previously denied to them. In Bahrain,
opposition groups clamor for political participation.87 In using repression
to quell political dissent, Prime Minister Khalifa reinforces his reputation
as strictly an economic reformer. Sultan Qabus, on the other hand, realizes
that, in an international context characterized by transnational communications
and widespread democratization, a modernizer cannot usher in economic liberalization
without a concurrent increase in political opportunities. Hence, the sultan's
efforts to involve Omanis in a societal project whereby every citizen is
expected to contribute to the sultanate's continued success.

While "soberly optimistic," Qabus remains wary.88 He knows, as do Isa and
Khalifa, that internal threats could shake his country's sociocultural
foundation. Accordingly, he has instituted measures to protect himself
and his regime.89 Despite his bow to self-preservation, Qabus's flexibility
contrasts with Khalifa's hard line. Internationally, the Omani ruler displays
more savvy than his Bahraini counterpart.' The sultan's pragmatism has
earned him a reputation as a formidable foreign-policy strategist,9' whereas
the prime minister's diatribes and belligerent diplomatic style only undermine
his credibility. Qabus's and Khalifa's dissimilar tactics reveal two different
methods for balancing internal and external threats. Bahrain favors economic
restructuring and a mostly uncompromising foreign policy: its regime solicits
trade partners in Asia,92 yet distrust of other countries' intentions should
draw it ever closer to the Saudis. Riyadh fears domestic instability within
its island neighbor, since unrest could destabilize the kingdom. Saudi
Arabia is expected, therefore, to bolster the Al Khalifas whenever opponents
threaten to undermine them. Washington, moreover, appears certain to offer
support, in view of its significant military assets in Bahrain.

The sultanate practices "Omanibalancing."93 Such a policy calls for incrementalism
and sustained political leadership, requisites that Oman is drawing upon
to ensure that it can "innovate policy," which Samuel Huntington argues
traditional polities must provide "[t]o cope successfully with modernization."94
Omanibalancing calls for unfettered access to world markets, gradual political
reform, and the deterrence of Iran or any radical state. This astute modus
operandi augurs well for the coming century.95 Yet the sultanate's transformation
from a backward state into a more modern one could founder. No successor
waits (although the 1996 Basic Statute provides a mechanism for the selection
of a new leader),96 thus analysts speculate whether the appointment of
the next sultan will result in Oman's decline. '

In Bahrain's case, Sheikh Isa's son, Hamad bin Isa bin Salman Al Khalifa,
stands to take over upon his father's death. His uncle, Prime Minister
Khalifa, may continue to wield power, however. Whatever the denouement,
each should work toward preserving the Al Khalifas' reign, aware that a
popular rebellion could curtail it at any moment. Given his sympathies
vis-a-vis the opposition, perhaps Hamad can effect a peaceful transformation
of Bahraini politics and society, provided he can wrest control of the
state from his uncle. For now, such a scenario appears remote at best,
implausible at worst. Still, circumstances could provide for an unlikely
turn of events.

While past experience warns Middle East observers to eschew predictions,
one can conclude that omnibalancing can apply to other Gulf monarchies
that possess finite oil resources and/or explosive political climates.
Whereas Saudi Arabia and Kuwait can count on abundant quantities of petroleum,
Qatar and the UAE must carefully observe Omani and Bahraini developments
since they too will probably enter a post-oil phase sometime in the twenty-first
century. As such, Doha and Abu Dhabi should prepare to balance every threat
likely to present itself. The same can be said for Riyadh and Kuwait City,
whose populations may tire of the Al-Sauds and Al-Sabahs. Meanwhile, Muscat
and Manama will pursue their respective policies, hoping that oil monarchies
without oil can survive in the next millennium.

1 The author thanks Jeffrey A. Lefebvre, J. Garry Clifford, Elizabeth C.
Hanson, Deborah J. Gerner and Renee Marlin-Bennett for their comments and
encouragement. An earlier version of this article was presented at the
International Studies Association's annual meeting in Minneapolis, MN,
March 17-22, 1998.

2 Stephen R. David, "Explaining Third World Alignment," World Politics,
Vol. LXIII, No. 2, January 1991, pp. 233-256.

3 Though this analysis is contingent upon the depletion of petroleum resources
within a couple of decades, the reader should keep in mind that improvements
in technology, especially with respect to computers, could extend the lifespan
of Oman's and Bahrain's oil industry. So-called cross-drilling, for example,
has enabled the Omanis to exploit more efficiently their deposits of "black
gold." 4 A majority of Omanis believe in Ibadhism, a minority branch of
Islam. ' Bahrain extends only 620 square kilometers.

6 Kevin Taeker, "Saudi Arabia and the GCC: Exploring for Growth in a Troubled
Global Economy," Middle East Policy, Vol. VI, No. 2, October 1998, pp.
29-35.

' Robert Gilpin, The Political Economy of International Relations (Princeton:
Princeton University Press, 1987), pp. 204-209.

s David, "Explaining Third World Alignment," p. 233.

9 In his critique of Waltz, Walt posits that states do not ally to balance
the power of an opposing country or bloc. States instead "tend to ally
with or against the foreign power that poses the greatest threat." Stephen
M. Walt, The Origins of Alliances (Ithaca, NY: Cornell University Press,
1987), p. 21. See also Kenneth N. Waltz, Theory of International Politics
(New York: Random House, 1979). la Omnibalancing appears particularly well-suited
to the Middle East, with its recurrent internal strife and history of great-power
intervention. See, for example, L. Carl Brown, International Politics and
the Middle East: Old Rules, Dangerous Game (Princeton: Princeton University
Press, 1984). " Andrew Rathmell, "Stumbling Along," Middle East International
[hereafter MEI, February 21, 1997, p. 12.

" For a historical overview of the region, see F. Gregory Gause III, "Gulf
Regional Politics: Revolution, War, and Rivalry," in W. Howard Wriggins,
ed., Dynamics of Regional Politics: Four Systems on the Indian Ocean Rim
(New York: Columbia University Press, 1992), pp. 25-88. '3 According to
Gregory Gause, the GCC countries "have always exhibited a desire to duck
direct confrontation if at all possible." F. Gregory Gause III, Oil Monarchies:
Domestic and Security Challenges in the Arab Gulf States (New York: Council
on Foreign Relations Press, 1994), p. 121. '4 See Dilip Hiro, The Longest
War: The Iran-Iraq Military Conflict (New York: Routledge, 1991). is Olivier
Roy, The Failure of Political Islam, translated by Carol Volk (Cambridge,
MA: Harvard University Press, 1994), p. 181.

t6 The Iranians state that their buildup is defensive and merely in reaction
to the increased U.S. involvement in the area. Analysts continue to debate
Iranian intentions in the Gulf as well as Tehran's military capabilities.
See, for example, Mahmood Monshipouri, "Iran's Search for the New Pragmatism,"
Middle East Policy, Vol. VI, No. 2, October 1998, pp. 96-97; R.K. Ramazani,
"The Emerging Arab-Iranian Rapprochement: Towards an Integrated U.S. Policy
in the Middle East?" Middle East Policy, Vol. VI, No. 1, June 1998, pp.
45-48; and Anthony H. Cordesman, "The Changing Military Balance in the
Gulf," Middle East Policy, Vol. VI. No. I, June 1998, pp. 30-31, 37-38.


"Saeed Barzin, "Nuclear Friction," MEl, March 13, 1998, p. 12. ll Andrew
Rathmell, "Ddtente in the Gulf?" MEI, October 24, 1997, p. 20. '9 See R.K.
Ramazani, "The Shifting Premise of Iran's Foreign Policy: Towards a Democratic
Peace?" The Middle East Journal, Vol. LII, No. 2, Spring 1998, pp. 177-187;
Dariush Zahedi and Ahmad Ghoreishi, "Iran's Security Concerns in the Persian
Gulf," Naval War College Review, Vol. XLIX, No. 3, Summer 1996, pp. 73-95;
R.K. Ramazani, "Iran's Foreign Policy: Both North and South," The Middle
East Journal, Vol. XLVI, No. 3, Summer 1992, pp. 393-412; and John Duke
Anthony, "Iran in GCC Dynamics," Middle East Policy, Vol. II, No. 3, 1993,
pp. 107-120.

20 Andrew Rathmell reports, however, that recent Iranian-Bahraini talks
resulted in each side saying that it desired "fruitful" relations. Andrew
Rathmell, "Henderson Goes," MEI, March 13, 1998, pp. 11-12. 21 On the Iranian-Bahraini
antagonism, see Andrew H. Cordesman, Bahrain, Oman, Qatar, and the UAE:
Challenges of Security (Boulder, CO: Westview Press, 1997), pp. 40-45.


22 "Iran: Report Probes Hizbollah Influence in Gulf," Al-Watan Al-Arabi,
September 27, 1996, in Foreign Broadcasting Information Service - Near
East and South Asia (FBIS-NES), September 27, 1996; and "Developments in
Bahrain," The Middle East Institute Newsletter, Vol. XLIX, No. 1, January
1998, pp. 1, 4.

23 Joe Stork, "Bahrain's Crisis Worsens," Middle East Report, Vol. XXVII,
No. 3, July-September 1997, p. 34.

24 "Omanis Observing Iranian Military Maneuvers in Gulf," Agence France-Presse
[hereafter AFP], December 4, 1998.

25 "Iran, Oman To Observe Each Other's Military Exercises," AFP, November
16, 1998. 26 "Oman International Relationships" (Internet: http://www.dreamscape.com/tony/omanO).
2 For a searing American critique of Washington's Gulf policy, see Graham
E. Fuller and Ian O. Lesser, "Persian Gulf Myths," Foreign Affairs, Vol.
LXXVI, No. 3, May/June 1997, pp. 42-52. Zs The GCC states refuse to join
Iran in military exercises, however, insisting that they prefer to rely
on the United States, the United Kingdom and France, for their security.
"Gulf Arab States Snub Iran Overtures," Middle East Reporter, Vol. LXXXV,
No. 968, October 18, 1997, pp. 14-16. 29 See Joseph A. Kechichian, Oman
and the World: The Emergence of an Independent Foreign Policy (Santa Monica,
CA: RAND, 1995).

30 Marc J. O'Reilly, "Omanibalancing: Oman Confronts an Uncertain Future,"
The Middle East Journal, Vol. LII, No. 1, Winter 1998, pp. 74-76.

3"Amir on Domestic, Regional Issues," FBIS-NES, February 26, 1997. 32 "Bahrain
Says Islands Dispute with Qatar Over," AFP, November 28, 1998. 33 For more
on the acrimonious Bahraini-Qatari relationship, which continues to this
day, see Andrew Rathmell, "Qatar and Bahrain - Brothers at Odds," MEI,
September 26, 1997, pp. 18-19. 34 "Amir on Domestic, Regional Issues."


35 See Munira A. Fakhro, "The Uprising in Bahrain: An Assessment," in Gary
G. Sick and Lawrence G. Potter, eds., The Persian Gulf at the Millennium:
Essays in Politics, Economy, Security, and Religion (New York: St. Martin's
Press, 1997), pp. 184, 187.

36 Rathmell, "Henderson Goes," p.11. For an analysis of this U.S.-Iraqi
crisis, see Dilip Hiro, "Iraq and the US - Saddam Wins the First Round,"
MEI, March 13, 1998, pp. 17-18. 37 Jasim Ali, "GCC Economies: Adjusting
to the Oil Price Slump," MEI, September 4, 1998, p. 20. The field produces
140,000 barrels of oil per day (b/d). Until April 1997, Bahrain extracted
100,000 b/d , the Saudis 40,000. According to Andrew Cordesman, "[t]he
income from the Abu Saafa field provided 36 percent of the revenue of Bahrain's
government in 1994." Cordesman, Bahrain, Oman, Qatar, and the UAE, p. 59.
38 Fuller and Lesser, "Persian Gulf Myths," pp. 48-49.

39 On the incident, see Richard N. Schofield, "Border Disputes: Past, Present,
and Future," in Sick and Potter, eds., The Persian Gulf at the Millennium,
p. 156.

4o John C. Wilkinson, The Imamate Tradition of Oman (New York: Cambridge
University Press, 1987), pp. 290-95.

4"Gulf Arab States Snub Iran Overtures," p. 16. 42 Gilpin, The Political
Economy of International Relations, pp. 394-395. 43 Thomas J. Biersteker,
"The 'Triumph' of Liberal Economic Ideas in the Developing World," in Barbara
Stallings, ed., Global Change, Regional Response: The New International
Context of Development (Cambridge: Cambridge University Press, 1995), pp.
174-196. aa Ibid., p. 195.

as Doug Henwood, "Global Economic Integration: The Missing Middle East,"
Middle East Report, Volume XXIII, No. 5, September-October 1993, pp. 7-8;
and Paul Kennedy, Preparing for the Twenty-First Century (New York: Random
House, 1993), pp. 208-211. Sinclair Road underscores the dearth of Middle
East trade; he points out that only 3.6 percent of world trade in goods
involves Middle Eastern states. Sinclair Road, "World Trade and the Middle
East," MEl, August 16, 1996, p. 18. 46 Peter Kemp, "Hard Times, No Easy
Way Out," Middle East Economic Digest [hereafter MEED], Vol. XLIII, No.
1, January 8, 1999, pp. 2-3; Robert R. Copaken, "The Asian Crisis and Middle
East Choices," Middle East Insight, Vol. XIII, No. 6, November-December
1998, pp. 20-22. " Fakhro, "The Uprising in Bahrain," pp. 167-175.

4" According to Rathmell, Prime Minister Khalifa, "who is taking a tough
line [with respect to opposition groups], still appears to be in charge
of policy. Crown Prince Shaykh Hamad bin Isa Al Khalifa, who commands the
Bahrain Defence Force, and who sought last year to initiate a dialogue
with the opposition, has been sidelined. As a result, repression rather
than dialogue seems to be the only prospect - Henderson or no Henderson
[a reference to the recent retirement of Bahrain's notorious security chief,
the Scotsman Ian ." Rathmell, "Henderson Goes," pp. 11-12.

49 For overviews and analyses of Bahrain's opposition movement and Manama's
countermoves, see Fakhro, "The Uprising in Bahrain," pp. 175-187; and Louay
Bahry, "The Opposition in Bahrain: A Bellweather for the Gulf?" Middle
East Policy, Vol. V, No. 2, May 1997, pp. 42-57. s "Bahrain Says Acts of
Sabotage Were Planned in Lebanon," AFP, November 27, 1998. 5' See, for
example, "Omani Students Defy Ban on Demonstrations to Hold Anti-US Protest,"
AFP, December 20, 1998.

" Abdullah Juma al-Haj, "The Politics of Participation in the Gulf Cooperation
Council States: The Omani Consultative Council," The Middle East Journal,
Vol. L, No. 4, Autumn 1996, pp. 566-568. 13 John Lancaster, "Running on
Fumes: Rich Oman Prepares for Life Without Oil," The Washington Post, December
19, 1995, p. A25.

54 Alexander Gerschenkron, Economic Backwardness in Historical Perspective
(Cambridge, MA: The Belknap Press of Harvard University Press, 1962), p.
7.

ss A rentier state is one "in which government relies for the lion's share
of its revenues (certainly over 50 percent, in the Gulf monarchies usually
over 75 percent) on direct transfers from the international economy, in
the form of oil revenues, investment income, foreign aid or other kinds
of direct payments." Gause, Oil Monarchies, p. 43.

56 Oman is thought to possess some five billion barrels in proven oil reserves,
Bahrain only 70 million. Cordesman, Bahrain, Oman, Qatar, and the UAE,
pp. 147-153; Bahry, "The Opposition in Bahrain," p. 50, note 13.

57 Monte Palmer, Political Development: Dilemmas and Challenges (Itasca,
IL: F.E. Peacock Publishers, 1997. 30.

Ss "It is regime security, not simply state security, that animates decisionmakers
in the region. The former includes the latter, as ruling regimes . . .
interests do not want to be subject to foreign attack, but goes beyond
the external dimension of security to include domestic political stability."
F. Gregory Gause III, "The Political Economy of National Security," in
Sick and Potter, eds., The Persian Gulf at the Millennium, p. 62. 59 These
trends apply to the entire Gulf region. See Fareed Mohamedi, "Oil, Gas
and the Future of Arab Gulf Countries," Middle East Report, No. 204, July-September
1997, pp. 2-6. 6 Gause, "The Political Economy of National Security," p.
63. 6 "1996 Economic Assessment: The Gulf States: Regional Overview," Jane's
Sentinel. 62 Quoted in Josh Martin, "IMF Sees Better Times Ahead," The
Middle East, No. 274, January 1998, p. 24. See also Peter Kiernan, "Cautious
Optimism for Arab Free Trade," The Middle East, No. 286, January 1999,
pp. 41-42.

63 Elizabeth Mottershaw, "MEED Special Report: Bahrain," MEED, Vol. XLI,
No. 50, December 12, 1997, p. 27. See also Pamela Ann Smith, "Survey on
Bahrain: Challenging Times Ahead," and Moin A. Siddiqi, "Bahrain: Financial
Report," in The Middle East, No. 278, May 1998, pp. 23-26, 29-31. I Elizabeth
Mottershaw writes: "The long-delayed plant is an essential addition to
Bahrain's over-stretched infrastructure." Mottershaw, "MEED Special Report:
Bahrain," p. 27. 65 Ibid., p. 28.

I "Amir, President Ramos Agree To Expand Bilateral Ties," FBIS-NES, March
11, 1997. 6 "1996 Economic Assessment: Gulf States: Bahrain," Jane's Sentinel,
p. 15. 6 "Deputy Finance Minister Comments on New Economic Policies," FBIS-NES,
March 14, 1997. 69 Mottershaw, "MEED Special Report: Bahrain," pp. 30,
32.

Afshin Molavi, "Oman's Economy: Back on Track," Middle East Policy, Vol.
V, No. 4, January 1998, p. 2. See also Moin A. Siddiqi, "Oman Financial
Report," The Middle East, No. 284, November 1998, pp. 30-32.

71 Eric Hooglund, "2020: Oman Charts Its Next 25 Years," Middle East Insight,
Vol. XII, No. 1, NovemberDecember 1995, pp. 48-57.

72 Karen Thomas, "Salalah Port: A Vision Realized," The Middle East, No.
286, January 1999, pp. 37-40. 73 In 1998, however, in reaction to events
in Asia, the Muscat Securities Market lost much of its value as foreign
investors moved their capital out of Oman in search of better returns.
Taeker, "Saudi Arabia and the GCC," p. 33. According to economist Kevin
Taeker, "...such developments have seriously disturbed both local investors
and local business." Ibid.

Dr. Mohammed Hamed Saif Al Rumhy, Oman's minister for Oil and Gas, claims
that gas will likely play a pivotal role in the country's post-oil economic
development. Perhaps, then, Oman will acquire a new reputation as a gas
or LNG monarchy. Pat Lancaster, "Survey on Oman: Weathering the Storm,"
The Middle East, No. 284, November 1998, p. 29. See also Siddiqi, "Oman
Financial Report," p. 31. '5 "MEED Special Report: Oman," MEED, Vol. XLI,
No. 46, November 14, 1997, pp. 9-10, 12-18. 76 "India/Oman: A Partnership
Across the Ocean," MEED, Vol. XLI, No. 16, April 18, 1997, p. 6; and O'Reilly,
"Omanibalancing," pp. 79-80.

" In Oman's case, see Lancaster, "Weathering the Storm," pp. 27-29. " Elizabeth
Mottershaw, "Gulf Funds Primed for Privatisation," MEED, Vol. XLI, No.
24, June 13, 1997, p. 2.

79 Kiren Aziz Chaudhry, "The Myths of the Market and the Common History
of Late Developers," Politics & Society, Vol. XXI, No. 3, September 1993,
p. 249.

sa Arif Ali, "Omani Industrialists Protest Customs Duty," Gulf News (Dubai),
Internet version, February 11, 1998.

sl Pat Lancaster, "Survey on Oman: Special Report" The Middle East, No.
284, November 1998, p. 26. Each chamber advises the Omani government. Perhaps
surprisingly, when discussing these chambers and their roles, the sultan
refers to an "Omani democratic system" (ibid.). This seems an odd remark
given that he still rules as an autocrat (albeit a benevolent one).

gz Judith Miller, "Creating Modern Oman: An Interview with Sultan Qabus,"
Foreign Affairs, Vol. LXXVI, No. 3, May/June 1997, p. 18.

s3 Palmer, Political Development, pp. 176-77. For an elaborate description
of charismatic leadership, see ibid., pp. 165-182.

84 In creating modern Oman, the sultan received much needed help from many
advisers. See Ian Skeet, Oman: Politics and Development (New York: St.
Martin's Press, 1992).

as As a result of the decrease in the price of crude, Oman's budget deficit
climbed to 570.4 million in the first ten months of 1998, prompting the
Omani government to cut its spending by 7 percent in 1999. Muscat also
intends to raise taxes, an unusual move in the Gulf. See "Tumbling Oil
Price Widens Oman's Budget Deficit," AFP, December 21, 1998; and "Oman
Cuts 1999 Spending by Seven Percent, Raises Taxes," AFP, January 2, 1999.


86 For an assessment of those problems in the case of Oman, see "Where's
Our Sultan?" The Economist, August 9, 1997, pp. 38, 40.

8" "Petition Demands the Return of Parliament," Middle East Reporter, Vol.
LXXXIX, No. 1027, December 26, 1998, pp. 14-15.

gg Lancaster, "Survey on Oman," p. 26.

S9 "Oman: Decree Establishes Defense Council Led by Sultan Qabus," FBIS-NES,
December 28, 1996. 90 On the relationship between personality and foreign
policy, see Margaret G. Hermann and Joe D. Hagan, "International Decision
Making: Leadership Matters," Foreign Policy, No. 110, Spring 1998, pp.
124-137; and Margaret Hermann, "Explaining Foreign Policy Behavior Using
the Personal Characteristics of Political Leaders," International Studies
Quarterly, Vol. XXIV, No. 1, March 1980, pp. 7-46. 9' See Kechichian, Oman
and the World.

92 The current Asian financial crisis could put a damper on these prospects,
however. 93 O'Reilly, "Omanibalancing," pp. 70-84.

94 Samuel P. Huntington, Political Order in Changing Societies (New Haven:
Yale University Press, 1968), p. 140.

9S Mahmood Monshipouri, "State Prerogatives, Civil Society, and Liberalization:
The Paradoxes of the Late Twentieth Century in the Third World," Ethics
& International Affairs, Vol. XI, 1997, pp. 233-251. 0 "Special Basic Statute
Issue," News from Oman (Muscat: Ministry of Foreign Affairs), April 1997,
p. 2.

Mr. O'Reilly is a lecturer in the Department of Political Science at the
University of Connecticut in Storrs. '

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