Saudi set to dominate Gulf monetary union

Tact will be needed as Saudi takes the lead Gulf monetary role, reports Souhail Karam.
Saudi set to dominate Gulf monetary union
Saudi central bank Chief Muhammad Al Jasser was named to head a forerunner to a regional central bank, the Riyadh-based Gulf Monetary Council.
By Souhail Karam
Sat 17 Apr 2010 04:00 AM

Tact will be needed as Saudi takes the lead Gulf monetary role, reports Souhail Karam.

Saudi Arabia has put dominance above diplomacy in crafting a Gulf monetary union but it will need to work on its relationship with smaller Gulf neighbours if it wants the project to succeed.

The world's top oil exporter and biggest Arab economy wants a cohesive Gulf political and economic bloc that it can lead and which would also counter rival Iran's sway in the region.

But the kingdom's insistence on dominating the monetary union, with a planned single Gulf Arab currency, risks adding to disgruntled voices in the six-member Gulf Cooperation Council.

Two states, Oman and the United Arab Emirates, have already dropped out of the monetary union.

"The Saudis will definitely dominate the currency union and eventually get more political influence, which will have a geopolitical impact," said Mustafa Alani of Dubai-based Gulf Research Centre.

That was natural in a union comprised of one big state and five smaller ones, he said.

"This is the problem for the GCC and the source of the existing sensitivity and mistrust: The belief that the big brother is trying to dominate us."

Saudi central bank chief Muhammad Al Jasser was named last month to head a forerunner to a regional central bank, the Riyadh-based Gulf Monetary Council, underlining the kingdom's sway in a single currency project. His term will last a year.

Riyadh, a key US ally, is already home to many Gulf entities including the GCC General Secretariat, an executive body similar to the European Commission.

The monetary council will mainly work on the regulatory framework of a Gulf central bank and push for more coordination of monetary and foreign exchange policies to pave the way for the launch of a single currency. But any strengthening of the Gulf union would also bring more political cohesion to the bloc.

That could serve Gulf states, several of whom have marginalised Shi'ite populations, in efforts to counter non-Arab, Shi'ite Iran. Saudi Arabia has voiced concerns over Iran's sway in neighbouring Iraq as well as in Lebanon.

"The GCC has not always shown a great coordination when it comes to its foreign policy. The existence of a consensus within the GCC will help to limit the influence of Iran in the region," said Khaled Al Dakhil, a prominent Saudi political writer.

"We have seen some consensus within the GCC towards the UAE-Iranian dispute about Abu Musa islands and toward Iran's nuclear ambitions," he added, referring to a longstanding territorial dispute over Gulf islands.

The Gulf monetary union, designed to emulate the euro zone, has been delayed by old political rivalries. The UAE, the second largest Gulf Arab economy, quit the project after heads of state chose to base the central bank in Riyadh, dealing a serious blow to a plan that had been languishing since 2001.Diplomatic ties between Saudi and the UAE have remained strained ever since. Now only Bahrain, Kuwait, Qatar and Saudi Arabia are forging ahead with the project.

Last year, the GCC abandoned a 2010 deadline for issuing common notes and coins, and the monetary council has said fixing new dates for launching the single currency was not a priority.

"Saudi Arabia is telling other GCC countries that if this Gulf economic entity was to ever see the day, then its centre of gravity will have to be here in Riyadh not in Dubai or Abu Dhabi. The Saudis want to dictate the pace of change," a Riyadh-based Western diplomat said.

That dominance will increase pressure on Riyadh to deliver on the project and to prevent any more defections.

Recently improved ties between Qatar and Riyadh have helped keep Qatar on board, analysts say.

"There is a form of an alliance building up between Saudis and Qataris. Qatar has a very active foreign policy so it is a bonus to the Saudis. Losing Qatar would pose a serious problem to the monetary union," Dubai-based Alani said.

Kuwaiti analyst Ali Al Nimesh, whose country has made luring the UAE and Oman back a main aim, said it was not wrong for Saudi to play a leading role, but the union should be inclusive.

"There is no Gulf currency without the UAE and Oman. The UAE is the second largest oil producer in the Gulf after Saudi. It is also commercially active in export and import and free trade zones and in Gulf tourism. Oman is definitely not less important," he said.

Oman, which opted out in 2006, is seen as close to Iran and jealously protective of its cultural identity from the influence of Saudi's austere brand of Wahhabi Islam.

Al Dakhil said Saudi dominance had been natural when its smaller neighbours, including a younger UAE, looked to Riyadh as a natural mentor. But the UAE now wanted more equality.

Those who back the Saudi push to dominate decision-making in the GCC point to its large native population, its ability to defend Gulf Arab interests as a member of the G20, and a higher concentration of native workforce in its financial system.

"Has the UAE managed the repercussions of the global economic crisis better than Saudi Arabia?" Saudi economist Mohammed Al Jadeed said.

Jawad Al Anani, an economist who had held ministerial portfolios in Jordan, said a prolonged absence of the UAE from the monetary union would erode Saudi influence in the region.

"The UAE's absence will dilute the gains for Saudi Arabia as a leader of this project.

"It will certainly expose more what the Gulf Cooperation Council has achieved in 30 years, which to the exception of a perfectible customs union, remain very little," Anani said.

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