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Saudi-Omani Partnership: Economic and Security Ties Deepen

On Sunday, Sultan Haitham bin Tariq of Oman departed on his first international visit to Saudi Arabia, an unsurprising sign of the importance of GCC ties for Muscat. Despite taking a neutral stance on most of the region’s crises, mainly the ongoing tension with Iran that most of the other GCC states have taken part in, Muscat has always prioritized political and economic ties with its Arab neighbors.

Oman’s recent economic and fiscal challenges have increased the importance of economic relations with the GCC states. Oman’s need for foreign investment and an energetic private sector to create jobs and resolve its fiscal dilemma makes loans and economic collaboration with GCC countries such as Saudi Arabia, Qatar, and the UAE crucial for its stability. Between 2014 and 2020, Oman’s government debt surged from 5% to 80%, creating a serious financial problem in Muscat that has only grown during the COVID-19 pandemic.

The visit comes a few weeks after the protests in Oman’s Sohar province because of youth unemployment. The government responded by creating more job opportunities in the public sector, but the Omani authorities understand that this is not a long-term solution and the country needs a more active private sector and local and foreign investments to decrease reliance on the public sector and diversify its revenues. Like other GCC states, Oman’s economy was seriously impacted by COVID-19, but the sultanate had worse outcomes because of its pre-existing debts. One of the most recent policies to address the fiscal problems was the introduction of a nationwide value-added tax (VAT) on April 16.

A Renewed Saudi-Omani Pipeline Proposal

After the exchange of the highest awards by King Salman and Sultan Haitham, they announced the formation of the Saudi Omani Coordination Council. Economic issues were front-and-center during the visit, as both states are pushing hard to increase their non-oil revenues. Also, both states will be exploring the possibilities of economic integration and any benefit from Oman’s relatively safe location to secure oil exports from Saudi Arabia, the other GCC states, and Iraq. In recent years, Saudi oil tankers were subject to attacks from the Houthis in the Red Sea, and Omani ports can play a role in reducing this risk, whether now or in the future.

The possibility of reviving the Duqm oil pipeline will be an important topic for the collaboration between both sides. The project was conceived during the Iran-Iraq War, when the GCC states were looking for a port destination that would secure their oil exports away from violence in the Gulf, a risk that has been resurrected by Yemen’s Houthis. The port overlooks the Arabian Sea and is located along Oman’s southern coast, far from potential flashpoints in the Gulf and the Red Sea. Oman is also building a multi-billion dollar industrial zone in Duqm; Saudi Arabia initially invested in the complex in 2018, but it would benefit from further Saudi investments.

Sultan Haitham also led the government’s economic diversification efforts during the reign of his late cousin, Sultan Qaboos, so he understands the need to attract investors and the role that the GCC states can play in these investments. In Oman’s 2040 national diversification plan, the sultanate is relying on its location and relative stability to attract investment from its GCC neighbors. The Duqm port expansion, the area’s rich fishing wealth, and the construction of an industrial area in the region—which the Saudis invested $210 million in by 2018—is made to attract foreign investors and transform the port into a maritime shipping hub. This could be of interest to the Saudis, as they are also aiming to diversify their revenues and strengthen their relationship with politically-neutral Muscat.

Investment and increase of trade between Oman and Saudi Arabia will also increase upon the completion of the new land port linking Saudi Arabia with Oman. The construction will save 500 miles (800 kilometers) of travel distance, which will increase the volume of trade between the two countries and between Oman and other states that are linked to the sultanate through Saudi Arabia.

Iran and Yemen

Oman’s neutral position in the region, and its willingness to engage with Iran during periods of Iran-Saudi tensions, irritated Riyadh and discouraged Saudi investments in Oman. However, following Joe Biden’s accession to the presidency in the United States and Riyadh’s flailing efforts to extract itself from the Yemen conflict, Oman’s cordial relationship with Iran and the Houthis could prove useful to the Saudis. As Riyadh and Tehran are reopening dialogue channels in Baghdad, the two countries could use Oman as another dialogue location, as Iraq is becoming more occupied by its upcoming elections and defusing the escalating series of attacks between U.S. troops and Iran-backed militias. If the Saudi-Iranian talks in Baghdad become politically inconvenient, Oman would be a natural place to conduct follow-up negotiations, as Omanis have historically proved to be successful mediators in other regional conflicts.

As a case in point, Oman is taking a leading role in the mediation between Saudi Arabia and the Houthis, Iran’s closest allies in Yemen. Oman has supported the initiative led by the outgoing UN Special Envoy Martin Griffiths. The Omanis are a trusted mediator by the Houthis, and the northern rebels have a delegation based in Muscat which has so far met with Saudi, American, and UN officials. Moreover, an Omani peacemaking delegation has visited Sana’a and met with the Houthis’ leader, Abdulmalek Al-Houthi, in an effort to mediate a ceasefire and persuade the Houthis to accept the peace plan presented by Griffiths. This makes the Sultanate’s role in the war in Yemen a vital one for the Saudis.

While the negotiations in Yemen have yet to bear fruit, Oman’s willingness to act as an impartial mediator, and its ability to build goodwill on all sides, are valuable traits that could be of great use to Riyadh. To build stronger relations with Oman, Saudi leaders should attempt to make mutually beneficial investments in the sultanate, helping to diversify its own revenues even as it assists Muscat during an economic downturn. The geostrategic implications are profound, too; if the Duqm port project succeeds and is connected to Saudi oil fields via a pipeline, the stability of oil shipments would be assured, and the two nations would have a far greater stake in the Gulf’s future.

Issue: Economy & Innovation, Politics & Governance
Country: KSA, Oman

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