The Forum’s experts share their forecasts for 2023, highlighting the geopolitical, economic, and domestic developments that are most likely to shape the state of the region in the coming year.
A Nuclear Arms Race Could Begin
Dr. Daniel Serwer
Non-Resident Senior Fellow, Gulf International Forum; Professor, Johns Hopkins School of Advanced International Studies (SAIS); Senior Fellow, SAIS Foreign Policy Institute
The key to Gulf security, stability, and economic prosperity in 2023—and beyond—lies in addressing a subject few have considered in depth: the growing possibility of a nuclear arms race in the Middle East.
The focus of the Gulf’s ongoing nuclear nonproliferation efforts has been on Iran. Since the Trump administration’s withdrawal from the Joint Comprehensive Plan of Action (JCPOA) in 2018, Tehran has been free from the deal’s constraints and has worked to produce a critical mass of highly-enriched uranium. Iran today is a nuclear threshold state with enough nuclear material and expertise to make an atomic bomb within months.
A second challenge for Western nonproliferation experts is gauging how other countries will react to an Iranian bomb. Both Turkish President Recep Tayyip Erdogan and Saudi Crown Prince Mohammed bin Salman have committed to pursuing nuclear weapons if Tehran acquires them. Although Israel’s nuclear program remains top secret, there is no doubt that its capabilities equal (or more likely surpass) whatever Iran can acquire in the near future. Egyptian President Abdel Fattah el-Sisi has declared that his country has no interest in nuclear weapons—he insists that Egypt, like Germany, can be a great power without them. But will he maintain this stance if Turkey and Saudi Arabia seek the bomb?
Turkey, Saudi Arabia, and Egypt are all signatories to the Nuclear Non-Proliferation Treaty, which prohibits the development of nuclear weapons, and none of them has matched Israeli nuclear capabilities. However, all three countries have expressed doubts about American security commitments. Turkey and Egypt have started to hedge by buying civilian nuclear technology from Russia, while Saudi Arabia is considering a Russian bid. Ankara and Riyadh both want to use their own uranium resources, which requires exploring uranium enrichment or plutonium reprocessing. Indeed, they may already be doing so clandestinely. If these countries seek a nuclear weapon, it is possible that other nuclear powers like Pakistan or North Korea could provide assistance—for a price.
A greater Middle East with five nuclear powers (Israel, Iran, Turkey, Saudi Arabia, and Egypt) in close proximity without an overarching security architecture to restrain them would be a perilous place, not only for the nuclear states and their neighbors, but beyond.
Israel and Iran May Shape Regional Dynamics
Dr. Gawdat Bahgat
Non-Resident Senior Fellow, Gulf International Forum; Professor, Near East South Asia Center for Strategic Studies at the National Defense University
In early 2023, the Gulf region faces one long-term and two immediate security challenges. The first immediate challenge is the Gulf states’ normalization of relations with Israel. The platform of Israel’s extremist government, led by longtime Likud leader Benjamin Netanyahu, is certain to increase popular resentment against Israeli policies in the GCC states and the broader Middle East. It is unlikely that Bahrain and the United Arab Emirates, the two Gulf states that have recognized Israel, will suspend their relations with Israel, but their leaders will be under intense domestic pressure to temper their engagement with Tel Aviv.
The second immediate challenge is the failure of the United States and Iran to reach an agreement on reviving the JCPOA. After eight rounds of negotiations, the prospects of reviving the agreement are slim. Indeed, a close examination of Washington’s and Tehran’s policies since mid-2022 suggests that the two adversaries have slowly retreated to their respective plan B. After two years in office, the Biden administration has not lifted the sanctions that the Trump administration imposed on Iran in 2018, effectively continuing its predecessor’s “maximum pressure” campaign against Tehran. Moreover, the United States is trying to facilitate a military proto-alliance between Arab countries and Israel to confront Iran. In spite of immense international pressure, Iran is pushing back where it can. Tehran enjoys warm relations with some GCC states, particularly Oman and Qatar, and has expanded its trade links to Turkey and its Central Asian neighbors. Similarly, Iran is cementing its close ties with Russia and China. Finally, Iran’s nuclear program has made significant progress over the past half-decade and is almost certainly within reach of developing a nuclear weapon. Antagonistic policies from Washington and Tehran fuel instability in the Gulf region and threaten regional and global peace.
In the long term, the Gulf must reckon with the effects of climate change, which pose a near-existential threat to their economic stability. Based on the consensus that fossil fuels have been responsible for increases in global temperatures, renewables have become the fastest growing source of energy. The world will not stop consuming oil and natural gas, but hydrocarbons’ share of the global energy mix is projected to decline. Facing this looming energy transition, GCC states must aggressively implement economic reforms to ensure their long-term financial stability.
Growing Oil Revenues Could Jeopardize Economic Reform
Dr. Courtney Freer
Non-Resident Senior Fellow, Gulf International Forum; Provost’s Postdoctoral Fellow, Emory University
In the coming year, Gulf states will face the major challenge of maintaining the momentum of their economic diversification initiatives—in particular, decreasing their reliance on hydrocarbon resources. In times of high global oil prices, policies intended to diversify sources of income tend to be abandoned in favor of higher state spending. By contrast, during periods of low oil prices in 2014 and later in 2020, policymakers emphasized the need to dismantle generous social spending and diversify the government’s sources of income. Nonetheless, in 2023, with inflation on the rise, both Saudi Arabia and the UAE have granted greater assistance to citizens, amounting to some $13 billion in spending between the two. While such spending makes sense given the global cost-of-living crisis, it will require sustained high oil prices to be maintained. Although the IMF has predicted that oil and gas producers in the Middle East will gain an estimated $1.3 trillion in additional revenues over the next four years due to shifts in global oil markets after Russia’s invasion of Ukraine, it is unclear what will happen after those four years, and whether high spending will resume in the interim.
The oil-wealthy Gulf states, particularly Saudi Arabia, have demonstrated their willingness to adopt increasingly independent production and export policies, and gas producers like Qatar are likely to become important energy suppliers for Europe; in both cases, these states will enjoy higher revenues. However, the GCC states’ domestic economies still need attention; these states must continue to attract foreign direct investment, implement education reform to match education to labor force needs, and expand citizen involvement in their nascent private sectors. If high spending persists without complementary diversification efforts, the gains from high oil prices will not be sustainable in the medium to long term.
The “Khaleeji Spirit” Could Influence Regional Diplomacy
Dr. Kristian Coates Ulrichsen
Non-Resident Senior Fellow, Gulf International Forum; Baker Institute Fellow for the Middle East, Rice University
In 2023, Oil and gas prices will continue to have a direct bearing on the economies of the Gulf. The current hydrocarbon boom means that policymakers in Gulf capitals have one more—possibly the last—chance to diversify their economies while from a position of comparative strength. Previous attempts at economic diversification—some going back decades—have failed to build genuine non- or post-hydrocarbon economies that could eventually ease the transition into what comes next. Whether the new generation of leaders can achieve what their predecessors could not is something to watch closely in 2023; it is certainly the case that Mohammed bin Salman in Saudi Arabia or Mohammad bin Zayed in Abu Dhabi are pioneering new strategic approaches to diversification that differ significantly from earlier attempts. Whether they succeed will be the key outcome to watch for.
Another trend to watch is whether the “khaleeji spirit” that was so evident during the FIFA World Cup in Qatar leads to a revival of regional cooperation and coordination, sealing the post-Al Ula period of reconciliation in the Gulf. Can the Gulf Cooperation Council regain some of the luster which was lost after 2017, and can it make progress on matters of political and economic integration that have been on (and off) the table for many years? Or will 2023 see the region’s three most powerful states—Saudi Arabia, the UAE, and Qatar—pursue their own separate projects and initiatives which, especially in the Saudi-Emirati case, could lay the foundation for competitive rivalries that could shape the rest of the decade? After all, 2023 marks the midpoint since Mohammed bin Salman launched Vision 2030 in April 2016; the actions that officials in Riyadh take this year could prove critical to the eventual success or failure of the plan’s goals.
Security Imperatives Will Remain Paramount
David Des Roches
Non-Resident Senior Fellow, Gulf International Forum; Associate Professor, Near East South Asia Center for Security Studies
In 2023, as every year, security is the primary concern of all leaders in the Gulf region. Stability and economic prosperity are the regional leaders’ foci, but security underpins all other pursuits. Iran’s attacks against regional infrastructure in recent years—notably against the Dubai and Abu Dhabi airports and several Saudi Aramco facilities—shows that the Iranians and their proxies share this view. While Gulf leaders have been trying to encourage foreign investment and transition away from extractive economies, those who threaten the region have shown they can frighten away investment—true investment, not just hidden commissions to tap into petroleum-supported sovereign wealth funds—with only minimal provocation.
For this reason, the Gulf nations’ planned regional grands projects are, to a certain extent, hothouse plants which cannot exist except in a completely safe and secure environment. For these projects to succeed and result in stability and true economic development, the region must decisively deal with its destabilizing factors—one failed state to the south, one and a half failed states to the north, and an actively hostile actor to the east. As Iran continues its internal implosion, its corrupt leaders will seek to deflect blame for their own venality and incompetence onto external actors, potentially leading to further insecurity. So far, continued hydrocarbon production and an influx of petrodollars has delayed this inevitable reckoning, but it remains to be seen if the region will escape the worst effects of instability this year.
Flush With Cash, GCC States Will Prioritize Foreign Diplomacy
Dr. Samuel Ramani
Non-Resident Fellow, Gulf International Forum; Associate Fellow, the Royal United Services Institute (RUSI)
During the year 2023, two trendlines can be expected in the Gulf region. The first trend is two-speed economic development. Due to energy market instabilities and the collective West’s divestment from Russian oil and gas, Saudi Arabia will likely be the fastest- growing major world economy, and Qatar has announced a 16% budget increase. The UAE will also benefit from these economic trends, and Dubai could receive large inflows of investments due to its standing as a geopolitically neutral capital haven. Sweeping economic development plans, such as Dubai’s $8.7 trillion economic plan to compete with Saudi Arabia, are also likely to gain steam. The endurance of the Al -Ula Agreement and continued progress in Qatar’s normalization with Saudi Arabia and the UAE will also rein in costly foreign adventurism. The economic outlook for Iran, which is unlikely to see sanctions lifted via a renewed Joint Comprehensive Plan of Action (JCPOA) agreement, and Iraq, which is suffering from Ukraine War-induced food price inflation, is dimmer.
The second trend is the Gulf region’s firmer embrace of a multipolar world order. Saudi Arabia and the UAE will continue resisting U.S. pressure to isolate Russia over its invasion of Ukraine and could reduce oil production in solidarity with Moscow. Both countries will likely manage tensions with the West by positioning themselves as backchannel arbiters between the U.S. and Russia. It could fulfill the same role for Ukraine and Russia, and Ukraine’s leadership has already thanked Saudi Arabia for facilitating a prisoner exchange between the two sides. Iran’s deliveries of UAVs to Russia could spill over to the ballistic missile sphere, while China will continue to balance close relations with Iran and its Gulf Arab partners. The main uncertainty pertains to the state of intra-regional relations. Saudi Arabia and Iran have inched towards dialogue in recent weeks, signing a MOU on the Hajj and pivoting towards resumed exports. Iran’s continued arms smuggling to the Houthis in Yemen and aggressive actions in the Red Sea could stymie this de-escalation. It also remains to be seen whether Oman, which has engaged with the EU on JCPOA talks, and Qatar, which has offered itself as a potential interlocutor between the U.S. and Iran, can contribute to a more stable regional order.
Each State Will Prioritize Its Own Issues
Dr. Mira Al-Hussein
Non-Resident Fellow, Gulf International Forum; Postdoctoral Researcher, University of Oxford
We are witnessing a subtle geopolitical realignment in the Gulf region that is quite different from the one that had emerged in 2017 in the midst of the intraregional diplomatic crisis. Over the past decade, and particularly since the onset of the COVID-19 pandemic, each Gulf state has sought to aggressively pursue its own political and economic interests in ways that could generate regional tension. Given that the GCC as a regional bloc has been unable to mitigate crises in the recent past, each country will have to navigate potential challenges with minimal foreign intervention.
Unemployment is currently a pressing social and economic problem across the Gulf, including in some of its wealthiest states, such as the UAE. Unemployment could potentially become a political issue, as it undercuts the very foundations of the state’s social contract. Population movement, while a solution for individual unemployment challenges, might have long-term detrimental effects on the integrity of each state and its defined borders.
The Gulf Will Continue its Trend Toward Multipolarity
Dr. Diana Galeeva
Non-Resident Fellow, Gulf International Forum; Visiting Research Fellow, Oxford Center for Islamic Studies
The ongoing geopolitical competition among great powers demonstrated in the Ukraine war is an area of concern for the GCC states and a determinant of their emerging strategies, as it alters the current political and economic world order. In economic terms, Western sanctions have encouraged Russia and its allies to shift the world economy away from the U.S. dollar by pushing for the use of rubles or local currencies in its transactions with the Gulf. This weakens the GCC states’ assets and investments in the U.S. dollar, but it boosts the status of cities such as Dubai as financial hubs; reportedly, Russia sought payment in UAE dirhams for oil exports to some Indian customers. Politically, there is an ongoing expansion of bloc-to-bloc (BRICS-Shanghai Cooperation Organization) cooperation among non-Western countries, which may provide a counterweight to the influence of the United States and well-established institutions such as NATO or the European Union.
Thus, the conflict in Ukraine may help reshuffle global alignment away from the West. Saudi Arabia has expressed an interest in joining BRICS. The Islamic world, including the GCC states, might also find a place closer to Russia, with its 25 million Muslims, rather than with the West. At the same time, however, the GCC states have developed close historical relations to the West that are anchored in security, economic, political, scientific and cultural interests—ties which are unlikely to fade, even if the GCC states pursue greater independence.
Given the uncertainties of global political, security and economic transformations, the best approach for the GCC would be to continue their hedging policies with all parties, balancing the adversaries in this conflict. This would allow the Gulf states to adopt policies based on changing circumstances, and pick sides at a later stage when the outcomes of this conflict are clearly visible. Given the importance of the Gulf states as economic, security, and political partners, both Russia and the West may offer “win-win” policies to maintain balance with regional powers. Meanwhile, with the great powers distracted, the Gulf states could use this opportunity to diversify their international engagement, creating links with countries in the post-Soviet Commonwealth of Independent States, Asia, or Africa, which are not directly involved in the Ukraine crisis.
Failed Nuclear Diplomacy Could Lead to Violence
Dr. Massaab Al-Aloosy
Non-Resident Fellow, Gulf International Forum; Iraqi Academic and Researcher
The most important topic that will have tremendous impact on other issues in the region, at least in the short term, is Iran’s nuclear program. The deadlock that ensued after the Biden administration took office, Iran’s sale of UAVs to Russia, and the ongoing domestic demonstrations make any consensus regarding the defunct JCPOA unlikely. Meanwhile, Israel’s most recent elections resulted in a far-right government headed by Benjamin Netanyahu, who has threatened on more than one occasion to respond the Iranian threat with a military strike. Meanwhile, Iran has insisted that it has its own “red lines” that must be respected, and the United States has made it clear that it sees no prospect for an agreement, reserving the right to resort to force if necessary to prevent a nuclear-armed Islamic Republic.
Any strike on Iran’s nuclear facilities will have incalculable consequences for many countries in the region, and it will certainly intensify the ongoing zero-sum game in a decades-long rivalry. The best conclusion of this crisis is through diplomacy, though tensions in the Gulf remain at an all-time high. Therefore, indirect negotiations, specifically through neutral mediators, remain the key to regional de-escalation.
Crucially, however, the negotiation process should be pursued in concert with increased pressure on Tehran to accept mediation. This pressure may take many forms and serve different ends. For instance, ensuring a lasting freeze on the IRGC’s economic activity is tremendously important, as is the implicit threat of military action from Israel. At this stage, it is impossible to ascertain whether the events of 2023 will swing the balance toward conflict or diplomacy, but the persistence of the status quo does not serve the interests of any player in the region.
Reform Will Remain a Critical Issue
Dr. Ibrahim Alhouti
Non-Resident Fellow, Gulf International Forum; Assistant Professor, College of Education at Kuwait University
It is abundantly clear in 2023 that the Gulf region’s historical reliance on oil as the sole national source of revenue is no longer sustainable. Although oil revenues have provided the Gulf states with great wealth, they have had a corrosive effect on the economic, governance, and social models of the region. Governments in the region have worked very hard to diversify their economies, but have largely failed to meet previously scheduled development goals. Building a sustainable economy requires human capital that is competitive, productive, and passionate; this can only be achieved by building a strong and diverse education system that helps the new generation develop the skills and knowledge to participate in this vast transformation.
Although it has been more than two decades since education reforms were launched in the Gulf, the region’s current education system has failed to do its part. Future reforms must place a greater emphasis on classrooms, the teaching approach, and pedagogy. In particular, Gulf policymakers must focus more on improving teacher quality and the school environment. Building a safe learning environment is not easy, and borrowing others’ policies is not enough; Gulf governments must think carefully about how to make schools more attractive and make the students more motivated to learn. What students learn at school—and how they learn—should be the top priority if building a new economy is the ultimate goal. Reforming higher education needs to be integrated into all reforms, and higher education must take the lead in this sensitive period, giving students useful knowledge rather than simple completion certificates. At the same time, vocational training needs more attention, not only financially but socially, too. Investing in the Gulf’s new generation is the only way out from its development crisis and represents the only path to sustainable development.
Great Power Competition and Regional Rivalry Will Continue
Non-Resident Fellow, Gulf International Forum; Research Assistant, Gulf Studies Center of Qatar University and
There are several potential challenges that are likely to have an impact on the Gulf region’s security, stability and economic prosperity in 2023 and beyond. The first of these challenges is related to growing great power competition in the region. Last year, both China and the United States held critical summits with the GCC states. During the summit that was attended by Chinese President Xi Jinping, China and the GCC states committed to a “Strategic Dialogue Five-Year Action Plan” on crucial areas with the aim of revolutionizing China-GCC relations, placing an emphasis on security and energy ties.
President Joe Biden also held a summit with the GCC leaders, seeking to reassure them of a continued U.S. presence in the region. The strategic implications of Biden and Xi’s visits to the Gulf region are significant, especially in terms of what actions observers can expect in 2023. It is likely that a multipolar balance of power will dominate the Gulf region, which will only exacerbate great power competition.
Secondly, the GCC states are likely to face a challenge from Iran, which is under immense domestic pressure from the ongoing protest movement there. The general understanding has been that the unrest in Iran is useful for the GCC states, as Tehran will have to spend more of its resources on domestic stability, foregoing investments in expanding its influence abroad. However, it is important to note that the opposite might also happen; in response to the protests, Iran could adopt a more aggressive, adventurous, and risky foreign policy to distract its own population from domestic problems. In this case, the GCC states, especially Saudi Arabia, might face a greater threat to their security. The evolving situations in Syria and Yemen, two areas where Iranian influence is deeply ingrained, will be crucial for the Gulf states this year.
Thirdly, in the domestic realm, the main challenge for the Gulf states has been a transfer of power from one generation to the next. This transfer has by now mostly been overcome, with a new generation of leaders assuming power in all GCC states except Kuwait. 2023 might also witness growing competition between Saudi Arabia and the UAE on some economic issues. Although the 2022 World Cup hosted by Qatar temporarily eased the tensions between Gulf leaders, it is unrealistic to expect them to take a step back from their goals.
Finally, there are extra-regional trends that will almost certainly impact the security of the Gulf states. The conflict in Ukraine seems far from a peaceful resolution. The GCC states might continue to face challenges in terms of navigating the direct and indirect effects of this war. The upcoming elections in Turkey are also of vital importance, as Ankara is a significant player in the region and a major partner to several of the Gulf states. The outcome of the elections is likely to have an impact on Turkish-Gulf relations in the long term.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of Gulf International Forum.