Capital Ethiopia Newspaper

Capitalism and class formation in the Persian Gulf region

As the annals of world history well recorded, the Middle East region is known as the source of the world’s major religions: – Judaism, Christianity and Islam. The region is also blessed with vast oil and gas resources deep in its crust. These vast energy resources enabled the region to have a unique strategic importance in the global political economy as one of the major global energy suppliers and the accumulation of petrodollar. The region’s accumulation of petrodollars has a significant impact in the global economy.
These two major factors made the region, particularly the Persian Gulf countries, the primary focus of the big powers including China both in terms of economic and military.The Persian Gulf region which comprises Saudi Arabia, Kuwait, Arab Emirates, Qatar, Bahrain and Oman is also the prime destination of hundreds of thousands of migrant workers mainly from countries in Asia and the sours of billions of remittance dollars. With the same fashion, an ever increasing number of Ethiopians are immigrating in to these countries in anticipation to fetch their share from the region’s sea of petrodollar.
The Persian Gulf region is at the center of the political economic spectrum of the Middle East. This happened not simply because of their vast reserves of oil. There are a number of factors involved here. First, of course, is the question of oil. The GCC’s supplies of oil and gas are among the highest in the world. The Persian Gulf region holds about 40-45 per cent of global proven oil reserves and 20 per cent of world gas. It currently produces close to 20 per cent of the world’s total oil production. Given the centrality of fossil fuels – both as an energy source and feedstock for the petrochemical industry – this gives the region a vital importance to the patterns of accumulation in the global economy.
A related factor is the huge levels of surplus capital that have accrued in the region as a result of sales of crude oil, gas and petrochemicals. These ‘petrodollars’ have been a key feature in the development of the global financial architecture. The rapid financialization of the global economy has thus been partly premised upon the integration of the Persian Gulf region into the world market and its financial circuits.
What this means is that the way that the world market has developed over the last few decades, with complex production chains stretching from the manufacture of goods in low-wage zones to the sale of commodities in the advanced capitalist countries, depends heavily upon both the Gulf’s commodity production as well as its financial surpluses. In this sense, the nature of class and state formation in the Persian Gulf region has occurred alongside and is very much linked to the broader development of the capitalist world market.
The most striking feature of the last two decades has been the generalization of neoliberal policies across most states of the region. This occurred in close collaboration with the global and regional financial institutions and other bilateral institutions like the USAID. Key among these neoliberal policies were the liberalization of ownership laws, particularly in the real estate, financial and telecommunication sectors; opening up to foreign investment flows; privatization of state-owned industries; restructuring of tax regimes; termination of subsidies on food and energy; and the relaxation of trade barriers.
At the national scale these policies have had a pronounced impact, leading to impoverishment of populations on one hand and the concentration of wealth on the other. There has been a large growth in the ‘informal’ sector in many Arab economies, as well as the movement of hundreds of thousands of people into urban areas as survival became difficult on the land. The tightened relationship of the region with the world market typified by a reliance on export-oriented development, migrant remittances and movements in food and energy prices exposed many countries to the winds of the global economy. All of these factors are critical to appreciating how the region was hit by the 2008 economic crisis, and the possible impact of the ongoing turmoil in the global economy.
But most importantly, these neoliberal measures did not just reconfigure class power at the national scale. They have also been accompanied by the increasing significance and weight of the regional scale. It is not possible to understand the ‘nation-state’ in the Middle East as a self-contained political economy separate from the ways it intertwines with this broader regional scale. There are different aspects to this, but fundamental is the very rapid internationalization of Persian Gulf region based capital, particularly following the rising financial surpluses that began in 1999 and peaked in 2008. Of course the bulk of the Persian Gulf region’s surplus capital continues to be invested outside the region. But, over the last two decades, much of these flows have been directed to other states in the Middle East. Viewed from the regional scale – the Persian Gulf region has been a main beneficiary of the last decade or so of privatization, de-regulation and market opening.
A few quick statistics illustrate this. According to the EU-based ANIMA database that tracks investment in the region,in the 2008-2010 period, the Persian Gulf region taken as a whole was the top-ranked source of FDI for Egypt, Jordan, Lebanon, Libya, Palestine, Tunisia and ranked second in Morocco and Syria. In 2010, Persian Gulf region based capital was responsible for the single largest FDI projects announced in Algeria, Lebanon, Libya and Tunisia. These are very striking figures. And they do not include portfolio investments in the region’s stock markets or other forms of ‘development loans’ that flow to the rest of the Middle East from the Gulf. It should also be noted that, contrary to common misconceptions, these flows are not necessarily directed by sovereign wealth funds or state-owned Persian Gulf region companies. A large proportion of these flows come from privately owned Persian Gulf region capital aimed at real estate projects, financial institutions, shopping malls, telecommunications and other investments.
The processes were accentuated by the widening regional differentiation that arose in the wake of the 2008 economic crisis. In the Persian Gulf region itself, although there were a few high profile financial casualties due to the heavy indebtedness of some large conglomerates, the crisis had the principal effect of strengthening the position of the Gulf’s dominant classes. The nature of class formation in the Persian Gulf region permitted the displacement of crisis onto migrant workers and, coupled with state support to the largest Gulf financial and industrial entities, meant that Gulf elites were largely shielded from the worst impacts of the economic downturn.
The differentiated experience of the crisis across the region indicates not only the relative strengthening of the largest Persian Gulf region conglomerates and ruling families within the Gulf itself, but also the widening gap between Persian Gulf region and other Middle East states. This indicates that neoliberalism, when viewed from the regional scale, has both enriched individual national capitalist classes and, simultaneously, consolidated the position of the Persian Gulf region within the region as a whole.
The importance of the Persian Gulf region to the world market has been strengthened with the deepening internationalization and financialization of capital at the global level. One indication of this is the eastward shift of Gulf oil, gas and petrochemical exports, which has played an important role in underpinning the rise of Chinese production. From 2000-2006, world energy consumption increased by close to 20 per cent, with China alone responsible for 45 per cent of the increase in the world’s global energy use during this period. By 2007, nearly 50 per cent of China’s crude oil imports came from the Middle East. Today, half of Saudi Arabia’s oil output goes to China, exceeding that of Saudi exports to the U.S., and by 2025, Chinese imports of Gulf oil are expected to be three times more than U.S. imports from the region. Alongside these hydrocarbon exports is the ongoing flow of Persian Gulf region financial surpluses into the markets of the advanced capitalist countries.
In the context of a relative decline in U.S. power, and the emergence of an increasingly multi-polar world, this has meant that thePersian Gulf region and, by extension, the Middle East as a whole is a key zone in how competitive rivalries between the leading capitalist states will play out. This is the reason for the central emphasis that long-term U.S. strategy places upon the tight military and political relationship with the Persian Gulf region states.
But the rivalries of competing states in the capitalist world market also need to be seen alongside their shared interests. Class formation in the Persian Gulf region is deeply interpenetrated with the development of capitalism as a whole, and the greatest fear of any of the leading states in the world market – and this includes China and Russia – is a significant challenge to that class structure. It is, in other words, a shared concern of all leading capitalist states to ensure that the Persian Gulf region remains fully aligned with the interest of world capitalism. The policies of leading foreign powers in the Middle East thus have a dual character – on one hand, attempting to extend their individual competitive interests while, on the other, working cooperatively to prevent any popular challenge that would see the region’s wealth used to benefit the broad masses of people rather than a tiny parasitic social layer. This is the deeper meaning of the uprisings that have unfolded over this year.
With the partial exception of Bahrain, the Persian Gulf States are generally known for a very low level of political discontent, leaving their authoritarian regimes with a firm grip on power, despite very deep material inequalities. What accounts for this? Insha Allah, we will discuss this next week.