Falling oil prices won’t curb GCC military spending

Friday 12/06/2015
Deputy Crown Prince Mohammed bin Salman (C) visits the International Defence Exhibition and Conference (IDEX) in Abu Dhabi in February

Despite falling oil prices, Saudi Arabia, Qatar and the United Arab Emirates are set to continue their massive military spend­ing, with Saudi Arabia projected to become the fifth biggest arms buyer by 2020 with an estimated annual defence budget of $60 billion, ac­cording to a report by IHS Inc.
“Despite Saudi Arabia’s heavy exposure to oil price fluctuations, there have been very few signs of any severe reactionary adjustments to government spending trends,” said Craig Caffrey, principal defence budget analyst at IHS Jane’s Aero­space, Defence & Security. “The kingdom has only cut defence and security expenditure once over the last 15 years.”
The report highlighted that Saudi Arabia’s defence budget has been expanding at approximately 14% a year over the last decade and ac­celerated to a rate of 19% a year since 2011. While in the UAE, mod­erate defence budget growth is ex­pected over the short term before accelerating from 2017 as the pro­cess of fiscal consolidation eases. However, the $5 billion in contracts announced at the International De­fence Exhibition (IDEX) in February 2015 suggests that significant mili­tary funding is still available. Re­garding Qatar, the report revealed that, although traditionally the mil­itary has not been a priority for the government, the announcement of $23 billion worth of potential de­fence procurement projects in 2014 marked an unprecedented increase in military investment.
Analysts see regional security as the catalyst for the increase in mili­tary spending. Saudi Arabia is lead­ing a military coalition against the Iran-allied Houthi rebels in Yemen. However, according to Bloomb­erg News, the drop in oil prices is starting to hurt the biggest Arab economy at a time when the king­dom is undergoing sweeping politi­cal changes at home and waging a regional war. The government is moving ahead with spending plans that will widen the budget deficit to 20% of economic output, according to the International Monetary Fund (IMF), fuelling speculation Riyadh will tap debt markets to plug the gap.
However, some other Gulf Coop­eration Council (GCC) members are trimming military spending. Bah­rain, Oman and Kuwait are set to scale back on spending on defence for number of diverse reasons rang­ing from the economic to the geo­political.
“In reality, a lot of gulf coun­tries have huge reserves or, if they haven’t got huge reserves, they have a lot of capital or resources they can borrow against.” Ben Moores, senior analyst at IHS Janes, told The Arab Weekly.
“In Bahrain they are diverting a lot of money away from defence to internal security. They are also more exposed to changing oil price than other GCC states. Bahrain does not need to spend money on defence; it needs to spend money on internal security and to keep its population happy and it doesn’t have the money it uses to have,” Moores added.
According to the security ana­lyst, there are a number of factors involved in Oman’s defence budget cuts, which include the country reeling from the 2011 Sohar riots, a growing population and the declin­ing health of its leadership, which was the driving force behind the country’s military spending.
“If you look at what’s been going on in Majlis al-Shura in the last cou­ple of years, it has been quite inter­esting to see the type of things that they are voting on, like alcohol and expatriate workers’ rights,” Moores said. “Given the opportunity, they are going to vote on things that make the government popular and not defence expenditure.
“Another problem Oman has is that the costs to extract their oil is much higher than its neighbours, so they have been impacted by the drop in oil prices.”
Kuwait’s motivations and cir­cumstances differ from some of its neighbours in that “its defence spending is cyclical,” said Moores. “You get a big spike in spending then no spending for a number of years. If you look at the last time Ku­wait bought serious arms is when it rearmed back in the early ’90s after the first Gulf war. So 30 years later these arms are exhausted, so they are now replacing them.”There is no denying that the spike in mili­tary spending is a by-product of the “Arab spring”, which Moores says is ongoing and is comparable to Eu­rope’s Thirty Years War.
“A number of regional actors are trying to influence the end outcome of the conflict, which, in turn, sucks in other regional actors who also want to affect the final outcome,” Moores said.
“The situation is massively com­plex a number of people are trying to paint it a certain number of ways. The problem is even if there was a decisive conclusion today in one particular theatre of the conflict it’s going to pop up somewhere else,” he added.