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Oman: Diplomacy and economics in the Arabian Gulf

The art of diplomacy was mission critical to regime survival from the moment Sultan Qaboos bin Said attained power in a palace coup in July 1970. Oman in 1970 was the quintessential Arab hermit kingdom, impoverished, afflicted with an insurrection in Dhofar armed by the powerful Marxist Leninist government of South Yemen and political unrest in Muscat supported by Baathist Iraq.

Oman’s foreign policy was designed to end the civil war, boost the legitimacy of the Sultanate and the Al Bu Said dynasty in the constellation of Arab politics, establish a modus vivendi with Saudi Arabia and Pahlavi Iran as the twin dominant powers of the Gulf and attract foreign aid in massive development programmes designed to improve the population’s medieval standard of living.

Pragmatic, independent, with a penchant for bold initiatives and calculated risk taking, Oman’s foreign policy has been extraordinarily successful in attaining the Sultanate’s strategic economic, military and security objectives. Sultan Qaboos had no choice but to invite Britain, the Shah of Iran and the Jordanians to send combat troops to assist the Omani armed forces in defeating the Dhofar rebels. The war in Dhofar was the first proxy war in the Arabian Peninsula between the West and the Soviet Union as South Yemen, the only Marxist regime in the Arab world, was a client of the Kremlin. Oman also secured financial assistance from Saudi Arabia, Abu Dhabi and Kuwait, who viewed the poverty and ideological zeal of the Dhofari secessionists as a threat to the political status quo in the Gulf, a template of common regional destiny that was to culminate in the establishment of the GCC a decade later. King Faisal of Saudi Arabia also settled the Buraimi Oasis dispute with Abu Dhabi and Oman, enabling formal international border treaties to be concluded between the kingdom, the UAE and Oman in 1974.

Oman’s long coastline, diverse population, historic maritime links with Zanzibar, India and Baluchistan, geo-strategic location on the southern tip of the Straits of Hormuz, moderate Ibadi Islamic values, oil and gas economic interests and military treaties with Britain and the United States have shaped the Sultanate’s international relations since 1970. Omani-British relations go back to 1798, when the Al Bu Said sultan in Muscat signed a treaty with the East India Company, the emerging dominant power in the subcontinent. The RAF airbase in Masira Island was constructed as early as 1933 and Britain’s fabled SAS played a pivotal role in the battles against the Dhofari secessionists at Jebel Akhdar. After Britain’s Labour government under Harold Wilson withdrew its military commitments to protect its Arab monarchic allies East of Suez, Oman correctly bet on the United States as the new security godfather of the Gulf, particularly after the Shah of Iran was overthrown in the revolutionary maelstrom of 1979. This was the reason Oman defied the Arab consensus by not breaking relations with Anwar Sadat’s Egypt after his trip to Jerusalem and the Camp David peace accords with Israel, signed a Facilities Access Agreement with Washington, promoted British general staff officers as commanders of the Royal Oman Navy and Air Force and maintained ambassadors in both Teheran and Baghdad even after Saddam invaded Iran in September 1980.

The Iranian revolution changed the security landscape of the Gulf and the Straits of Hormuz, the chokepoint for two thirds of the world’s oil tanker traffic. Yet Oman was careful not to break diplomatic relations with Khomeini’s Iran even after the overthrow of the Pahlavi regime. In fact, Muscat hosted secret ceasefire talks between emissaries of Saddam Hussein and Ayatollah Khomeini after the battle of Khorramshar as well as tried to mediate a rapprochement between Iran, Britain and Saudi Arabia. While Oman was a founding member of the GCC, the Sultanate has maintained its military and security ties with Britain and the United States. Sultan Qaboos was also among the first Arab leaders to advocate direct talks between Israel and the Palestinians at a time when the Arab world was trapped in the “rejectionist” rhetoric of the Baghdad Summit a decade before Oslo/Madrid.

Few countries in the Arab world can boast as consistent track record of human, social and economic development as the sultanate of Oman. Dhofar, with its mist shrouded hills and Indian Ocean monsoon climate, is one of the Gulf’s most popular tourist destinations, an ancient land once visited by Ibn Battuta where some Jabbali (mountain) tribes even speak not Arabic but dialects of the ancient Yemeni–Semitic languages spoken by the Queen of Sheba, whose trip to the Jerusalem of King Solomon millennia ago was to conclude a frankincense deal.

Royal Dutch Shell managed PDO, Oman’s state oil producer, produces 700,000 barrels daily but the Sultanate oil production has peaked and will decline in the next two decades. The government of Oman knows that diversification is not a luxury but an economic lifeline once the Oil Age ends sometime around 2025. Tourism is natural in Oman, with its spectacular scenery, fabulous beaches, historic hillside ports and complex ethnic heritage. No less than $15 billion in tourism real estate projects reflect the government’s transformational agenda, particularly since tourism creates jobs for young Omanis. Even as Omani crude oil production has declined by 200,000 barrels per day in the past decade, gas production has soared threefold, making LNG exports crucial to the Sultanate’s future. Few governments in the Arab world are as obsessively focused on education and health care spending as Oman. The Sultanate’s fiscal surplus increased despite windfall oil and gas prices since 2003. In contrast to stock market crashes elsewhere in the Gulf, the Muscat Securities Market Index has almost doubled in the past four years, making Oman the best performing GCC stock market in 2006 and 2007. The spectacular success of the Galfar IPO, this month, of course, only reinforces my deep affection and respect for Oman. This country is a class act...

Matein Khalid is a Dubai-based investment banker and economic analyst