2017 Preview: Oman threatened as risks multiply

2017 Preview: Oman threatened as risks multiply
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Since the Arab Spring and subsequent regional unrest, Oman has been increasingly touted as an island of stability. Despite being next door to the civil war in Yemen, Oman has sought to remain neutral, in line with its larger efforts to balance between neighbour Saudi Arabia and long-term partner Iran. While Oman has so far managed to weather the storm of violence and instability gripping much of the Middle East, 2017 will present a range of challenges that threaten to undermine the country.

Security situation increasingly complex

2017 began with a major move from Oman, with Muscat agreeing to join the Saudi-led coalition against terrorism. This is a major departure from Oman’s largely non-interventionist stance, as well as an interesting shift in regional power dynamics. Given Oman’s longstanding relationship with Iran, the fact that it is joining a Saudi-led effort is key, and a development to watch closely. It remains to be seen if this an indication of a more long-term geopolitical realignment, or rather a marriage of convenience given the instability on Oman’s doorstep.

Given Oman’s security concerns it is understandable that the government is taking a more proactive role in 2017. Oman has been largely spared the kind of refugee influx seen by the likes of Jordan and Turkey, in part because the government has heavily reinforced border control. Moreover, Oman has been acting as supply line for the Hadi government, sending aid, necessities and consumer goods over the border to bolster Yemeni efforts, as opposed to accepting refugees.

Oman also benefits from the fact that most of the fighting in Yemen is taking place in the west, with Oman bordering more stable Hadi controlled areas. Consequently, Yemen is supporting Yemeni efforts in Al-Marah province, thus creating a buffer zone within Yemen.

Given Yemen’s war economy, border regions in Oman are benefiting from increased trade and smuggling, with the Al-Mazyouna economic free trade zone playing a vital role. Omani ports have become the Hadi government’s main access to the wider world, as the border with Saudi Arabia remains closed, and Yemeni ports continue to be threatened.

The main problem for Yemen is one of demographics – the country’s 4.4 million residents, are significantly outnumbered by Yemen’s 25.4 million. Oman’s small population means that should the country witness, even a moderate refugee influx, existing services and infrastructure will be quickly overwhelmed, especially since many parts of western Oman remain underdeveloped. Moreover, Oman’s now explicit support of the Saudi coalition puts it on the list of potential targets. While largely insulated from any Houthi threat, Oman will now be in the cross-hairs of Ansar al-Sharia and Al-Qaeda in the Arabian Peninsula (AQAP).

These groups control territory closer to Oman, and thus represent a greater threat to the country. Moreover, the nature of groups like AQAP allows them to utilize sparsely populated eastern Yemen to launch raids into western Oman, drawing on potential support from local tribal groups, a scenario that seriously worries Muscat. Moreover, AQAP and company could incite Omanis or members of the large migrant worker population to carry out lone-wolf attacks.

Economic slowdown undermines security spending

All this comes at a time in which Oman is facing financial difficulties. Oman’s military is smaller than Houthi rebel forces, yet given the nature of Oman’s border security and location in the east, this number is sufficient. So far Yemen has not suffered any retribution from the Houthis for aiding the Hadi government, but making an open stand against AQAP et al will require increasing border security. The problem is that as well as the costs incurred by joining the coalition, Oman’s expenses will only continue to rise. This is a significant problem as military spending already accounts for 11.5% of GDP.

Green: Houthi, Red: Hadi, White: Ansar-al Sharia & AQAP

Green: Houthi controlled, Red: Hadi controlled, White: Ansar-al Sharia & AQAP controlled

Oman faces increasing security costs just as the government announces an austerity budget. The 2017 budget of $6.93 billion is $10 million less than the 2016 budget, and while this may not seem a large decrease, the key thing to consider to how the funds are being allocated. The reason the budget is not lower is that the government decided not to touch construction budget, allowing existing projects to be completed. The problem is that this effectively dries up funding for any new projects, promising stagnation in the future.

Furthermore, Oman is still suffering from the downturn in oil prices. While prices have risen since their lows in 2015, Oman’s oil reliant economy is still threatened. Oman watchers believe that $70 a barrel oil will significantly improve business sentiment, yet while this target price could be reached in 2017, it still puts the government at the mercy of the markets.

Omani exports dominated by oil

Omani exports dominated by oil

One might point to the recent agreement among OPEC and non-OPEC members to cut production as a ray of hope for Oman. While this will help increase prices, Oman has also agreed to cut production by between five and ten percent, thus further reducing government revenue in the short term. As a smaller producer, Oman’s cut in production has been compensated by Libya’s increase to 683,000 bpd, from its current 600,000 bpd production levels.

Moreover, as oil prices rise. other larger producers. such as Canada will increase production in response to domestic pressure and increased investment as the profitability of tar sand oil increases. This will further threaten Oman’s market share, which is already held hostage to OPEC’s whims.

As a non-OPEC member, Oman is at the mercy of that organization, which may decide to increase production at some point. Surrounded by OPEC members, Oman will lose out in such a scenario. Lastly, Donald Trump has been a major proponent of ‘Made in America’ energy, is unlikely to abide by international production cuts. A further increase in American production will dilute efforts by OPEC to raise prices.

Oman faces growing succession crisis

The final ingredient in Oman’s 2017 troubles is the question of political stability and succession. Sultan Qaboos has ruled the country since 1970, and at 76 is increasingly frail health – indeed he allegedly underwent cancer treatment in Germany in 2015. While a popular ruler, Qaboos has no children or heir, leading to worries over a succession crisis. If Qaboos dies without naming an heir, primogeniture laws would see one of his late uncle’s children ascend the throne. Another possibility is for an heir to be disclosed following the opening of a sealed envelope after the sultan’s death. The sultan may choose this method in order to prevent any conflict while he is alive, yet either way the uncertainty surrounding Qaboos’ succession is growing.

The last thing Oman while fighting a war during an economic crisis is for its popular ruler to die, thus ushering in a new ruler who would not only inherit the country’s problems, but also likely not enjoy the level of public admiration and reverence that Qaboos currently receives. Oman’s large youth population will be a key determining factor in any succession crisis, yet in a post-Arab Spring Middle East, hostility to established powers remains a key element among the region’s youth.

An earlier version of this article incorrectly stated that Oman had joined the Saudi-led anti-Houthi coalition. Oman has in actuality joined the Saudi-led anti-terrorism coalition.

About Author

Jeremy Luedi

Jeremy is the Web Editor and frequent contributor at Global Risk Insights (GRI), and has worked for NGOs and political parties in Canada. Jeremy's writing has been featured in Business Insider, Huffington Post, Nasdaq.com, The Japan Times, MSN Money, and Yahoo Finance. His work also has been quoted and recommended by Time Magazine, Politico, Transparency International, and Greenpeace, among others.