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Strategy

Sultan Haitham’s Leadership in Oman: Tough Challenges Ahead

Introduction

As the news of the beloved Sultan Qaboos’s passing reverberated through Oman in January 2020, for the first time in five decades the question of Oman’s leadership caused feelings of uncertainty and fear for the Sultanate’s future. The inauguration of his successor, Sultan Haitham bin Tariq, was marked by the dawn of the COVID-19 pandemic which closed off the sultanate soon after, leading to the worst recession in the country’s history. Haitham now faces growing pressure from the Omani public to fill the shoes of Sultan Qaboos and – given the current circumstances – this is no easy feat. His government faces multiple internal and external challenges, and by analysing the way Haitham addresses them, we can gain important insight into his leadership character. The ruthless economic crisis poses a threat to the neutral status of Oman in regional diplomacy and is forcing the Sultanate to impose an unprecedented income tax on its citizens.[PK3] [1] This tax will likely lead to the re-emergence of sentiments for long-demanded democratic reforms which Qaboos managed to avert.  Gaining an understanding of the challenges facing Haitham’s leadership is invaluable for predicting the future stability of the region; Oman’s key role in the currents [PK4] of Gulf politics is often underrated.

An economic debacle

The adverse financial situation created by the pandemic has posed a gruelling initiation for Sultan Haitham. While his government has been fairly successful in responding to the health crisis caused by the virus, it is the economic impact of COVID-19 that may represent a far greater challenge for the state, given that almost half of Oman’s exports go to China.[PK5] [2] As with other petro-states in the Gulf, the impacts of the worldwide lockdown and plummeting oil prices, compounded by an oil price war with Russia, have contributed to devastating the Sultanate’s finances. The International Monetary Fund has forecasted Oman’s economy shrinking by 10% in 2020 – the largest contraction among all GCC states – while the budget deficit may widen to 19% of GDP up from 9.4% in 2019.[3] In comparison to Kuwait, Qatar, Saudi Arabia or the UAE, Oman has a large population and does not have the vast hydrocarbon reserves that the other states benefit from.[4] Additionally, Oman’s neighbours are better equipped to accommodate large budget deficits because of their significant public foreign assets.

Assessing Oman’s activities on the international bond market offers a concerning prognosis which does not bode well for future substantial debt issues. The $2 billion offerings in bonds at the end of October were seen as lacklustre, considering the original ambition was to sell $3-4 billion of shorter maturity bonds which would allow the state to cover a $2 billion bridge loan from the US that it recently secured.[5] These ambitions for shorter-term bonds, which are net cheaper, were quickly extinguished when S&P Global Ratings lowered the Sultanate’s long-term foreign currency debt rating to B+, which is four rungs below investment grade.[6] With a looming $3.6 billion repayment due to China in 2022, Oman is looking for any means possible to escape its financial hole.[7] While Haitham, the former Minister of Culture, played little part in the causes of the economic crisis, the untimely transition of power means his response and leadership will be observed and judged carefully by the whole nation; he must tread lightly to avoid the public’s expected discontent to be redirected at him.

The question of neutrality

For decades, Oman has cultivated an international reputation as a neutral state which steers clear of regional conflicts. It is known for promoting dialogue and cooperation, as evidenced by its refusal to join the Saudi-led military intervention in Yemen which has since taken over 100,000 lives.[8] Furthermore, the Sultanate offers a forum for back-channel negotiations with Yemeni Houthi Rebels and Iran, which Oman maintains relations with despite hostility towards Tehran from other GCC states.[9] The burning question is whether Haitham will be able to uphold Oman’s neutral diplomatic reputation in the current economic circumstances. The government is being cornered into bailouts, with the latest $1 billion offered by Qatar at the end of October.[10] This financial aid is likely to come at a price concerning the country’s independence in handling regional affairs. Due to newly-established loyalties towards Qatar for example, in the coming months, we might observe the distancing of relations between Oman and states such as the UAE and Saudi Arabia. This refers back to the 2017-19 Qatar diplomatic crisis, which culminated in Egypt, Bahrain, the UAE, and Saudi Arabia severing ties with Qatar following accusations of supporting terrorism.[11][PK6] [GS7]  However, Oman’s regional neutrality may be preserved if we witness China reinforcing its role as a major creditor to the Sultanate. The Oman-China Joint Committee held talks in November promoting economic investment and cooperation, which may indicate a shift of Haitham’s attention towards the East.[12]

Oman’s neutral status is arguably its most valuable asset because it safeguards the state from being dwarfed by the ambitions of surrounding powers while providing an essential open-channel for regional communication. The pressing concern is whether Haitham has the charisma necessary to defend this asset and stand up to the assertive foreign policies of regional powers. The transition of Oman’s leadership could be seen as a moment of weakness, or an opportunity for Oman’s neighbours to advance their own expansionist agendas. A key player to watch out for in the coming months is Iran, as heightened tensions between Tehran and Washington could see Oman brought into the centre of a situation that almost triggered a war at the beginning of 2020. If Biden commits to his pledge of re-entering the nuclear deal, we may witness Oman taking on the role of mediator in a potential dialogue. Conversely, the regional situation could deteriorate for the Sultanate if the Trump administration introduces new sanctions on Iran in a final throw of the dice before President Trump departs from the White House.[13] We must also consider that Trump’s withdrawal from the nuclear deal has strictly discredited the notion of cooperating with the US, let alone the possibility of a broader thaw.[14] Nevertheless, Biden’s victory benefits Oman with regard to the war in Yemen, which is seen as a top concern to the Sultanate’s national security. Biden has pledged to end US support for the Saudi-led military intervention in Yemen[PK8] [PK9] , which will pressure Saudi Arabia towards negotiations with Houthis.[15] The Biden administration will likely rely on Oman for its diplomatic assets in mediating dialogue between the key regional players in Yemen’s conflict.

Arab Spring 2.0?

Another imminent challenge is awaiting Sultan Haitham down the line. Oman, along with other GCC countries, has so far avoided the need to tax citizens due to its massive oil revenues. The wide-ranging benefits provided by the state, including tax-free income, has been one of the primary reasons for the social stability the country has enjoyed since the 1970s. However, the 2011 Arab Spring protests in Oman have demonstrated that there are cracks in this stability. Although the uprisings settled after just four days before momentarily reigniting a month later, they ultimately revealed the ongoing divisions within Oman’s society that still need to be addressed. The government was arguably effective in addressing the immediate demands of lower living costs, reduction in corruption, creation of more jobs, and salary increases. Most notably, Sultan Qaboos dismissed a third of his cabinet, pledged to create 50,000 jobs, and founded the well-received Public Authority for Consumer Protection.[16] However, many Omanis believe the Sultan fell short in offering significant political reforms and the afore-mentioned social stability is perhaps under greater strain than at any point since 2011.[17] Oman can no-longer offer the same prosperous lifestyle it once could to its citizens; statistics are showing an increasing rate of unemployment and a significant decline in household incomes.[18] Following his inauguration, Haitham has been observed to focus on financial issues rather than democratic reform, and his decision to put his family into government roles is bringing back negative sentiments across the country.[19] While Qaboos benefited from his good reputation and financial capacity to buy social peace and prosperity, the current circumstances facing the new Sultan are not as forgiving.

Within his first year of rule, Haitham is facing financial pressure to introduce the first income tax policy across the Gulf, a move which marks a new era for petro-states and will likely face a multitude of social and economic consequences. Other GCC economies have steered clear of imposing taxes because the tax-free status attracts labour, investment, and companies.[20] Additionally, due to restrictions on freedom of speech, Gulf states are fearing a backlash from citizens who have no control in how their tax money is spent. All petro-states will have to impose a form of income tax eventually because their current financial model, which is heavily reliant on oil, is proving unsustainable for the future. Pro-reform activists in Oman have already said that the implementation of new taxes should translate into the right for taxpayers to challenge public policies and express critical views.[21] Time will tell how Haitham will choose to address the social consequences of the income tax; he may, rightfully, acknowledge the right of freedom of expression for Omanis and bravely pursue democratic reforms. Equally, he may choose to follow the example of Sultan Qaboos by delaying any pledges for reform and cracking down on vocal activists.[22] Ironically, Oman could become the root of regional instability in the future because of this emerging dilemma. The case of former Shura Council member Salem al-Awfi offers a pessimistic forecast: Human Rights Watch reported he was sentenced to one year in prison in June 2020 following tweets that “criticised corruption and called for justice”.[23] 

Conclusion

Although these are difficult waters for Sultan Haitham, the way he navigates them could pave the way for significant economic and social reforms that can set the example for neighbouring states. With its introduction of the income tax, Oman is test-running a new model with the GCC cautiously taking notes. The stakes are high for Haitham, and undoubtedly there is a mounting responsibility for him to succeed. Questions remain about whether Oman will hold onto its non-aligned diplomatic reputation and role as peacemaker, which is an invaluable asset to both the Sultanate and the entire region. Will his economic measures be sufficient to steer clear of the storm, or will the cherished stability of the state deteriorate?

[1] Turki Al Balushi, Abeer Abu Omar, and Zainab Fattah, 2020. “Cash-strapped Oman plans income tax on wealthy starting 2022”. Al-Jazeera. https://www.aljazeera.com/economy/2020/11/2/bb-cash-strapped-oman-plans-income-tax-on-wealthy-starting-2022

[2] “Oman (OMN) Exports, Imports, and Trade Partners”. 2018. The Observatory of Economic Complexity. https://oec.world/en/profile/country/omn

[3] Al Balushi et al., “Cash-strapped Oman plans income tax”.

[4] Francis Mowtram and Malak Hayek, 2020. “Oman in the COVID-19 Pandemic: People, Policy and Economic Impact”. LSE Blogs. https://blogs.lse.ac.uk/mec/2020/07/23/oman-in-the-covid-19-pandemic-people-policy-and-economic-impact/

[5] Simon Watkins, 2020. “Oman Faces Tough Choices as Budget Deficit Deepens”. Oilprice.com. https://oilprice.com/Energy/Energy-General/Oman-Faces-Tough-Choices-As-Budget-Deficit-Deepens.html

[6] Ibid.

[7] Jon Gambrell, 2020. “Oman’s new sultan quietly makes his mark as challenges loom”. The Washington Post. https://www.washingtonpost.com/world/middle_east/omans-new-sultan-quietly-makes-his-mark-as-challenges-loom/2020/09/29/36859c86-0219-11eb-b92e-029676f9ebec_story.html

[8] “Saudi, Yemen’s Houthis hold ‘indirect talks’ in Oman to end war”. 2020. Al-Jazeera. https://www.aljazeera.com/news/2019/11/13/saudi-yemens-houthis-hold-indirect-talks-in-oman-to-end-war

[9] https://www.ft.com/content/8ba9e58f-3c66-45f3-8417-0cb39f3a9083

[10] Ibid.

[11] “Qatar crisis: Saudi-led allies stand firm”. 2017. BBC News. https://www.bbc.com/news/world-middle-east-40769235

[12] Oman, China Joint Committee Explores Economic, Investment Cooperation https://omannews.gov.om/NewsDescription/ArtMID/392/ArticleID/23805/Oman-China-Joint-Committee-Explores-Economic-Investment-Cooperation

[13] Ishaan Tharoor, 2020. “Trump’s Iran agenda is about to end in failure”. The Washington Post. https://www.washingtonpost.com/world/2020/11/17/trump-iran-pressure-biden-nuclear/

[14] Ibid.

[15] Giorgio Cafiero, 2020. “Biden as President: Winners and Losers in the Gulf”. The New Arab. https://english.alaraby.co.uk/english/indepth/2020/11/12/biden-as-president-winners-and-losers-in-the-gcc

[16] James Worrall, 2012. “Oman: The “Forgotten” Corner of the Arab Spring”. Middle East Policy, 19(3), pp.98–115.

[17] Ibid.

[18] “Oman in the COVID-19 Pandemic: People, Policy and Economic Impact”. LSE Blogs.

[19] Marc J. Sievers, 2020. “The sultan of Oman’s new cabinet combines continuity and change”. Atlantic Council. https://www.atlanticcouncil.org/blogs/menasource/the-sultan-of-omans-new-cabinet-combines-continuity-and-change/

[20] Pedro Gonçalves, 2020. “Oman to introduce income-tax on wealthy individuals”. International Investment. https://www.internationalinvestment.net/news/4022586/oman-introduce-income-tax-wealthy-individuals

[21] Sebastian Castelier, 2020. “Oman’s reform plans worry activists”. Al-Monitor. https://www.al-monitor.com/pulse/originals/2020/11/oman-reform-free-speech-budget-economy-taxpayers.html

[22] “Oman: The “Forgotten” Corner of the Arab Spring”. Middle East Policy.

[23] “Human Rights Watch Submission to the Universal Periodic Review of Oman”. 2020. Human Rights Watch. https://www.hrw.org/news/2020/07/10/human-rights-watch-submission-universal-periodic-review-oman

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