Published by the Malcolm H. Kerr Carnegie Middle East Center, Political Economy Program · 28 May 2024
Over the past two decades the Gulf Cooperation Council states have redirected their energy exports toward Asia — India and China above all. This paper argues that the reorientation is not merely commercial. It is one visible expression of a broader repositioning, in which the Gulf states are widening their diplomatic and financial alliances well beyond the Western partners who defined the region’s external relations for half a century.
The monetary question
The paper devotes particular attention to a question that follows directly from this shift: whether the region’s exchange-rate arrangements still fit its trade patterns. Five of the six GCC states remain officially pegged to the U.S. dollar; Kuwait re-established a managed float in 2007 and is the exception.
The peg buys stability and visibility for foreign investors. It also constrains monetary policy and narrows the room to respond to domestic and external conditions. Saudi Arabia’s ambition to become a manufacturing hub sharpens the tension, particularly through periods of dollar appreciation. The paper suggests that more adaptable arrangements — a crawling peg, or a managed float — may come to suit the Gulf better in an increasingly multipolar world.
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