Neutral Good

Since Sultan Qaboos rose to power in 1970, Oman’s diplomatic policy has been characterized by cautious pragmatism and a commitment to peace. A founding member of the GCC, it has worked to strengthen economic and political ties with its neighbors yet has also taken pains to remain a neutral party to the numerous intrastate diplomatic disputes that flare up from time to time on the peninsula. This policy has allowed the Sultanate to remain close to Iran, at times to the chagrin of its GCC neighbors. As the Omani government looks to strengthen the economy through diversification and the expansion of new export markets, its ties with Asian markets will continue to increase in prominence, with China and India poised to become particularly important.

ARAB PENINSULA

Oman’s longest-running and closest diplomatic relationships are with the neighboring Arab Gulf states on the peninsula. The Sultanate has longstanding cultural and economic ties with the GCC states—all are oil-exporting monarchies with fast-growing economies and shared Arab cultural heritage. Compared to some of its neighbors, Oman has managed to maintain an independent stance that has seen it remain neutral in cases of conflict. At times this has aggravated its more powerful neighbors, all of whom have a vested interest in setting policy in the region. When a Saudi Arabian-led group of Arab states cut off diplomatic and economic relations with Qatar in June 2017, Oman declared that it would remain neutral and worked to resolve the dispute as a mediating party. It’s an illustrative example of Oman’s nonpartisan stance in the region; at the core of the Qatar-Saudi rift was Saudi Arabia’s desire to decrease Iranian influence in the region, but the Omani government has gradually been developing improved relations with Tehran thanks to shared goals on natural gas and trade. As the Saudi-Qatari diplomatic rift has lengthened, Oman has found itself in an increasingly unique position. The Sultanate’s ports have become a key part of the Qatari LNG exports that have given the country the wherewithal to withstand the economic blow of losing access to Saudi and UAE trade. It is also further strengthening ties with Iran; in July 2017, Iranian President Hassan Rouhani met with Oman’s foreign minister and expressed the hope that the relationship between the two countries would continue to grow; with Iran’s economy no longer weighted down by Western-imposed sanctions, Oman sees tremendous economic potential across the Gulf. Yet there are signs that this stance has begun to lead to tangible negative outcomes on the peninsula. Rumors that Oman would leave the GCC quieted down after Oman joined Saudi Arabia’s Islamic Military Alliance to Fight Terrorism in late 2016, but the distance between the two grew even wider in 2017. Saudi officials have arraigned Oman for funneling Iranian arms to Yemen, a charge the Omani government has vehemently denied. At the moment when it most wants the GCC to be united, the Saudi government has made it clear that it sees Muscat’s neutrality as an anti-GCC statement.
Complicating matters is the fact that Oman’s neutrality has made it a key Arab partner for Western governments seeking a foothold in the Middle East. The US and UK have both worked extensively with Oman, drawn to the Sultanate’s safety and willingness to serve as a mediator in regional disputes. Oman is one of the UK’s closest allies in the region, and over the last few years it has played a key role as a backchannel for the US and Iran as they negotiated the terms of the JCPOA, a deal in which Iran agreed to suspend elements of its nuclear program in exchange for the removal of economic sanctions. The first Gulf country to host the US military, the longstanding relationship between the two had led to corresponding economic benefits—Oman signed a free trade deal with the US in 2006 that was backed by its longtime support of US military activities in the region.

LOOKING EAST

While Oman manages a delicate mix of regional interests, it has moved full speed ahead toward Southeast Asia, forming a series of new relationships bursting with tremendous promise. China has been perhaps the most important; the two countries have enjoyed formal diplomatic ties since 1978, but for the majority of that time hydrocarbon exports have been the extent of their economic relationship. China has been Oman’s largest export partner for years, accounting for around half of all total exports thanks to the Sultanate’s hydrocarbons industry. Through the first seven months of 2017, China accounted for 77% of all Omani crude oil exports. Methanol and downstream hydrocarbons products made up most of the rest of Oman’s exports to China, but there are indications that this mix could be shifting soon. The last few years have seen Chinese firms take on an ever-larger role as investors flock to Oman’s diversifying industrial sector. Chinese money is central to the Sultanate’s goal of turning Duqm, a small fishing village, into a vibrant industrial center; a consortium of Chinese investors have agreed to help develop a USD10.7 billion industrial park near Duqm that, once completed, will include light and heavy manufacturing, downstream production facilities, and a mixed-use development that will allow for new tourism and retain opportunities. The first Chinese-funded Duqm facility, a USD138 million distribution center, is expected to be completed in 2019, with an additional nine facilities planned for the next five years.

China and Oman have been drawn to each other in large part because increased Chinese investment in the Sultanate helps both countries achieve their political and economic goals. Oman’s push for economic diversification and its desire to find new sources of funding to alleviate the fiscal pressure on its government are no secret, and in China the Omani government has found a partner actively looking to expand its Middle Eastern holdings. China’s Belt and Road initiative calls for increased economic investment across the Asian continent in order to build new trade routes and establish its position as the region’s economic driver. Oman’s ideal location makes it a natural fit for China’s goals, and the two countries expect their relationship to continue to grow in the near future. New Oman-China airline routes established in 2016 and 2017 have helped increase business between the two countries, helping to lay the foundation for a stronger bond.

Elsewhere in Asia, Oman is using its status as an exporter of crude oil as a stepping stone to stronger economic relationships that bring greater benefits to the Omani population. Taiwan and South Korea are the second- and third-largest importers of Omani crude oil, and the Omani government is actively working to take advantage of these two countries’ well-developed technology sectors to improve logistical capability in Duqm and other planned smart cities. A delegation from the Omani Chamber of Industry visited Taiwan in late 2016 to discuss possible collaborations, and Omani officials have solicited the help of Korean infrastructure leaders to help ensure that Duqm becomes a model urban center. By using its preexisting relationships to build new knowledge transfers, Oman is hoping to speed up economic development and ensure that it becomes the new hub for foreign investment and innovation in the Gulf.