GCC Should Insure Against Next Strait of Hormuz Crisis

Here is a rewritten version of the article in a neutral newsroom style:

GCC States Face Economic Contraction Amid US-Israel War on Iran

The crisis caused by the US-Israel war on Iran has had varying effects on the member states of the Gulf Cooperation Council (GCC). Oman’s ports and terminals continue to operate as usual, while Saudi Arabia and the United Arab Emirates have rerouted some oil exports through terminals in Yanbu and Fujairah, respectively, to bypass the Strait of Hormuz. In contrast, Kuwait, Bahrain, and Qatar are facing significant economic challenges due to their reliance on global trade.

The GCC states need to demonstrate unity and collective action to address the crisis. Establishing mechanisms that can mitigate the consequences of future threats is crucial for the survival of GCC unity and its influence on the global scene. Even if an agreement is reached between the warring sides, the GCC will continue to suffer from the nearly three-month closure.

States risk losing clients due to non-compliance or perceived risks in supplying oil. A joint effort is necessary to prevent a free fall. So far, individual approaches have dominated collective action. The UAE’s exit from OPEC was driven by an opportunity to gain greater market share. If this trend continues, it could lead to grave economic consequences for the GCC and threaten its existence.

The GCC has shown some demonstrations of solidarity in rhetoric, but practical steps are needed to address the crisis. One potential solution is the introduction of swap arrangements. Three relevant mechanisms can be considered: physical, contractual, and quality swaps. These deals allow parties to deliver equivalent commodities or exchange grades to align feedstock needs and optimize transport costs.

Swap deals require transparent title, valuation, and reconciliation, making them reliable when established before a crisis. They can also be assembled during a crisis if parties have pre-existing experience, trusted customer bases, or alternative infrastructure. The GCC member states are familiar with swap deals, having used them in the past, such as in 2013 when Egypt faced economic challenges.

The GCC needs to take practical steps to address the present crisis and ensure stability in the face of future risks.

Source: Al Jazeera