Gulf Cooperation Council Summit -- More dollar decline?

December 13, 2006

For the first time in several years, all six members of the Gulf Cooperation Council (GCC) attended the annual Summit.  King Abdullah of Saudi Arabia noted that tensions in the Gulf region are higher than ever “like a powder keg waiting for a spark to explode”. He noted, specifically:

• The continued Israeli occupation of Palestine.
• The conflict among the Palestinians themselves, between Fatah and Hamas, which has blocked a unified government.
• The Sunni-Shiite fighting in Iraq.The GCC countries are predominantly Sunni, with Shiite minorities, except for Bahrain which is predominantly Shiite. The GCC states are most concerned about fallout from a civil war in Iraq, including refugees, exportation of terrorism and weapons, and increased black market activity
• The pro v.s. anti-Syrian fighting in Lebanon, which could risk turning into another civil war like in 1975-1990.
• The growing role of Shiite Iran in Iraq.
• Iran’s standoff with the U.S. over its nuclear program. Surprisingly, the Gulf countries do not feel threatened by the program, which they view as peaceful.

Gulf states are most worried about a potential confrontation with US and Iran, primarily fearing that a US air strike on Iran’s nuclear facilities would cause a radioactive leak that could contaminate their own oil and spread fallout through their countries. Perhaps as a defense, the GCC have commissioned a study of a shared nuclear energy program.

GCC leaders are also negotiating a common market by 2007 and launching a monetary union and single currency by 2010.

What the Gulf Cooperation Council Summit means:
A potential single currency in the oil exporting Gulf countries is the next step towards pricing oil in something other than dollars, thus weakening the demand for dollars. Although this is still fairly remote, it is worth noting. Iran has been a leading proponent for a non-dollar currency for oil.

Action steps:
Continue to maintain allocations in natural resources companies, as increased unity among oil-producing nations will lead to higher oil prices. Protect yourself from a dollar decline by maintaining allocations in foreign funds. For more information, see the World Money Watch Report, "Guard Your Retirement From a Declining Dollar".

Source: Gulf Cooperation Council home page; VOA News, “Gulf Arab States Commission Study for Shared Nuclear Program,” December 10, 2006; Channel News Asia, “Gulf Summit Opens with Warning of Regional Explosion,” December 10, 2006.