The GCC must protect itself from the next crisis in the Strait of Hormuz | The price of GCC

The problems caused by the US-Israel war on Iran have affected the countries of the Gulf Cooperation Council (GCC) in different groups.

Oman has not felt any fear as its ports and terminals are still operating as usual. Saudi Arabia and the United Arab Emirates were able to export some oil through Yanbu and Fujairah, respectively, through the Strait of Hormuz. On the other hand, Kuwait, Bahrain and Qatar, have been excluded from the international market and are facing the prospect of financial difficulties.

For this reason, the GCC says that more than ever there is a need to show solidarity and to solve this problem by working together. The issue of cooperation is not about doing good to our friends. It’s about implementing strategies that will minimize the impact and benefit of any future shutdown risk. It is about the survival of the whole idea of ​​GCC cooperation and the power it has in the world.

Actions together, passion in common

Even if there is some agreement between the warring parties today, the GCC will continue to suffer under the shadow of the shutdown for almost three months. Countries face the risk of losing customers due to the risk of not meeting their requirements or being seen as dangerous suppliers. Only a concerted effort can stop the free fall.

At the moment, voluntary measures are winning in all cases. For example, the UAE’s exit from OPEC was largely driven by the Emirati leadership’s view that the Strait of Hormuz problem was an opportunity to gain a larger share of the oil market.

If this trend of one-size-fits-all response continues, it could have economic problems for the entire GCC and threaten its existence. Without a burden-sharing mechanism, the Gulf states can compete in a zero-sum game. This would reduce the influence that the GCC has as a regional bloc and reduce its ability to move energy markets.

So far, there have been some signs of solidarity in the talks. During negotiations with the GCC meeting in Jeddah on April 28, Gulf leaders tried to show unity and discuss ways to resolve the crisis. The meeting launched a series of discussions that the GCC says it is willing to engage in, but there are no signs that the talks have moved beyond the experts.

However, there are steps the GCC can take now that will help address this crisis and ensure stability in the face of future threats. One of them could be the beginning of an exchange arrangement.

Exchange as a tool of cooperation

There are three forms of change that the GCC can consider: physical, joint and positive business. Material and contractual exchanges allow one party to offer the same thing to fulfill the contract on behalf of the other party.

A positive exchange, on the other hand, is exchanging one grade or product for another to meet the needs of a refinery or to increase the cost of transportation.

Therefore, instead of Kuwaiti, Qatari or Bahraini physical goods across the Strait of Hormuz, the buyer can receive a valid deposit on Yanbu, Fujairah, Duqm, Ras Markaz, Sohar, Qalhat, Singapore, India, Korea, Japan or Europe, when the parties involved resolve the issue through future delivery, compensation, compensation, return of sales.

Exchanges do not require that locked-in items be moved immediately. It requires a transparent header, calculated and reconciled, so that the replacement object is presented to the user.

The most powerful variables, therefore, correspond to subtractive processes. They are most reliable when they are established before a crisis, but they can also be assembled during a crisis if the parties already have business knowledge, reliable customers or other operational resources that can be used.

In fact, exchanges are not new to the GCC member states. In 2013, after Egypt failed to meet its gas obligations, Qatar agreed to send its natural gas (LNG) directly to customers that Egypt could not supply while using its gas for domestic needs.

In 2021, the Emirates National Oil Company (ENOC) of the UAE obtained an opportunity to replace 84,000 tons of Iraqi oil with 30,000 tons of Group B crude oil and 33,000 tons of crude oil to supply to Lebanon. In 2024, the state-owned Oman LNG company held about two tenders per month, the Atlantic cargo from the United States was sent to Spain, while the company supplied its LNG to Asian customers.

All these examples show that the Gulf countries and their local energy companies have the necessary technology to achieve intra-GCC exchanges.

The most effective way to achieve such cooperation would be to establish an energy transfer center using a network of international oil companies, major regional refiners, selected traders, insurers, banks and major buyers in Asia and Europe.

Its function would be to coordinate the restricted positions with other delivery methods and to coordinate the price later.

Future insurance

The implementation of any exchange system requires a lot of effort to make it work, not to mention political will, trust and determination. In addition, at the moment, there are physical limitations before planning, because the GCC facilities will not be able to transfer the export volumes that pass through the Strait of Hormuz completely.

Recently, the exchange means that one group of countries – Saudi Arabia, Oman and the UAE – will give up some money and market share to the benefit of others, namely Qatar, Bahrain and Kuwait, by sharing part of what they have for export, storage or transportation. But in the long run, all will benefit.

An important port of call is in Saudi Arabia, which has the main routes through Hormuz and provides the largest pool of food that can be brought in. Its command of customer loyalty, worldwide recognition of Saudi oil grades, Red Sea export infrastructure and Aramco’s high sales volume make it a key pillar in any future transition.

Fulfilling its role as a market regulator within OPEC/OPEC+ and the GCC leadership, Riyadh can help stabilize the market by covering important goods for prudent buyers.

The UAE can also play a major role by using its export capacity through Fujairah, as well as Oman, which has a storage facility in Ras Markaz, energy refining in Duqm, LNG information and ports that can receive and export goods without crossing the Strait of Hormuz.

If such exchange projects are implemented, it can strengthen GCC cooperation and help members avoid internal economic conflict in the future. More importantly, they can promote the implementation of a large-scale development of the sector that will reduce dependence on the Strait of Hormuz and reduce its value as a weapon to use in the Gulf conflict.

If there is an effective replacement system and infrastructure that can be used whenever a shutdown threat occurs, then customers will feel confident in continuing their relationships with all Gulf suppliers. In the long run, this could be the GCC’s insurance against any turmoil in the region.

The views expressed in this article are those of the authors and do not reflect Al Jazeera’s influence.