Gulf Bailout Diplomacy

Since the oil shock of 1973, the Arab Gulf states have emerged as powerful geopolitical actors, deploying their vast financial resources for strategic gain. New research from the IISS delves into ‘Gulf bailout diplomacy’, the Gulf states’ practice of using sovereign bailouts as a tool for building influence beyond their borders and shaping their political and security environment in the Middle East and beyond. This report is the first systematic examination of Gulf bailout diplomacy, a policy instrument first used in the early 1960s. It builds on the most extensive dataset of its kind on Gulf bailout flows, with about 500 datapoints corresponding to US$363 billion (constant 2020) disbursed to 22 countries. The report combines six in-depth country case studies, comprising Egypt, Iraq, Jordan, Pakistan, Sudan and Yemen with a discussion of geostrategic drivers and regional implications of Gulf bailout diplomacy. It also assesses how effectively the Gulf states have utilised bailout interventions as tools of foreign policy. The report considers the wider implications of the rise of emerging Gulf donors for the broader sovereign-aid and lending landscape in the context of a changing international economic order. The Regional Politics of Gulf Bailout Assistance The Gulf states have channelled most of their bailout aid to their regional neighbourhood, which includes the Middle East and North Africa (MENA), Pakistan and a handful of East African states. The Gulf states deploy bailout aid to prevent the financial and economic collapse of their neighbours and to stabilise their neighbourhood. The Gulf states also use bailout aid to influence the internal politics and foreign-policy choices of regional states, especially during periods of regional turmoil, such as the Arab Spring.