Their economies are similar: they are all based on oil and gas related industries and they all rely heavily on foreign labour. Oil accounts for one third of the region's GDP.
The recent history of exchange rate stability against the US dollar has also meant that there has already been a 'high degree of monetary convergence'. The most important change in the process of integrating the economies was in the launch of a customs union in 2003 with one point of entry for goods and a unified external tariff of 5%.
One area that may prove more challenging is how the economies will mesh together when some run out of their oil or gas resources. It is predicted, for instance, that Bahrain, Oman and Qatar are likely to exhaust their oil resources within the next 20 years. Qatar will probably be able to switch to gas, with an expected 300 years of reserves, while Bahrain and Oman are much less well endowed. Kuwait and the UAE, on the other hand, have a predicted further 100 years of oil production.
The decline of oil reserves in some GCC states will lead to less fiscal flexibility. "From the monetary union standpoint, diminishing oil reserves not only increases the likelihood of asymmetric shocks occurring as the GCC economies become more heterogeneous, but also reduces Bahrain's and Oman's ability to adjust to such shocks through fiscal means."
It is important that the GCC makes provisions to plan for the future including the adoption of targets for non-hydrocarbon fiscal revenues.
Source: A new fiscal framework for GCC countries ahead of monetary union
International Economics Programme IEP BP 06/02
Review by Morice Mendoza