Iran Strategically Strengthened

First and foremost, the Gulf states believe that the strategic weakness of post-Saddam Iraq has emboldened Iran to take a more active role in Gulf security and to seek to enlist the Gulf states in an Iran-led Gulf security structure. The rise of Iraqi Shiite parties are reportedly prompting growing Shiite demands for power in the Gulf states themselves. Spillover From Iraq Battlefield

Prior to the U.S. intervention in Iraq, the Gulf states had predicted that ousting Saddam would not necessarily produce stability in Iraq, and several were reluctant to support it. In June 1995, the U.S. Navy reestablished its long dormant Fifth fleet, responsible for the Persian Gulf region, and headquartered in Bahrain. The Gulf states are instituting gradual domestic political and economic reform efforts that are intended to satisfy the pro-reform elements of the population while maintaining tradition. Some of the Gulf leaders fear that more rapid liberalization could backfire by providing Islamist extremists a platform to challenge the incumbent regimes. Saudi Arabia, now under King Abdullah, is beginning to accelerate political liberalization. U.S. Democratization Efforts

As the Bush Administration has made political and economic reform a priority, it has expanded the programs and policies used to promote that agenda. As noted in the State Department's "Supporting Human Rights and Democracy: The U.S. Record 2005-2006," released April 5, 2006, the Administration is promoting these reforms not only through diplomatic exchanges between U.S. diplomats in the Gulf and their counterparts but also with new programs run by the U.S. Agency for International Development (USAID), the State Department's Near East Bureau and its Bureau of Democracy, Human Rights, and Labor, and the "Middle East Partnership Initiative" (MEPI). Because U.S. diplomats in the region generally seek to maintain good relations with their counterparts and because U.S. interests in the Gulf are broad, most U.S.-funded programs are supported by—or at least not opposed by—the Gulf governments. Several Gulf states have developed relatively dynamic tourism industries, particularly UAE, but increasingly including Qatar and Oman. U.S.-Gulf Free Trade Agreements

As part of its strategy to promote reform and democracy in the Middle East, the Bush Administration has been negotiating bilateral free trade agreements (FTAs) with the Gulf states. Most of the Gulf states have tried to support U.S. mediation efforts in the Arab-Israeli dispute, but they also have sought to modify and shape U.S. policy on that issue, as well as on other issues such as the July-August 2006 Israel-Hezbollah conflict. The Gulf states all publicly endorsed the Bush Administration's "road map" for Israeli-Palestinian peace. Cooperation Against Al Qaeda

The September 11 attacks stimulated some tensions between the United States and some of the Gulf monarchy states, particularly Saudi Arabia, over allegations that Gulf donors had, wittingly or unknowingly, been contributing to or tolerating groups and institutions linked to Al Qaeda. Osama bin Laden's Saudi origins, coupled with the revelation that fifteen of the nineteen September 11 hijackers were Saudis, caused substantial criticism of Saudi Arabia among some U.S. experts and opinion-makers. Since the September 11, 2001, attacks and the start of the Iraq war in March 2003, the Gulf states have been partners of the United States against Al Qaeda and pro-Al Qaeda movements as these militants have posed a threat to the Gulf states themselves.
The U.S.-led war to overthrow Saddam Hussein virtually ended Iraq's ability to militarily threaten the region, but it has produced new and un-anticipated security challenges for the Persian Gulf states (Saudi Arabia, Kuwait, Bahrain, Qatar, Oman, and the United Arab Emirates). The Gulf states, which are all led by Sunni Muslim regimes, fear that Shiite Iran is unchecked now that Iraq is strategically weak. The Gulf states strongly resent that pro-Iranian Shiite Muslim groups and their Kurdish allies (who are not Arabs) have obtained preponderant power within Iraq. This has led most of the Gulf states, particularly Saudi Arabia, to provide only halting support to the fledgling government in Baghdad and to revive the focus on U.S.-Gulf defense cooperation that characterized U.S.-Gulf relations during the 1990s.
The new power structure in Iraq has had political repercussions throughout the Gulf region, particularly as Sunni-Shiite violence in Iraq has come to overshadow direct insurgent violence against U.S. forces as the key threat to Iraqi stability. The Sunni-Shiite tensions in Iraq apparently are spilling over into the Gulf states. Shiite communities, particularly that in Bahrain, have been emboldened by events in Iraq to seek additional power, and Sunni-Shiite tension in the Gulf states is said by observers to be increasing.
Some Shiite communities, which view themselves as long repressed, are attempting to benefit politically from the Bush Administration's focus on promoting democracy and political reform in the region. Domestically, all of the Gulf states are undertaking substantial but gradual economic and political liberalization to deflect popular pressure and satisfy U.S. calls for reform. However, the reforms undertaken or planned do not aim to fundamentally restructure power in any of these states. The Bush Administration advocates more rapid and sweeping political and economic liberalization as key to long-term Gulf stability and to reducing support in the Gulf states for terrorist groups such as Al Qaeda. The Administration is funding civil society programs in the Gulf states—funding that is not necessarily welcomed by the Gulf leaderships—but it is also promoting the bilateral free trade agreements that most of the Gulf leaders seek.
The Bush Administration also is working to maintain or improve post-September 11 cooperation with the Gulf states against Al Qaeda. Some Gulf states allegedly tolerated the presence of Al Qaeda activists and their funding mechanisms prior to the September 11 attacks. Fifteen of the nineteen September 11 hijackers were of Saudi origin, as is Al Qaeda founder Osama bin Laden.
This report will be updated as warranted by regional developments. See also CRS Report RL33533, Saudi Arabia: Background and U.S. Relations; CRS Report RS21513, Kuwait: Security, Reform, and U.S. Policy; CRS Report RS21852, The United Arab Emirates (UAE): Issues for U.S. Policy; CRS Report RL31718, Qatar: Background and U.S. Relations; CRS Report 95-1013, Bahrain: Reform, Security, and U.S. Policy; and CRS Report RS21534, Oman: Reform, Security, and U.S. Policy.