A Covid Vaccine Is Coming. Here’s What It Means for the Stock Market.

By Andrew Bary

          Illustration by Daniel Downey

A long winter for value investing could be ending.

Favorable news on Pfizer’s Covid-19 vaccine this past week ignited a global stock market rally on hopes that the world might start to normalize in 2021. It also spurred a rotation into value-oriented stocks from growth stocks that could persist for months and years.

Other recent reversals that might continue to play out are better showings by small stocks, compared with larger ones, and by international issues, relative to the S&P 500 index.

Stronger global economic growth would favor more economically sensitive U.S. value shares, relative to their growth counterparts, and benefit international markets, which are heavier in value groups such as banks, energy, and industrials.

Value stocks, which trade cheaply based on metrics such as price-to-earnings and price-to-book value ratios, usually have bested growth stocks coming out of recessions. And value has rarely been so cheap compared with growth based on these measures.

“We are on the cusp of a sustained rally in value,” write J.P. Morgan strategists, led by Davide Silvestrini and Marko Kolanovic. They express confidence that “this rotation has room to continue much further, given the material underperformance we have witnessed in recent years.”

The U.S. value sector’s underperformance has been historic. The iShares Russell 1000 Growth exchange-traded fund (ticker: IWF), which tracks the growth stocks in the Russell 1000 index (the top 1,000 U.S. companies, ranked by market value), is up 28% this year, against a 5% drop for the iShares Russell 1000 Value ETF (IWD). Since the end of 2016, the Russell 1000 Growth index has topped the Russell 1000 Value index by almost 100 percentage points.

Risks to the bullish scenario for value investing—not to mention the entire stock market—include unexpected vaccine setbacks and a weaker-than-anticipated recovery. With Covid cases spiking in the U.S. and Western Europe, the near-term economic outlook has worsened. 

That weighed on value and “reopening” stocks later in the week, and growth stocks again fared best. The worry is that this might be just another of value investing’s many false dawns of recent years.

But Jim Paulsen, chief investment strategist at the Leuthold Group, is as bullish on value stocks as he is on small stocks and international equities. He argues that the economy and earnings will run hot in 2021 because of the lagged effect of monetary and fiscal stimulus from this year, as well as the corporate cost-cutting that followed the onset of the pandemic in the spring.

“We are going to blow away forecasts for economic growth in the coming year, which also means we are going to blow away Street expectations for earnings in the coming year,” Paulsen predicts.

Companies slashed costs in the wake of the pandemic, he notes. “Their goal was to survive, and they cut harder than ever before,” he says. “When demand comes back, profits will come back so much faster because companies cut so dramatically.”

Among industrial companies, Deere (DE) cut operating expenses by 15% in the third quarter from the level a year earlier. For Cummins ( CMI ), it was 10%, Ulta Beauty (ULTA), 30%, and Hilton Hotels Worldwide Holdings (HLT), almost 40%.

Investors looking to play a value revival can do so through dozens of mutual funds and ETFs. Some value funds, however, have strayed in recent years, sprinkling their holdings with growth stocks such as Alphabet (GOOGL) and even Netflix (NFLX).

Leading value stocks include JPMorgan Chase (JPM) and Goldman Sachs Group (GS). JPMorgan, like most of its peers, has operated at a profit during the pandemic, and its shares, at $114, trade for a reasonable 13 times projected 2021 earnings and yield 3.1%. Even after a recent rally, Goldman, at $219, trades just above tangible book value and for nine times forward earnings, after generating blockbuster operating profits of $18 a share in the past two quarters.

Berkshire Hathaway (BRK.B), the largest U.S. value stock by market capitalization, has popped recently, but its class A shares (BRK.A), at around $341,000, look inexpensive. They’re valued at around 1.2 times Barron’s estimate of year-end book value—against an average 1.4 times in recent years. 

Berkshire has trailed the S&P 500 by about 30 percentage points since the end of 2018—one of its worst periods of relative performance during CEO Warren Buffett’s 55 years at the helm. That could change in the coming year.

Berkshire would likely be a big beneficiary of a stronger economy because of its many industrial units, led by the Burlington Northern Santa Fe railroad. Investors also get equity exposure with a $245 billion portfolio led by Apple (AAPL), plus sleep-at-night comfort with $145 billion in cash.

“Berkshire is positioned to manage any renewed downturn and participate well in a continued reopening economic upturn,” says Larry Pitkowsky, manager of the GoodHaven fund, a Berkshire shareholder.

Also worth a look are drug stocks, which rarely have traded so cheaply in the past decade, relative to the S&P 500. Merck (MRK), at $81, fetches 13 times 2021 estimated earnings, with a safe 3% yield, and AbbVie (ABBV) and Bristol Myers Squibb (BMY) are even less expensive. 

Pfizer (PFE), which sparked the rally, got only a modest lift this past week, rising 5%, to $38.50. It trades for 14 times 2021 earnings, adjusted for the imminent spinoff of its generics business, and yields 4%.

Energy stocks popped by over 10% on the week, but remain deeply in the red this year. The sector now accounts for just 2% of the S&P 500, a record low. While oil prices are depressed on weak demand, one hopeful sign is that U.S. production has fallen about 15% this year, as companies rein in capital spending. 

The Energy Select Sector SPDR ETF (XLE), which holds the energy stocks in the S&P 500 and is dominated by Exxon Mobil (XOM) and Chevron (CVX), has fallen 45% in 2020, to $34, and yields 6%.

Morgan Stanley analyst Devin McDermott wrote recently that the group—energy and production companies and integrated producers—looks appealing, with a projected 10% free cash yield in 2021, double that of the S&P 500, assuming oil prices at $45 a barrel. That is close to the current $40 quote for West Texas Intermediate crude.

Small-cap stocks, which are more economically sensitive than large-cap issues, have trailed the S&P 500 in 2020 and over the past five years. Value has fared even worse, with the iShares Russell 2000 Value ETF (IWN) little changed over the past four years. 

This fund includes smaller banks and other financials, as well as industrial companies, that together make up more than 40% of the underlying index.

Overseas stocks are also high in financials and industrials, with a combined 30% weighting, and are low in technology at 9%, as reflected in the iShares Core MSCI EAFE ETF (IEFA). Technology is about 30% of the S&P 500 index, and that doesn’t include megacaps like Facebook, Alphabet, and Amazon.com, which aren’t classified as tech companies by S&P Dow Jones Indices.

The Japanese stock market is also heavy in economically sensitive companies, such as Toyota Motor (TM), that would get a lift in a global recovery. A broad play is the iShares MSCI Japan ETF (EWJ).

Toyota, whose U.S. shares trade around $140, fetches just 13 times predicted earnings for its fiscal year ending in March 2022 and has net cash equal to around 40% of its $200 billion market value.

“Not only will Japanese global cyclicals benefit, but rising U.S. bond yields should help banking stocks,” says John Vail, chief global strategist at Nikko Asset Management. “Japanese banks are very large lenders of U.S. dollars in global markets.”

Japanese banks are unloved, with the largest, Mitsubishi UFJ Financial Group (MUFG), valued at under $60 billion, against $345 billion for JPMorgan. Mitsubishi UFJ’s U.S. shares, at around $4.50, trade for under 40% of book value and yield 5%.

Emerging markets have had a poor decade, but the next one could be better because their valuations remain below developed markets, the quality of top companies is high, and the U.S. dollar could finally be poised to weaken. A low-fee play on the sector is the iShares Core MSCI Emerging Markets exchange-traded fund (IEMG).

Emerging market value stocks that look appealing include Samsung Electronics (005930.Korea) and Lukoil (LUKOY), Russia’s largest oil company. The sector trades for an average of 10 times forward earnings.

Gold, meanwhile, remains a good hedge against inflation and U.S. fiscal and monetary excesses, even though it got hit last week, falling 3%, to $1,885 an ounce.

“I’d have some money in gold, given what has happened to the U.S. budget deficit and the Federal Reserve’s balance sheet,” says Byron Wien, senior investment strategist at the Blackstone Group.

The largest gold ETF is the SPDR Gold Shares (GLD). The world’s two leading miners of the precious metal, Newmont (NEM) and Barrick Gold (GOLD), have strong management, stable annual production, and high profitability at gold’s current price.

In a recent report, Pzena Investment Management made the case for embattled value investing: “To us, value investing is far from dead. The arithmetic of purchasing assets that are significantly discounted to the present value of their cash flows can’t die.”

“However, endless multiple expansion, which has never been a sustainable source of excess return, can die,” Pzena wrote. “Value’s track record during and after recessions has been impressive and begs the obvious question: If you don’t like value now, when will you?” 


Chris Vermeullen

My research team and I went off on a wild tangent trying to identify how the markets could react to the recent spike in price activity on Monday, November 9, 2020.  This is the day that Pfizer announced a 90% effective rate with its new COVID-19 vaccine, causing the US stock market to skyrocket higher before the opening bell in New York. 

As with most pop-and-drops, this incredible upside spike trailed lower for the remainder of the trading day.  My research team was curious if this type of setup presented any real future outcome or trends.  

To this end, we focused on the QQQ and the SPY in relationship to Gold.


Gold has been and continues to be a store of value for many around the world. At some times in history, Gold becomes undervalued in comparison to other assets (like stocks, real estate, and other tangible assets).  

At other times, Gold becomes more highly valued in comparison to other assets.  This cycle has taken place throughout hundreds of years of history, and is rooted in the changing perceptions of market participants regarding “what/where is true value in the markets”.

When other assets are skyrocketing higher, Gold is out of favor in terms of real demand.  It may still be moving higher in value, but as long as other assets seem to be increasing in value faster than Gold, demand for Gold will diminish.  

When most other assets enter a time of great concern or devaluation, Gold and Precious Metals usually begin to see stronger demand as the ratio between Gold prices and more traditional investment assets may be near extremes.

Many precious metals investors rely on the Gold to Silver ratio to measure how fast or slow Gold is appreciating or depreciating compared to Silver.  This ratio can often be used to help pinpoint disparities between real price valuation levels.  In our example, today, we’re using the ratio of the QQQ and SPY to Gold, which asseses more traditional investment asset values in comparison to Gold.

The first Monthly QQQ 2000 Anchor to Gold chart, below, attempts to highlight the past and current ratio levels based on an anchor price level starting on January 1, 2000.  

The purpose of this ratio chart is to understand how the price advance in the QQQ over time relates to the price advance in Gold.  The higher the BLUE ratio level, the more valued QQQ is compared to Gold.

The first thing that caught our attention was the very high valuation levels in early 2000.  This suggests that Gold was completely ignored in the late stages of the DOT COM rally when technology and other assets were flying high.  

As the DOT COM bubble burst, one would expect the ratio to decline over time.  

However, in this case, the ratio continued to decline over a 9 to 9.5 year period – reaching a low point in 2009 (the Global Financial Crisis lows).  

This downward trend in the QQQ to Gold 2000 anchor ratio suggests that while the QQQ rotated up and down in a broad sideways trend, Gold continued to appreciate in value.  Throughout this time, from 2000 to 2009, Gold rallied over 215% (from $289.50 to over $931.00).  This appreciation in Gold translated into the declines in the QQQ to Gold ratio on this chart above.

It was only after 2013 that the QQQ to Gold 2000 anchor chart began to rise again.  

Interestingly, this really began to take place after the 2011 peak in Gold prices (near $1923.70) and after the US economy really began a more organic growth phase prompted by multiple US Fed QE efforts.  

We can see from the chart below that the current peak levels (near 0.60) on this ratio chart are still well below the 1.60 ratio levels from 2000.  Although this may appear to be a weaker ratio trend, remember this chart anchors everything to January 1, 2000 price points.  

So this chart reflects the QQQ to Gold ratio based on the origination ratio that existed on January 1, 2000.


This next ratio chart below shows the incredible rally in Gold compared to the QQQ and the SPY since the 2000 anchor point.  It is important to understand that these ratios are based on the January 1, 2000 anchor price level and represent the comparative price appreciation/depreciation of these assets from that anchor point.

You can see that the QQQ and SPY were both well under the 1.0 ratio level for much of 2001 through 2013.  This suggests that these assets failed to rally above the 2000 anchor price level throughout this time.  Gold also experienced a brief decline in price below the 1.0 level in early 2000 through 2003, but it quickly started rallying after that point and has continued to extend higher recently.

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When we compare the chart below to the one above, we can see that the rally in gold has extended quite a bit further than the rally in the QQQ and the SPY since 2000.  

Yet, this brings up an interesting question related to the cycles our research team has identified.  Have we reached a peak level in the QQQ and SPY in relationship to the appreciation of Gold?  

Are we entering a new cycle where Gold will continue to appreciate higher compared to the QQQ and the SPY – attempting to recreate a normalized ratio?

If our research team’s interpretation of this data is correct, the rally in Gold since the 2000 anchor point suggests a new momentum base has established in Gold after the 2011 peak price levels.  

This new momentum base, if our cycle research is accurate, suggests a broad market peak in equity/stock assets is setting up another 9 to 9.5 year precious metals appreciation cycle that started near 2019.  

This could be an incredible opportunity for skilled technical traders over the next 8+ years if we understand what to expect based on these cycles/trends.

In this first part of our two-part Gold series this weekend, we have illustrated the longer-term cycle patterns that originated from an anchor point in 2000 and the real appreciation in Gold compared to other assets.  

In Part II, we will share incredible new information that suggests we are near another 2000-like peak in equities/stocks, suggesting another broad metals rally is just starting and may last another 8+ years.

This does not mean that stocks will collapse or some external event won’t destroy the stock market valuations or the thesis presented.  We are merely suggesting that Metals have established a base level (near 2015) while traders have focused on the equities/stocks recently and ignored metals.  

This rally in stocks/equities suggests that metals have under-appreciated compared to stocks/equities. This disparity in price valuations also suggests that either metals will rally to attempt to close the price disparity or that equities will decline or trade sideways while metals attempt to close the gap.

Overall, this is an incredible longer-term cycle setup that traders must keep in focus over the next few years. If this type of cycle repeats like it did after 2000, then Gold may be trading above $5500 per ounce within the next 2 to 3 years and may peak at levels above $10,000 before the peak is reached. 

London gold body warns trade centres over ethical sourcing

Bullion industry group threatens to blacklist suppliers that do not meet OECD standards

Henry Sanderson

London Bullion Market Association wrote to countries including the United Arab Emirates, the US, the UK and Switzerland © AFP/Getty Images

London’s gold market association has warned countries that are centres for trading the yellow metal that they risk being blacklisted as suppliers unless they ensure gold entering the market is responsibly sourced.

The London Bullion Market Association wrote to countries including the United Arab Emirates, the US, UK and Switzerland saying there was a risk unethical gold was entering global markets. 

“Not all international bullion centres are currently operating to the same responsible sourcing standards,” said the letter, seen by the Financial Times. “These inconsistencies in standards could have a significant impact on the international market should they remain unaddressed.” 

The LBMA is an industry-backed body that regulates London’s gold market by accrediting refineries from around the world through its Good Delivery List. These refiners are audited every year. 

In its letter, the LBMA said “to instil trust in the market going forward” it would only allow its refiners to source gold and silver from countries that have met due diligence standards written by the OECD, which are viewed as key benchmarks in the natural resources industry.

“The ultimate stick is that we could say to these jurisdictions that they are no longer considered credible and therefore not responsible sources of gold”, Ruth Crowell, chief executive of the LBMA, told the Financial Times.

The LBMA recommended that countries focus on the responsible sourcing of recycled gold, the elimination of cash transactions, and the provision of support for responsible artisanal and small-scale mining.

The letter was first reported on Thursday by Reuters. It comes after concerns that the 23 per cent rally in gold prices this year is leading to a rise in supplies of gold from illegal sources.

Illegal miners have flocked to the Amazon this year as gold hit a record high of more than $2,000 an ounce. Much of the gold is exported to western nations, including the UK, US and Canada.

The rise in gold prices has driven “a new artisanal gold mining and refining rush in conflict-affected and high-risk areas” in eastern and central Africa, a report by investigative group The Sentry said this week. Most of this gold is traded through Dubai in the United Arab Emirates, it said.

“Action by the LBMA is important if its responsible gold standards are to have any meaning,” Anneke Van Woudenberg, of the London-based NGO Raid, said. “If the public and the markets are to have faith that the gold certified by the LBMA is not tainted by human rights abuses or money laundering, then it will need to flex its muscles and suspend those not playing by the rules.”

The LBMA wrote to China, Hong Kong, India, Japan, Russia, Singapore, South Africa, Switzerland, Turkey, the UAE, the UK and the US. It said other gold trading centres would be added to the list.

Diego Maradona: too grand to pity

The Argentine footballer’s life was not a cautionary tale about money and fame

Janan Ganesh

Diego Maradona playing for Boca Juniors in a match against Talleres, Buenos Aires, 1981 © Bob Thomas Sports Photography via Getty Images

The goal starts with the biomechanical version of a car’s three-point turn. One step past the closing Englishman, a twirl past the next, then one to flee both, so that he faces, say, south-east, west and north-east in the space of two seconds and two square metres. 

From there, his 40-yard dash has an air of the banal about it, so three more of Her Majesty’s finest are diddled for fun until the grass literally runs out and he must commit the vulgarism of scoring.

It feels wrong that a 60-year life is so often condensed to one goal, lush as it was, in the 1986 World Cup. But then it is better than remembering Diego Maradona as a cautionary tale, about fame, riches and deracination from one’s home. 

These things bloated and sullied him. They led to his encirclement in Naples by people with ill will and some with all too much love. But they also scooped him and his large family out of that bleak shack in (what a cruelly pretty name) Villa Fiorito.

This was a life of astronomical upwardness. It will screen generations of Maradonas to come from the pre-modernity that he knew as a child. On the way, it restored morale to Argentina after the rout in the Falklands and pride to the Mezzogiorno against Piemontese hauteur. Let us not clutch our pearls over the decadence and ask “if it was all worth it”.

None of which is to gloss over his spells of anguish amid a fog of cocaine. Or the wrongs he did to others. And 60, as they say, with meaning if not strict truth, is no age. 

But how to weigh these things against the suffering that might have taken place in a parallel life, where his feel for the ball was less silken, the scouts less dazzled, and success less forthcoming? 

There is analytic sloppiness, not just piety, in the trope that fame and wealth are corrosive. Corrosive compared to what?

Maradona splits England’s defence to score his and Argentina’s second goal in the World Cup quarter-final in Mexico City, 1986 © Getty Images

It is not just the obituarists, an unavoidably maudlin crew, who are prone to this stuff. Asif Kapadia is the best documentarian of his generation by such a margin that it is hard to think of the runner-up. For reasons I could not place at the time, though, his 2019 film about Maradona fell short of its antecedents about Oasis and Ayrton Senna.

Going over it this week, I see that it is no less resourceful in its archival footage, no less rich in its evocation of place. (In a pop-psych age, documentaries, like novels, lose themselves in interiority.)

The problem turns out to be a deficit of joy. It is Maradona the Tragic who comes through, over Maradona the grand or ludic. 

Even allowing that he is less bouncily quotable than the Gallaghers (whose meeting with him is an anecdote worth googling), he is mired in eternal Neapolitan night. 

The luminous scorch of the Azteca Stadium in 1986, where two English players now say they had to stop themselves clapping That Goal, goes too soon. So do the tyro years at Argentinos Juniors and Boca.

Perhaps I am just sour at having missed the best of him. After “Babangida”, Nigeria’s leader at the time, “Maradona” is the first name of a public personage that I remember hearing. 

When I moved to the UK, he was a spectral figure for our generation as foreign football was so scarce on television. By the time it spread in the 1990s, he was An American Trilogy-era Elvis: jowly, poignant, perspirant.

Signing autographs for fans after a training session in Naples, 1986 © Getty Images

I defer to older readers, then, on where he stands in the sport’s hall of gods. My sense is that Lionel Messi has been more devastating for much longer. 

Were it not for that air of coldness — and so his failure to “transcend” sport — more would place him top. Only Maradona would have asked Neapolitans to cheer Argentina against Italy to buck the snooty north. 

Only Messi scores and assists as metronomically as he does. Our taste for charisma distorts what should be a technical judgment.

Where no dissent can be brooked is over the more rousing story. While lots of footballers break out of dire hardship, Maradona’s trough-to-peak ascent might be the most vertiginous of all. 

How dreary, how first-world it would be to turn him into a parable — into Scarface — about whether success is all that it is cracked up to be. Of course it is. “There was nothing tragic about him,” tweeted Piers Morgan this week, overstating the case but approximating the truth.

Besides, looking around, lots of us seem able to self-destruct without the mitigating circumstance of galactic fame. 

“Metaphor for my country”, texted an Argentine friend on Wednesday, about the deceased’s flaws and glories. 

And for the species.

The Future of the Gulf Cooperation Council

Decades of rivalry and antagonism have taken a toll on the alliance.

By: Hilal Khashan

Just six weeks after the beginning of the 1980 Iraq-Iran War, Arab countries gathered for a summit in Amman, Jordan. It was there that the United Arab Emirates and Bahrain proposed creating a union of Arab Gulf states that would defend their interests and bring stability to the region. Six months later, the Gulf Cooperation Council, consisting of Saudi Arabia, the United Arab Emirates, Kuwait, Bahrain, Qatar and Oman, was formed.

The GCC’s mission statement stressed the indivisible sovereignty of its member states and a nonalignment posture. 

It was billed as the prelude to military, security and economic integration, including a currency union, a central bank and a long-term economic development strategy. 

Though the members shared a turbulent history, the lack of regional security, the Soviet invasion of Afghanistan, and fears that the Red Army might march toward the oil-rich Gulf compelled Arab rulers to seek protection together. 

They were also troubled by Iraq’s war against Iran, knowing that both countries harbored ambitions to dominate the Gulf. Acute security concerns therefore provided the impetus for the establishment of the GCC. When these threats subsided, however, so did the Arab states’ motivation for cooperation. Irreconcilable differences and mutual suspicions derailed the GCC, and new alliances have rendered it redundant.

Persistent Disagreement

Apart from joining the U.S. coalition against Iraq’s invasion of Kuwait, GCC member states have never been able to agree on much. With the exception of Bahrain, which is dependent on Saudi financial support, the member states have always resented the tutelage and oversight of Saudi Arabia, the alliance’s unofficial leader. 

In turn, the Saudis have always resented Oman’s independent foreign policy and relations with Iran, as well as Qatar’s warm relations with Turkey.

Indeed, Qatar and Saudi Arabia have a strained relationship to say the least. But it wasn’t always that way. Between 1972 and 1995, while Qatar was under the leadership of Khalifa bin Hamad, the two countries were in lockstep. But that changed when his son, Hamad bin Khalifa, overthrew him in a bloodless coup in 1995 and began pursuing an independent foreign policy. 

In 1996, he launched Al-Jazeera, a news network that has been the source of frequent tension between Qatar and many Arab countries, especially Saudi Arabia and the UAE.

During U.S. President Donald Trump’s visit to Saudi Arabia in May 2017, he admonished Qatar for funding terrorism and urged the country to stop sheltering members of radical Islamic movements. Emboldened by Trump’s criticism, Saudi Arabia and the UAE, backed by Egypt and Bahrain, imposed a blockade on Qatar three weeks later that continues until today.

Insecurity Continues

Despite their massive defense budgets, the military capability of Arab Gulf states – both individually and collectively – is severely lacking. In 1984, the GCC established the Peninsula Shield Force to defend its members against foreign military threats. The 5,000-strong force was positioned in northeastern Saudi Arabia near the Iraq-Kuwait border, but it never developed into a real fighting force. Its only deployment was in 2011 to Bahrain, where it crushed a peaceful uprising; it has never been used against a foreign military.

In fact, several foreign countries have a military presence in the Arab Gulf – chief among them the United States. The U.S. Fifth Fleet has been headquartered in Bahrain since 1944. 

The U.S. operates the strategic Al Udeid air base and the as-Saliylah storage base in Qatar. In the UAE, the U.S. uses Jebel Ali as a key port of call, has troops stationed in al-Dhafra air base, and maintains a small naval base in Fujairah. 

There are three U.S. Air Force pre-positioning sites in Oman. Since the end of Operation Desert Storm, the U.S. has operated two air bases and three army bases in Kuwait. 

The Air Force is currently deployed to five air bases in Saudi Arabia, though Washington withdrew troops from the country in 2003 after the end of the Iraq war, only to redeploy them in 2019 following the attacks on two Saudi oil installations blamed on Iran. 

U.S. Military Bases in Gulf Cooperation Council Countries

In addition, Turkey sent 5,000 troops to Qatar in response to the Saudi-led blockade and has built two military bases in the country. France also operates a naval base in Abu Dhabi. More than 70,000 Pakistanis serve in the Saudi armed forces as private contractors, and thousands of Sudanese troops fight on Saudi Arabia’s behalf in Yemen.

For Arab Gulf countries, security concerns now also stem from their fellow GCC member states. The UAE has deep concerns about the rise of Muslim Brotherhood-linked Islamists in the Gulf. Kuwait’s Brotherhood-affiliated Islamic Constitutional Movement has 16 representatives in the country’s 50-member parliament and plays a prominent role in civil society. 

In 2013, a diplomatic crisis erupted between Qatar and the UAE after Al-Jazeera aired a program featuring members of the Emirates’ banned pro-Brotherhood al-Islah association. 

Emir Hamad believed that the best way to safeguard Qatar’s independence from the Saudis was to foster alliances with the Arab region’s Islamists, whom he believed were on their way to seizing power in several countries. He allowed influential Brotherhood cleric Yusuf al-Qardawi to base his International Union of Muslim Scholars in Doha in 2004. 

Two years later, the cleric established the Academy of Change as part of the Renaissance Project to train Islamist activists to serve as agents of political change in the region. Emir Hamad hoped to use the surging support for Islamists to provide the tiny, sparsely populated state with strategic depth. (In 2013, he abdicated the throne to his son, Tamim bin Hamad, on the urging of Washington, which was acting on requests from the Saudis and Emiratis.)

Failed Integration

The GCC has failed to foster cooperation on several other fronts as well. It made many attempts to resolve its member states’ territorial disputes but to no avail. In the 1970s, Saudi Arabia failed to end the long-standing maritime border dispute between Qatar and Bahrain. To the Saudis’ disappointment, the International Court of Justice succeeded in doing so in 2001. 

Saudi Arabia had its own dispute with Kuwait over a stretch of land on the Persian Gulf that was declared a neutral zone in the 1922 Uqair Protocol. The two countries could not agree on using the Wafra and Khafji oil fields, and in 2014 production was suspended for five years until they could reach a settlement.

Gulf Cooperation Council Territorial Disputes

Relations between Qatar, the UAE and Saudi Arabia became especially strained after the Saudis seized a 25-kilometer coastal corridor between Qatar and the UAE. In 1976, the Saudis vetoed the construction of a causeway between Abu Dhabi and Doha, claiming it infringed on Saudi territorial waters. 

In 2009, Saudi Arabia blocked thousands of trucks transporting goods from Jebel Ali Port because the new UAE identity cards included the coastal corridor in the country’s map. A year later, the two countries were on the verge of severing diplomatic ties after UAE gunboats opened fire on a Saudi ship that entered a contested maritime area.

Talks to establish a GCC central bank and monetary union collapsed because the UAE demanded that it be located in Abu Dhabi while the Saudis insisted on Riyadh. Intra-GCC trade is less than 20 percent of members’ total trade volume, mainly because GCC countries mostly produce the same goods and provide similar consumer services such as college education, health care, banking and leisure and tourism.

The group may also soon face a crisis of leadership. Saudi Arabia cannot afford to stay out of the budding Israel-UAE alliance. It doesn’t want to see Abu Dhabi take over as leader of the Arab Gulf countries, but the only way it can claim a prominent role in the emerging alliance is to become part of it. The election of Joe Biden as U.S. president, and the likely reopening of talks with Iran, will also push Saudi Arabia closer to Israel, the region’s military powerhouse and technology hub.

Decades of rivalry and antagonism have taken a toll on the unlikely alliance of historically fractious tribal systems. A coalition that rose out of fear of external threats has virtually collapsed under the weight of member states’ fear of one another.