INTERNATIONAL BUSINESS POLICY OF OMAN

Oman

Market Overview

It was reported that Oman economy is mainly based on petroleum and

natural gas, which account of 78% from government revenue
(www.export.gov). There are limited energy reserves in Oman. Thus,
government concentrates on diversifying its economy away from oil and
gas production. It is planning to diversify the economy through a process of
Omanization, industrialization and privatization. The permitted level of
foreign ownership in privatization projects are usually up to 70% and in
some cases up to 100%. Oman population is around 2 and half millions and
growing at 3.3% annual rate. The national population under 20 years is
45.2% and 56% under 24 years. The total numbers of expatriates, who are
working in Oman, are 615,000 people and represent around one quarter of
the total population.

  

Market Challenges

It was stated that there are numbers of constrains that may affect trade and
investment in Oman (www.export.gov). This constrains are the small
population, small domestic market and absence of modern and high value
consumers beyond capital area. In addition, there are bureaucratic barriers
to enterprises development and risk trading approach. Also, there is another
potential barrier to trade. There is 10% price preference given to locally
produced goods on government purchases if they meet the quality
standards and specifications. This preference is extended to foreign
industrial produces participating in joint ventures with local concerns.

 
Market opportunities

It was reported that Oman actively seeks FDI in industrial, IT, tourism and
high education fields (www.export.gov). Government hopes to attract $ 12
billion in the next 25 years. Investors, who are transferring technology,
management expertise, providing employment and training for local Omani
people, are particularly welcome to Oman. Oman is considered as favored
country for FDI due to many reasons. First, Oman has joined World Trade
Organization (WTO). Secondly, Oman has long term strategy and
emphasize on privatization. 

Market Entry Strategy

It was recommended that MNC has to follow the below suggestions to

establish business in Oman (www.export.gov). Firstly, a company should
visit Oman in order to appreciate its distinctive culture. Then, personal
relationships are important to finding and retaining a partner. Agents are
commonly used, but not always required. Agreements generally require
significant lead time and follow-up before finalization. Importers must be
registered with the Ministry of Commerce and be members of the Oman
Chamber of Commerce and Industry. Importers/ distributors are most
commonly used in the retail food business. Finally, food processors and the
hotel/ restaurant industry may import directly or purchase goods locally
from distributors.

Trade Regulations & Standards

On 2003, it was reported that Oman implemented the GCC Unified

Customs Law (UCL) (www.export.gov). The UCL imposes a 5% and
valorem duty on practically all imported products from non-GCC countries,
including automobiles. Nevertheless, lives animals, fresh fruits and
vegetables, seafood, grains, flours, tea, sugar, spices and seeds for planning
are excluded from the custom duty. Some types of goods require a special
license, e.g. alcohol, firearms and pharmaceuticals.     

For the labeling and marking requirements, common GCC labeling

standards of imported goods is a main issue facing foreign exporters. The
label should include product, brand names, production and expiry dates,
country of origin, name and address of the manufacturer. Labels must be in
Arabic only or Arabic/ English. For shelf-life standards, Oman enforces
GCC shelf standards GS 150/ 1993 which affects 44 food products. There
are many foreign supplier consider Omani shelf-life limits more restrictive
than scientifically necessary.

For the standards, it was assumed that not all GCC standards, which are
implemented by Oman, are consistent with the obligations of the World
Trade Organization’s (WTO) Agreement on the application of sanitary and
phytosanitary measures (SPS Agreement) (www.export.gov). The GCC
shelf-life standard establishes mandatory expiration periods for 22
perishable products or products categories such as chilled meat, fresh dairy
products and fruit juices. The new standards are inconsistent with
international standards and do not have a scientific basis. Particularly, the
standards do not reflect Codex guidelines, hence raising concerns under the
WTO SPS Agreement.

NEW `

Describes bilateral and multilateral trade agreements that

this country is party to, including with the United States.
Includes websites and other resources where U.S.
companies can get more information on how to take
advantage of these agreement
 Under the FTA, Oman provided immediate duty-free access on virtually all industrial and
consumer products in its tariff schedule, and it phased out tariffs on the remaining handful
of products in 2019.  Oman provided immediate duty-free access for U.S. agricultural
products in 87 percent of agricultural tariff lines.  The United States provided immediate
duty-free access for 100 percent of Oman’s current exports of agricultural products to the
United States.  Oman is also a member of the Gulf Cooperation Council, which allows for
duty-free trade between its members and with other countries with which it has a free trade
agreement.

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 For U.S. Businesses

Domestic and Foreign Market Access

Overview: Trade Policy and Business Environment
 The Sultanate of Oman is classified as a high-income country. Oman was ranked 25th out
of 132 in the World Economic Forum (WEF) Enabling Trade Index (2012), which measures
institutions, policies and services to facilitate trade in economies. Oman has experienced
impressive economic growth in the past few years, with consistently high GDP growth, low
inflation, and surpluses in both its overall fiscal position and external current account. The
Sultan of Oman exerts a wide reaching and strong influence over the economy, mainly
through various state-owned companies. However, more recently, the Sultan has attached
greater importance to implementing an economic development strategy centred on a more
liberal trade policy. This includes diversification away from oil dependence, whilst Oman is
pursuing structural reforms such as the lifting of remaining impediments to Foreign Direct
Investment (FDI) and reducing the size of its public sector, while encouraging private sector
development (WTO 2013).
WEF, 2012, Global Enabling Trade Report
WTO, 2013, Trade Policy Review (Oman)
 INDICATOR, UNITS RANK/13 SCOR
2 E

Domestic Market Access  32 5.21

Foreign Market Access  72 2.46

Tariff rate (%)  59 4.48

Complexity of tariffs , index 1-7 (best)  59 6.24

Tariffs dispersion (standard deviation)  125 16.12

Tariffs peaks (%)  30 0.27

Specific tariffs (%)  64 0.26

Number of distinct tariffs  59 22.00

Share of duty-free imports (%)  85 52.83

Tariffs faced (%)  35 5.20

Index of margin of preference in destination markets, 0-100 85 16.29

(best) 

Source : World Economic Forum, Global Enabling Trade Report 2014

Trade Policy and Market Access
 Oman has been a member of the WTO since 2000, alongside membership of the Gulf
Cooperation Council (GCC) which have been the key factors shaping Omani trade policy.
This has included reviewing and amending trade policy in areas such as: contingency trade
remedies, government procurement, commercial companies, and investment. Oman’s
average MFN applied tariff in 2012 was 5.7 per cent with agricultural exports into the
country facing higher barriers (23.4 per cent) compared to non-agricultural exports (8.2 per
cent). Oman participates in economic integration efforts such as the GCC, which has
committed to trade negotiations for an agreement with the European Commission although
official talks are suspended at the time of writing. Oman is also a member of the Pan Arab
Free Trade Area and has a bilateral trade agreement with the United States, which entered
into force in 2009 (WTO 2008).
WEF, 2012, Global Enabling Trade Report
WTO, 2012, Tariff profile (Oman)
WTO, 2013, Trade Policy Review (Oman)
Standard Compliance and Other Relevant Import/Export Restrictions
 Oman places great importance on standards, conformity assessment and quality for
facilitating trade, economic and industrial development. As a part of the GCC Customs
Union, Oman is working toward the unification of its standards and conformity assessment
systems with those of GCC through the Gulf Standard Organization (GSO). The majority
Omani standards are either GSO standards or those derived from another international
standards organization. Furthermore, the government seeks to harmonize Omani and Gulf
(GCC) standards with International Standards of conformity assessment within the
specifications of WTO principles on Technical Barrier to Trade (TBT) and Sanitary and
Phytosanitary (SPS) measures. However, at the time of writing, not all GCC standards
were consistent with the requirements of SPS Agreements and GCC Member States do not
uniformly undertake their notification requirements to the WTO. Oman accepted the TBT
Code of Good Practice on 18 December 2000.
WTO, 2013, Trade Policy Review (Oman)

FOREIGN POLICY
he Sultanate has a long history of contacts and relations with countries both within and outside the Arab
world. Over many centuries, trade has flourished with the Indian sub-continent and Far East, and in
more recent times, with East Africa. The Sultanate was the first Arab country to establish diplomatic
contact with the United States of America in the first half of the 19 th century. At this time, Oman already
had relations with France and UK.

In 1970, the Sultanate of Oman faced the formidable challenge of winning diplomatic recognition in
international circles after years of isolation. In 1971, Oman joined the Arab League and the United
Nations. In 1972, the Sultanate became a member of the Islamic Conference Organisation and in 1973, a
member of the Non-Aligned Group of Nations. Since then, Oman has joined many international and
regional organisations (GCC).
Oman’s foreign policy, as developed since 1970, is based on three basic principles: the development and
maintenance of good relations with Oman’s neighbours, a pragmatic approach to bilateral relations,
emphasising underlying geostrategic realities rather than temporary ideological positions and the
search for security through co-operation and peace, rather than conflict.These principles have been
consistently applied and in the post-1989 international context have proved both valuable and durable.

Oman has been fully committed to the Middle East peace process since its inception in 1991. The
Sultanate joins the international community in calling for the achievement of a lasting, just and
comprehensive peace which will bring stability and prosperity to the whole region, as well as peace and
security for its entire people. Oman continues to affirm its complete support for the legitimate rights of
the Palestinian people to determine their own future in their own land, including the establishment of
an independent state. Oman has participated actively in the multilateral talk’s phase of the peace
process and has steadfastly opposed the use of violence and terrorism.

In January 1996, representatives of Oman and Israel signed a letter of understanding on the
establishment of Trade Representative Offices in Muscat and Tel Aviv to develop economic, scientific
and trade relations. Oman closed the Israeli Trade Office in October 2000 after the start of the second
Intifada.

In August 2006, Oman condemned the Israeli raids on Lebanon as an unjustifiable act of aggression, in
the belief that the destruction of domestic utilities like power stations was totally unacceptable to world
opinion and did not serve the peace process.

The Sultanate has a long history of

contacts and relations with countries both within and outside the Arab world. Over many centuries,
trade has flourished with the Indian sub-continent and Far East, and in more recent times, with East
Africa. The Sultanate was the first Arab country to establish diplomatic contact with the United States of
America in the first half of the 19th century. At this time, Oman already had relations with France and UK.

In 1970, the Sultanate of Oman faced the formidable challenge of winning diplomatic recognition in
international circles after years of isolation. In 1971, Oman joined the Arab League and the United
Nations. In 1972, the Sultanate became a member of the Islamic Conference Organisation and in 1973, a
member of the Non-Aligned Group of Nations. Since then, Oman has joined many international and
regional organisations (GCC).
Oman’s foreign policy, as developed since 1970, is based on three basic principles: the development and
maintenance of good relations with Oman’s neighbours, a pragmatic approach to bilateral relations,
emphasising underlying geostrategic realities rather than temporary ideological positions and the
search for security through co-operation and peace, rather than conflict.These principles have been
consistently applied and in the post-1989 international context have proved both valuable and durable.

Oman has been fully committed to the Middle East peace process since its inception in 1991. The
Sultanate joins the international community in calling for the achievement of a lasting, just and
comprehensive peace which will bring stability and prosperity to the whole region, as well as peace and
security for its entire people. Oman continues to affirm its complete support for the legitimate rights of
the Palestinian people to determine their own future in their own land, including the establishment of
an independent state. Oman has participated actively in the multilateral talk’s phase of the peace
process and has steadfastly opposed the use of violence and terrorism.

In January 1996, representatives of Oman and Israel signed a letter of understanding on the
establishment of Trade Representative Offices in Muscat and Tel Aviv to develop economic, scientific
and trade relations. Oman closed the Israeli Trade Office in October 2000 after the start of the second
Intifada.

In August 2006, Oman condemned the Israeli raids on Lebanon as an unjustifiable act of aggression, in
the belief that the destruction of domestic utilities like power stations was totally unacceptable to world
opinion and did not serve the peace process.

SLIDESHARE

Vision 2020 – Key Strategies Implementation of Free Trade Agreement (FTA) Oman has implemented US-Oman
FTA and GCC-Singapore FTA, which provides tariff elimination eventually, to make each party’s goods more
competitive compared to other foreign imports. Upon entry into force of the United States-Oman Free Trade
Agreement (FTA) on January 1, 2009, Oman provided immediate duty-free access on virtually all industrial and
consumer products in its tariff schedule duty-free access for U.S. agricultural products in 87 percent of agricultural
tariff lines. Oman will phase out tariffs on the remaining products within 10 years.  The agreement also provides
for substantial market access across Oman's entire services regime, a secure, predictable legal framework for U.S.
investors operating in Oman, an effective enforcement of labor and environmental laws, and enhanced protection
of intellectual property. Process underway for 2 more FTA between EU-GCC and India-GCC, which will further
bolster trade and create business opportunities between Oman and other regions.

Harvard report

Foreign Policy (1970 to Present)

Oman always opts for peaceful resolutions rather than armed conflict. Oman does
not have political interests in other countries that would cause it to interfere in another
country’s domestic affairs. With limited financial resources, Oman has its own borders to
protect, and the current regime has had to overcome numerous internal issues to get
Oman to where it is today.
Following his accession as Sultan, one of Qaboos’s first official foreign visits was
to Saudi Arabia in 1971, which had supported the Imamate and had already expanded its
borders into Omani land. During his visit, Sultan Qaboos suggested that Saudi Arabia is
Oman’s neighbor, and for Oman to protect its borders, it is best for Oman to be at peace
with those it shares borders with, regardless of political differences. The visit resulted in
Saudi Arabia withdrawing its support for Imam Ghalib bin Ali, and the Saudis sent
financial aid to assist Oman in the fight against South Yemen.
Other countries in the Middle East region struggle for power and clash politically
to assert themselves as shapers of the region. Some GCC members expand their interests
beyond their national boundaries in order to increase their influence, and they have the
resources to do so. For example, Qatar’s support for the Muslim Brotherhood, and for
Islamist-leaning rebel groups in Syria, at times puts it at odds with fellow GCC
members.43 In 2014, Saudi Arabia, UAE, and Bahrain temporarily withdrew their
ambassadors from Qatar, “accusing it of jeopardizing GCC security, after Qatar refused
to commit to a security agreement signed by every other GCC member.”44 Oman did not
withdraw its ambassador.
More recently, in a Saudi-led move in Yemen called Operation Decisive Storm,
Oman was the only GCC country that declined to join—another instance in which Oman
demonstrated that it is the most independent GCC member within the Saudi sphere of
geopolitical influence and the country, according to Giorgio Cafiero, “most committed to
cooling regional sectarian tensions.”45 The Saudi-led coalition supported an ousted
Yemeni regime; on the other side, Iran supported the Houthis who are Shia. The Houthi
rebellion is based largely on socio-economic issues, in particular calling attention to
inequalities imposed by the Yemeni government against the Houthis. These issues
festered for some time until conflict erupted in 2011.
Yemen ranks as one of the most impoverished places in the world.46 It is torn by
tribal conflicts, sectarianism, attacks by Al-Qaeda, corruption, unemployment, and food
insecurity.47 Although North and South Yemen united in 1990, various factions and
economic weaknesses made the country vulnerable to conflicts and proxy wars as it
became a base for radical groups. According to Corinne Graff, dissatisfied citizens
respond more willingly to offers that address their grievances, even when such offers
come from violent extremist groups because the central government failed to deliver
basic services.48 The situation in Yemen has not yielded sufficient economic benefits to
meet the needs of Yemenis, thereby resulting in internal divisions that continue to hinder
internal stability.
Oman is concerned with protecting its own borders from violent radical groups
rather than joining a coalition that intervenes militarily in a neighboring country. Oman
already has some history with what was once South Yemen, and intervening in Yemen
could make Oman vulnerable to attacks. It is most beneficial to Oman to stay out of any
military confrontation with Yemen rather than provoke hostile actions from factions or offer
humanitarian and medical support to wounded Yemenis who may also be treated in Omani hospitals.49 Sultan Qaboos
put forward his foreign policy approach from the early stages of his accession. In 1973, he stated a plan for the country:
“to expand its strong desire for maintaining peace and stability between the various countries of the world and the
establishment of friendly and mutual relations with every country which extends a hand of friendship to us on the basis
of mutual respect.”50 During the fourth summit conference of the Non-Aligned Movement held in Algeria in 1973,
Sultan Qaboos outlined Oman’s foreign policy, which was “non-interference in the affairs of others and the rejection of
any interference in the affairs of our country.”51 Today the Sultan continues to pursue this policy in an effort to prevent
foreign interference in Oman’s affairs, especially having witnessed how such interference could potentially aid
rebellions. In 1975, Jordanian forces were dispatched to assist Omani forces in fighting the Dhofar rebels. At the end of
1975, the Sultan’s forces, along with British advisors, Jordanians, Iranians, and Baluchis, gained control over Dhofar,
thus ending the decadelong war. One of the first steps the Sultan took to end the Dhofar Rebellion was to pardon the
rebels who surrendered and offer governmental assistance, a step that also paved the way for the country’s foreign policy
of “friends to all, enemies to none.”52 Sultan Qaboos further resolved the rebellion by giving the people their right to
basic human needs, an education, and medical assistance. Sultan Qaboos opened the doors for dialogue, an element that
did not exist under the previous regime. This exemplifies another feature of Oman’s foreign policy: a preference for
dialogue and diplomacy rather than military intervention. Its internal policies during this time contributed to building
Oman’s current foreign policy. In 1976, Sultan Qaboos granted a pardon to all who joined the rebellion. The war resulted
in victory for Oman as “the first to be achieved by an Arab country over world communism in the battlefield in a war
which lasted long years, and the second victory by an international state” in the words of Sultan Qaboos.53 According to
Allen and Rigsbee, the impact of the Dhofar War affected the nature of Omani development and in defining Sultan
Qaboos. 54 Oman had been a fragile state, divided by ideological factions that were supported by external groups. After
this experience, the Sultan’s policies were formed in ways that prevented the likelihood that any anti-regime group might
form. Jeffrey Lefebvre noted that the stabilization of the domestic situation in Oman allowed Sultan Qaboos to devote
more attention to foreign policy and to implement his policy of independence (maintaining freedom of action),
pragmatism (demonstrating flexibility in reaching accommodation with regional and global powers), and moderation
(eschewing extreme positions and supporting a stable regional political-military status quo) in securing
Omani foreign-policy interests.55
Oman was one of three Arab countries and the only Gulf country that did not cut
ties with Egypt when the Egypt-Israel Peace Treaty was signed in 1979, following the
Camp David Accords in 1978. Sultan Qaboos declined to attend the 1978 Rejectionist
Front Summit against Egypt. Iraq responded to Oman’s position by stating: “We regard
every Arab ruler who does not implement the summit decisions as a traitor. It is therefore
our duty to instigate his people against him and to provide them with the necessary means
to topple him.”56 Cutting communication with Egypt would not do any good either in the
short or long term. Instead, that response would only jeopardize existing regional stability
and cause uncertainty in a region that was already facing turmoil. Sultan Qaboos had an
objective to establish long-term stability, and to do this meant to look for long-term
solutions rather than short-term ones. According to Uzi Rabi, Sultan Qaboos understood
that foreign policy required some risky and bold steps in order to pursue long-term
interests.57
Oman did join the Middle East peace process, which entailed a series of
negotiations facilitated by the U.S. The core parties in this process—Israel and the Arab
states whose territory Israel had occupied after the 1967 war—were, according to Jones
and Ridout, “encouraged to develop bilateral negotiations with the aim of achieving individual peace treaties on a ‘land
for peace’ basis.”58 This process meant establishing
five multilateral working groups: water, refugees, the environment, arms control and
regional security, and regional economic development. Oman took an active role
following the announcement of the Oslo Accords of 1993, when the Omani government
began to explore pursuing its interests in the Water Resources Working Group and to
more generally contribute to the peace process by developing a bilateral relationship with
Israel.59 For instance, in 1994, Oman hosted a meeting of the Water Resources Working
Group, which was attended by Israeli government representatives. At the end of 1994,
Yitzhak Rabin, then Israeli Prime Minister, visited Oman at the invitation of the Omani
government. In 1996, the Middle East Desalination Research Center was established in
Oman, as another institution of the peace process. An Israeli Trade Representative Office
was opened in Muscat in May 1996, and an Omani Trade Representative Office was
opened in Tel Aviv in August 1996. However, Oman closed that office in 2000 after the
break out of the Second Intifada.
The Omani government also was aware that most of its citizens would be against
an Oman-Israel relationship because they supported Arab solidarity with the Palestinian
struggle. Consequently, the visits of Israeli officials to Oman were not publicized. The
reason the Omani government approached the Israeli matter differently from most of its
Arab counterparts is due to its pragmatism. In 1983, the Omani Minister Responsible for
Foreign Affairs, Yusuf bin Alawi, took the unusual step of calling on Arab nations to
recognize Israel, particularly by publicly acknowleding Israel’s existence.60 However, the
possibility of any official government relationship in the future between Israel and Oman
will only develop with the appearance of a Palestinian state.
The principles of non-intervention, non-interference, and respect for the internal
affairs of other countries subsequently led countries to reciprocate the same principles
toward Oman, which successfully built a platform where there is open dialogue based on
the underlying principle of respect. According to Giorgio Cafiero, Sultan Qaboos’s
foreign policy of maintaining respectful relations with all relevant actors and offering
Oman as a third-party mediator is consistent with Oman’s strategy of relative neutrality.
That same strategy brought American and Iranian diplomats to Muscat in 2012 for talks
that led to the historic framework reached by Iran and the world powers in 2015.61 Oman
has been asked by foreign governments to negotiate the release of foreign citizens. Oman
negotiated and paid a one million dollar bail for the release of three American hikers who
were jailed in Iran in 2009.62 Since war began again in Yemen in 2015, Oman has
negotiated the release of citizens from America, Britain, France, and Canada.
It is important for a country’s foreign policy to be respectful of others in order for
its own borders and internal affairs to be stable. According to Marc Valeri, the political
instability evident in the Middle East has always been perceived by Oman as a threat to its own internal stability, which
helps explain Oman’s determination to prevent regional actors from interfering in its internal affairs.

Once in office, Qaboos reversed the isolationist policy of his father and started establishing relations
with most Arab and Western countries. By 1987, he had even developed ties to countries of the
Eastern bloc, including the USSR and People's Republic of China. Oman, however, has maintained a
very pro-Western tilt in its foreign policy. Oman was one of the only two Arab states that endorsed
the Egypt-Israel Peace Treaty of 1979. In June 1980, Oman concluded an agreement with the United
States granting access to Omani air and naval facilities, thus making Oman a base for U.S. activities
in the Persian Gulf. The agreement was revised and renewed in 2000. Oman has pursued its U.S.
policy despite concerns expressed by fellow members of the Gulf Cooperation Council. The
outbreak of the Iran-Iraq war further underlined Oman's strategic importance, particularly with
regard to the Strait of Hormuz, which is a narrow waterway at the mouth of the Persian/Arabian Gulf
between Oman and Iran. About two-thirds of the world's oil traffic passes through the strait.
The Omani government has pledged to provide support to the United States in its War on Terror,
initiated by U.S. president George W. Bush in response to the 11 September 2001 terrorist attacks
that targeted the World Trade Center in New York and the Pentagon in Washington, D.C.
Most of Oman's foreign policy concerns are regional. When Qaboos took control, the rebellion in the
Dhofar province of the country affected his relations with other states in the region. South Yemen
and Iraq proved to be unfriendly neighbors at that time because they supported the rebels. Since a
reconciliation summit in 1982, relations with Yemen have improved and have culminated in
completion of a cooperation pact between the two neighbors in October 1988. Border disputes with
Yemen were settled in 1992, two years after the merger of North and South Yemen (May 1990) into
the Republic of Yemen. The countries now share cooperative relationships.
Despite its close relations with the West, Oman has tried to maintain a balanced regional policy. In
early 1989, it restored diplomatic relations with Chad. In 1990, negotiations with the Palestinian
Liberation Organization (PLO) indicated a desire to pursue a foreign policy that was in line with
regional sentiment.
By 1999, Oman held to a middle-of-the-road stance of conciliation and compromise in Middle
Eastern politics. In January 1999, Oman's foreign minister met with his counterparts from Egypt,
Saudi Arabia, Syria, and Yemen at a closed meeting in Cairo to forge a position on the question of
Iraq for the upcoming meeting of the 22-member Arab League later in the month. In February 1999,
Qaboos attended the funeral of King Hussein of Jordan, a gesture that expressed the close ties
between Oman and Jordan. U.S. Defense Secretary William Cohen included Oman in his tour of
Persian Gulf allies, which was aimed at allaying concerns regarding extended U.S. actions against
Iraq. Newly enthroned King Abdullah of Jordan, accompanied by his prime minister and foreign
minister, met with Qaboos in April 1999 to cement the good relations between Jordan and Oman.
Oman was alone among the Gulf states in refraining from criticizing Jordan for its non-oppositional
stance toward neighboring Iraq during the Gulf War. Also in April, Qaboos signed an agreement
with the president of the UAE defining the borders between Oman and the emirate of Abu Dhabi.
Throughout 2002 and into 2003, the United States, allied with the United Kingdom, led a diplomatic
drive to remove Iraqi president Saddam Hussein from government, for his alleged possession of
weapons of mass destruction (WMD). The UN Security Council passed Resolution 1441 on 8
November 2002, calling on Iraq to disarm itself of all WMD and WMD capabilities, to allow for the
immediate return of UN and International Atomic Energy Agency (IAEA) weapons inspectors (they
were expelled in 1998), and to comply with all previous United Nations (UN) resolutions regarding
the country since the end of the Gulf War in 1991. France, Germany, and Russia (among others)
opposed the U.S. and British position on the possible use of force as a last resort to oust Hussein.
At the end of 2002 and into 2003, the United States and the United Kingdom were amassing troops,
aircraft, naval vessels, and weaponry in the Persian Gulf region: by February 2003, there were 3,600
U.S. military personnel, 100 elite British special forces, and approximately 40 aircraft in Oman. The
number of U.S. and British troops stationed at bases in Kuwait, Qatar, Saudi Arabia, Oman, and
Bahrain grew to 250,000 by March 2003. On 19 March, the United States launched air strikes
against Baghdad and war began. Baghdad fell to U.S. troops on 9 April (British forces had secured
Basra and regions of southern Iraq).
The war suppressed the economies of Persian Gulf states, as tourism and air travel diminished, oil
prices rose sharply, trade with Iraq stopped and foreign direct investment was halted. The end of the
war saw a rise in all Arab stock markets and hope that several companies in the region would be
likely to benefit from reconstruction contracts in Iraq. Observers have speculated that substantial
political and economic reforms throughout the region could result from the consequences of regime
change in Iraq. Oman would be included in such a scenario.

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