Oman's Ministry of Manpower on 28 January imposed a six-month freeze on the hiring of foreign workers in 87 job categories in information and technology, accounting and finance, marketing, human resources, insurance, media, medical, airport, engineering and technical professions.

• The freeze on issuance of foreign workers' visas is likely the government's main method of making progress on its promise of creating 25,000 jobs for Omani nationals within six months.
• The government faces the challenge of increasing jobs for Omanis while trying to reduce the deficit and accommodate reduced revenue from years of low oil prices.
• The government is likely to gradually increase local-content requirements in an effort to improve the employment rate, increasing operational costs in Oman for foreign investors in non-strategic sectors.

According to the Ministry of Manpower's statement, the decision to freeze hiring of foreign workers does not extend to small and medium-sized Omani enterprises whose owners were already running the business and registered for social insurance with the relevant authorities prior to the ban coming into effect. The freeze is likely the government's only feasible option to fulfil its 25 January promise to create 25,000 private- and public-sector jobs for Omani nationals within six months. That the government had initially announced this same job creation plan on 5 October 2017, but failed to accomplish it by its set deadline of the end of the year, indicates the government's limited options in its attempts to rapidly reduce unemployment and a sustained commitment to its policy of gradually shifting the employment burden on to the private sector.

The initial announcement in October was likely in reaction to a social media campaign highlighting 'Omanis without jobs', while the latest six-month freeze was probably a response to a rare peaceful protest on 22 January outside the Ministry of Manpower involving several hundred Omanis; at least one media outlet has said that smaller scale, albeit peaceful, protests have been ongoing for two weeks.

Peaceful gatherings involving at most a score of people outside government buildings have occasionally recurred in Oman in response to austerity measures implemented over the last four years, or to demand improved job opportunities for Omani graduates or more efficient and transparent bureaucratic processes. However, the government's responsiveness to the demands of individual protesting groups, and effective deployment of police forces, will probably ensure that protests remain peaceful, and pose low risk of damage to property and commercial disruption. Weakening economic growth in the 12-month outlook, or rapidly rising unemployment would be strong indicators of growing risk of persistent protests involving thousands in key cities such as Muscat, Sohar, and Salalah, capable of causing significant disruption to commercial activity and cargo. IHS Markit forecasts 2.8% growth in Oman's GDP in 2018 (compared with 0.8% in 2017) and a reduction in the budget deficit to 7.4% of GDP (compared with 11% in 2017 and 20.5% in 2016). Reflecting the government's sensitivity to mounting public pressure, Oman allocated USD260 million for a new fuel subsidy programme for low-income Omanis.

New opportunities

Oman's fiscal outlook has improved as a result of higher global oil prices compared with the previous three years; reduced spending due to subsidy reductions/fuel price increases since 2016; increase in tax revenues, given corporate tax increases in early-2017; increased trade flows through Omani ports and airports as a result of the ongoing Saudi and Emirati-led blockade of Qatar since mid-2017; and increased gas production since the coming online of phase one of Block 61 gas field in late 2017. The latter is expected to increase gas production capacity by around 20% in 2018, driving faster hydrocarbon sector growth despite Oman adhering to oil production cuts.

Oman has especially benefited from the redirection to its northern seaports of some Qatari cargo barred from Emirati ports. Oman's Sohar Port and Freezone recorded a 36% increase in container traffic as well as 15% increase in vessel calls in 2017 compared with the previous year. A Qatari-Omani memorandum of understanding to increase bilateral trade and investment, including Omani export of food products, signed on 28 January, is another positive indicator of expanding trade and investment opportunities.

Outlook and implications

The government likely deems it necessary to appear responsive to public pressure for jobs for Omani youth, and show commitment to its ‘Omanisation' policy, which promises to incrementally reduce reliance on foreign labour to the advantage of Omani workers. It also needs to maintain its austerity policies, although recent rises in oil prices provide it with more leeway to offer more sustainable subsidies for the poorest segments of society. As such, the foreign worker visa freeze will probably be renewed for most if not all of the sectors. Local-content requirements including in strategic sectors like tourism and public-private partnerships are also likely to become more stringent. The government will nonetheless likely continue to offer access to subsidised funding and exemptions to small and medium-sized Omani-run enterprises, with the aim of minimising any backlash from the less well-off segments of the commercial class.

Although the GC3+1 embargo of Qatar has provided Oman with new economic opportunities, the use of Omani ports (together with Kuwaiti, Iranian, and other ports), has also significantly undermined the embargo's effectiveness. This, together with past Omani foreign policy divergences, most notably over Yemen and Iran, has complicated Oman's relationship with other Gulf Co-operation Council (GCC) members, particularly Saudi Arabia. Saudi and Emirati media over the past year in particular have repeatedly criticised Oman's foreign policy choices and frequently questioned its reliability as an ally. We assess, however, that these divergences are unlikely to escalate into an official dispute involving suspension of trade or long-term border closures, or other major commercial disruptions. An expansion of the GC3+1 embargo to encompass Oman, although unlikely, would temporarily cause severe disruptions to construction projects in Oman and shortages in other goods, given reliance on imports coming into the country through Jebel Ali port in Dubai. Such a development would also risk triggering the collapse of the six-member GCC.

Saudi Arabia, in particular, probably calculates that it cannot afford to alienate Oman, particularly if it remains committed to its military engagement in Yemen. Oman had refused to join the Saudi-led coalition, and continues to facilitate back-channel negotiations, prisoner exchanges, and local ceasefires between rival factions. With little chance of a clear military victory for the coalition against Iran's Houthi allies, Oman's access to a broad range of tribal, political and civil society groups across Yemen, its continued neutrality in the conflict, and ongoing security co-operation with its GCC allies remain important factors contributing to the feasibility of the respective Saudi and Emirati military engagements there.

Progress on two construction projects in Oman's Duqm port, which were allocated grants from the Saudi Development Fund on 4 January, and on the joint Saudi-Omani investment fund established on 16 January would indicate continued good working relations between Saudi King Salman bin Abdulaziz Al Saud's and Omani Sultan Qaboos bin Said Al Said's respective governments, as would Oman's continued involvement in UN and UK efforts to broker Yemeni peace negotiations, which are co-ordinated with Saudi Arabia.