The rise of the Gulf

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: Most countries earn their keep through effort and ingenuity. Those of the Gulf owe their living to geolo-gical serendipity. The harder China works, the faster India grows, the higher oil prices climb. The Gulf swells with confidence or despair depending on the price of “Arabian light” or “Oman blend”. Five years ago, though up from its $9 low in the 1990s, the oil price stood at a mere $26 a barrel. Many of the Gulf’s governments were indebted and insecure. Saudi Arabia was facing an al-Qaeda insurgency. Expatriates, used to a secure if sequestered life, tried not to think about the tanks parked outside their compounds. Now the same oil fetches over $100 a barrel and confidence has returned. The insurgency in Saudi Arabia has been quashed. The Gulf is once again a source of envy more than concern.

Surely only good can come from so much cash? Hardly. In the 1970s the Gulf’s money was a disaster for Latin America, for, recycled through Western banks, it caused a decade-long debt crisis. The Gulf itself suffered by inflicting stagflation on the West, thus causing a 20-year-long slump in oil prices. They built white elephants such as the King Khalid airport in Riyadh, one of whose terminals has been mothballed since the airport opened in 1983. They allowed a greedy few, many of them arms dealers, to pocket huge fortunes. They distorted their economies in the name of diversification, for example by growing wheat in the desert.

Are the Gulf countries handling their windfall any better this time? The sheer quantity of cash is hard to manage. It is too plentiful for small economies to spend, and has therefore added to the glut of global saving that is in part responsible for the financial excesses of recent years. Indeed, some economists see an analogy with the 1970s. Gulf petrodollars have been recycled not to improvident governments in Latin America but instead to improvident homebuyers in the uncreditworthy fringes of America.

The Gulf is doing its best to spend its windfall. Stately pleasure domes are springing up all along the coast. Saudi Arabia announces six, new economic cities, which it hopes will create millions of jobs for its restive, youthful population. There are worrying echoes of the wasteful 1970s. But this time round, more of the spending is being done by private companies, with an eye to consumer demand, rather than by states.