Arabian Might; the Upside of High Oil Prices? A Golden Era of Wealth, and Possibly Real Economic Reform, in the Middle East
Power, Carla, Sawy, Nada El, Newsweek International
Byline: Carla Power (With Nada El Sawy in Dubai)
One might think that when Libya struck oil in the '50s, its monarch would have been thrilled. "I wish it could have been water," said King Idris. "Oil makes men idle, whereas water makes them work." If that's so, the Middle East should be napping now. With benchmarks for oil rising fast, the region's economies grew 5.6 percent last year and recorded the highest per capita growth rate in a generation. Even though OPEC ministers vowed last week to boost production, markets no longer believe the group can slake global demand. The price closed Friday at $58.47 a barrel, a new record.
The result is an unexpected golden era that shows no sign of ending soon. Last year Saudi Arabia based its budget on a forecast of $19 a barrel; the average price over the year was $35, giving Riyadh the biggest surplus in Saudi history. Stock markets are recording double- and even triple-digit growth regionwide. Playing the market, jokes Saudi diplomat Jamal Khashoggi, is the new national hobby. Tourists are flocking to Dubai and Morocco. Real estate and construction are thriving from Cairo to Abu Dhabi. "Calling this a boom," says Fawaz al-Siri, a Kuwaiti public-relations man, pausing from his 14-hour day for a filet mignon, "is a massive understatement."
But King Idris was right to be wary of easy money. The oil windfall could undercut the global growth that drives demand for oil, and threatens to erode the Arab will to reform by diversifying away from oil. Three decades ago, the Arab world poured its last oil bonanza into welfare programs that created high expectations--and deep bitterness when oil prices fell and the gravy train slowed. "The boom of the '70s and '80s produced bin Ladens," says Shafeeq Ghabra, president of the American University of Kuwait. "It produced people who want to destroy their own countries. So what is the worth of money?"
The good news: this boom could be different. Across the region, flabby oil states are getting stronger. In the pages that follow, NEWSWEEK examines some of the surprising stories that have been all but drowned out by war headlines. The king of the oil states, Saudi Arabia, has been seeing steadier, stronger growth in industries other than oil. Egypt, which once inspired the Arab world to follow a disastrous socialist path, is now the region's most important model for a burgeoning private sector. Per capita incomes are rising again in both countries after a long period of decline--a hopeful sign that Arab economies may be able to stop, perhaps even reverse, the worsening of misery that helps feed terror. Arif Naqvi, CEO of Dubai-based Abraaj Capital, the region's largest private-equity group, says the Middle East hasn't experienced such a shake-up since the aftermath of World War I, when the Great Powers carved up the region into nation-states: "This time round, it's going to be economic change. …