The Real Threat in the Persian Gulf

Forget terrorism and a nuclear Iran; the biggest threat to Persian Gulf countries is their economy.

The real threat in the Persian Gulf, writes Jon Alterman at World Politics Review, is not Islamic terrorism or even a nuclear Iran; the greatest challenge to many in the region is perpetuating the impressive economic growth of recent decades into the twenty-first century.

Security is still a primary concern among the members of the Gulf Cooperation Council (GCC) but there is also room for perspective. “The terrorism threat no longer feels existential,” notes Alterman, “as a combination of effective security initiatives, internal co-optation and international cooperation have made their mark.” With regard to Iran, much of the Middle East is counting on external action, either from Israel, the Unites States, or both, to keep the country’s nuclear ambitions at bay.

More pressing is the specter of economic decline. Unless these countries are able to foster dynamic, creative workforces over the long term, they will fail, warns Alterman.

For the last half century or so, the economies of Saudi Arabia and the smaller Gulf states including Oman, Qatar and the United Arab Emirates, have grown spectacularly. “After World War II,” writes Alterman, “today’s gleaming Gulf capitals were impoverished collections of reed huts.” Schooling was uncommon; fresh water scarce; traffic nonexistent. Even radios were a rarity. By comparison, today, these cities boast an ubiquity of satellite dishes that deliver over five hundreds channels in Arabic. Life expectancy has doubled while malnutrition and endemic diseases have disappeared. “For Gulf Arabs who came of age in the 1960s, the contrast between their youth and their adulthood could not be starker.”

This evolution from Third to First World in a time span of less than fifty years was driven almost entirely by oil. Exports of oil and natural gas expanded exponentially but are unlikely to increase further. “Per capita income increased a hundredfold, from $500 in 1960 to $50,000 in 2010,” notes Alterman; “it cannot increase another hundredfold, to $5 million, in the fifty years to come.”

That is why the Gulf states are almost desperately modernizing their economies. Places like Dubai and Abu Dhabi are scrambling for real estate and finance while educating their populations at universities and private schools that didn’t even exist a few decades ago. The effort is paying off. Non oil and gas currently account for 64 percent of the UAE’s total gross domestic product.

The challenge is much greater for Saudi Arabia which houses a larger population and is still the world’s foremost petroleum exporter. Roughly 75 percent of budget revenues and 90 percent of export earnings come from oil. The oil industry comprises nearly half of Saudi Arabia’s GDP, compared with just 40 percent from the private sector. The kingdom will be building six “economic cities,” to be completed by 2020, which should help diversify the Saudi economy with significant investments in energy and telecommunications.

The Gulf states know that time is of the essence. Ironically, in the years ahead, the world’s dependance on oil is precisely what should allow them to overcome it.