The Economics of Oil

Few areas exhibit a greater disparity of individual and national wealth than the Middle East. Although millions live in abject poverty, a fortunate few rank among the wealthiest people in the world. The annual per capita income in Egypt is about $600 (in U.S. dollars), but in the tiny states of Kuwait and United Arab Emirates, it is nearly $20,000. Some of that disparity can be explained by the uneven distribution of fertile and barren land, but the primary reason, of course, is oil. Unfortunately for most of the peoples of the region, oil reserves are distributed unevenly and all too often are located in areas where the population density is low. Egypt and Turkey, with more than fifty million inhabitants apiece, have almost no oil reserves. The combined population of Kuwait, the United Arab Emirates, and Saudi Arabia is well under ten million people. This disparity in wealth inspired Nasser’s quest for Arab unity (and perhaps Saddam Hussein’s as well), but it has also posed a major obstacle to that unity. The growing importance of petroleum has obviously been a boon to several of the states in the region, but it has been an unreliable one. Because of the violent fluctuations in the price of oil during the past thirty years, the income of oil-producing states has varied considerably. The spectacular increase in oil prices during the 1970s, when members of OPEC were able to raise the price of a barrel of oil from about $3 to $30, could not be sustained, forcing a number of oil-producing countries to scale back their economic development plans. Not surprisingly, considering their different resources and political systems, the states of the Middle East have adopted diverse approaches to the problem of developing strong and stable economies. Some, like Nasser in Egypt and the leaders of the Ba’ath Party in Syria, attempted to create a form of Arab socialism, favoring a high level of government involvement in the economy to relieve the inequities of the free enterprise system. Others turned to the Western capitalist model to maximize growth, while using taxes or massive development projects to build a modern infrastructure, redistribute wealth, and maintain political stability and economic opportunity for all. Whatever their approach, all the states have attempted to develop their economies in accordance with Islamic beliefs. Although the Koran has little to say about economics and can be variously understood as capitalist or socialist, it is clear in its opposition to charging interest and in its concern for the material welfare of the Muslim community, the umma. How these goals are to be achieved, however, is a matter of interpretation. Socialist theories of economic development such as Nasser’s were often suggested as a way to promote economic growth while meeting the requirements of Islamic doctrine. State intervention in the economic sector would bring about rapid development, while land redistribution and the nationalization or regulation of industry would prevent or minimize the harsh inequities of the marketplace. In general, however, the socialist approach has had little success, and most governments, including those of Egypt and Syria, have shifted to a more free enterprise approach while encouraging foreign investment to compensate for a lack of capital or technology. Although the amount of arable land is relatively small, most countries in the Middle East rely to a certain degree on farming to supply food for their growing populations. In some cases, as in Egypt, Iran, Iraq, and Turkey, farmers have until recently been a majority of the population. Often much of the fertile land was owned by wealthy absentee landlords, but land reform programs in several countries have attempted to alleviate this problem. The most comprehensive and probably the most successful land reform program was instituted in Egypt, where Nasser and his successors managed to reassign nearly a quarter of all cultivable lands by limiting the amount a single individual could hold. Similar programs in Iran, Iraq, Libya, and Syria had less effect. In Iran, large landlords at the local and national level managed to limit the effects of the shah’s reform program. After the 1979 revolution, many farmers seized lands forcibly from the landlords, giving rise to questions of ownership that the revolutionary government has tried with minimal success to resolve. Agricultural productivity throughout the region has been plagued by the lack of water resources. With popu- lations growing at more than 2 percent annually on average in the Middle East (more than 3 percent in some countries), several governments have tried to increase the amount of water available for irrigation. Many attempts have been sabotaged by government ineptitude, political disagreements, and territorial conflicts, however. The best-known example is the Aswan Dam, which was built by Soviet engineers in the 1950s. The project was designed to control the flow of water throughout the Nile valley, but it has had a number of undesirable environmental consequences. Today, the dearth of water is reaching crisis proportions and is having a political impact as governments squabble over access to scarce water resources in the region. For example, disputes between Israel and its neighbors over water rights and between Iraq and its neighbors over the exploitation of the Tigris and the Euphrates have caused serious tensions in recent years. Another way in which governments have attempted to deal with rapid population growth is to encourage emigration. Oil-producing states with small populations, such as Saudi Arabia and the United Arab Emirates, have imported labor from other countries in the region, mostly to work in the oil fields. By the mid-1980s, more than 40 percent of the population in those states was composed of foreign nationals, who often sent the bulk of their salaries back to their families in their home countries. The decline in oil revenues since the mid-1980s, however, has forced several governments to take measures to stabilize or reduce the migrant population. Since the Iraqi invasion, Kuwait, for example, has expelled all Palestinians and restricted migrant workers from other countries to three-year stays.