Impacts Of Oil Discovery In The Middle East

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Impacts of Oil Discovery in the Middle East

Introduction

The early 20th century has emerged as a significant point of the development of the

Middle East region. The Middle East countries before 1950 exhibited some lowest levels of

political as well as socio-economic developments worldwide. Nevertheless, with the discovery of

large volumes of oil reserves and their further active exploration and utilization, the region has

witnessed vast changes in social, political, as well as economic spheres (Tsui & Kevin 92).

Middle East region currently has vast oil reserves accounting for about 66 percent of the total

world’s supply, which has led to the rapid generation of wealth for most states mostly in the oil-

rich areas (Schwedler et al. n.d.). It has also altered and greatly influenced the economic and

political processes not only within the entire region but also in the oils exporting countries.

There is, however, a common perception that the largest oil reserves have led to economic

prosperity and modernization while on the other hand generated weak countries, which are

autonomous demands of the society in terms of accountability and political accountability (Smith

& Benjamin 236). This paper will, therefore, examine how the discovery of oil changed the

economy of the Middle East.

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The Middle East region has undergone both growth and also a decline in the cycle over

the last three decades due to the discovery of oil in the area. The period from 1965 to 1985

marked the period for greater economic growth that had been facilitated by the spectacular

increase in oil prices resulting from the Arab-Israeli War of 1973. The rise in oil prices resulted

in a number of Middle East countries benefiting from the increased revenue collections

witnessed (Tsui & Kevin, p.97). The oil-producing states of the Middle East particularly the

larger producers that include Qatar, the United Arabs Emirates (UAE), Kuwait, Iraq, Iran, and

Saudi Arabia directly benefited from the prices rise in terms of high export earnings. These states

likewise had had numerous available job opportunities available due to the Gulf booming

economies (Marcel & Valerie n.d.).

The non-oil producing states within the region had also reaped some forms of benefits

from these oil producing countries considering that quite a number of those who stayed in the

non-oil producing states had gone to the oil producing countries for employment opportunities as

oil field workers, teachers, as well as construction workers with the aim of earning money. The

money earned by these guest workers they sent back home to their family members thereby

giving providing significant importance to the national income in the states like Palestinian areas,

Yemen, Egypt, and Jordan (Schwedler et al. n.d.). The money sent back home was spent in their

locations thereby boosting their national economies both directly and indirectly. Moreover, these

non-oil producing states during this period of economic growth also benefited from a rise in the

levels of foreign assistance they received from the oil-producing states who were their

sympathizer neighbors.

This newfound wealth resulted in considerable social achievements within the Middle

East region such as a rise in life expectancy and reduction of the mortality rates and the rise of

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adult literacy from 34 percent in 1970 to about 53 percent by 1990. The widening gap between

the middle east states was also rampant after the oil discovery since other states increased their

national wealth while others gained faster growth rates compared to others (Marcel & Valerie

n.d.). The income per person rose for those in the higher end of the gap among the major oil-

producing states having low population, which at times surpassed the level Western European

economies (Tsui & Kevin 102). However, the states on the minor end of the gap like Yemen and

Jordan were still among the poorest states in the current world. The rapid economic growth of

1970 and the early 1980s, however, came into a decline during 1986 when the oil price reduced

which resulted from the overproduction thereby reducing the foreign export earning amounts in

most states by greater margins (Smith & Benjamin, p.240). The reduction in the foreign export

earnings influence most states in two main ways through the loss of job or employment

opportunities among people in both the oil producing and non-oil producing states in the Middle

East. The second effects were that the non-oil producing countries lost the foreign aid, which

they had been receiving from the oil-producing states.

Positive impacts

Oil discovery and utilization have had greater impacts on the economic developments of

Middle East region in general, particularly in the oil-rich countries. The Middle East appeared a

poor region before the discovery of oil and was economically deprived of limited pastoral and

agricultural economies and small however locally significant caravan trade. Nevertheless,

immediately after the discovery of oil, the region began the extraction by utilizing the first half

of the 20th century, which has transformed the situation dramatically (Marcel & Valerie n.d.).

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The major share of revenues in the Middle East oil countries is indeed drawn from the

export and utilization of oil. The oil-rich countries such as Kuwait, Bahrain, UAE, Qatar, Saudi

Arabia, and Oman since the mid 20th century have experienced substantial growth in oil

revenues, which in turn has dramatically increased the GDP growth of such countries, reaching

its peak at the mid-1980s. In addition, the government expenditure along with the GDP has been

growing promptly well. These periods mark the time when economic modernization in these

Middle East oil rich countries started. Moreover, the 1960 marks the huge public investments in

terms of education, health, and infrastructure as well as the state-owned enterprises within the

Middle East protected industries (Schwedler et al. n.d.). These efforts aided in the full utilization

of underused efforts and capacities, which in turn boosted the industrialization efforts within the

Middle East countries. The economic growth performance of these countries during the 1960s as

a result were the highest globally marking about 6 percent per worker annually. The huge oil

revenue share further sustained this boom until 1970s (Longrigg, Stephen n.d.). Therefore, such a

rapid economic growth has resulted in the economic modernization in terms of the development

of tourism, improvement of the housing conditions of the citizens, the development of

infrastructure, and the construction of universities, schools, hospitals, and new buildings among

others.

The oil-rich state of the Middle East region has retained higher oil revenues which

translate high GDP where the GDP value for UAE, for instance, has been remarkably higher

compared to that of the United Kingdom since 1981. It has been established that oil discovery,

exportation, and utilization in the middle east countries have promoted the economic

modernization within the oil processing states thereby improving infrastructural development

and the improvement of both living and social conditions as well as the improvement of

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healthcare conditions (Longrigg, Stephen n.d.). The Middle East countries have further become

more attractive for both tourism and business following the oil discovery since more companies

and firms enter the markets of these countries thereby developing their business operation within

the region. In terms of tourism, the United Arabs Emirates, for instance, has emerged a renowned

tourist destination with the Dubai emirates gaining the name of a luxury holiday resort with

much unique attraction and only seven stars hotels all over the world.

Furthermore, the rapid economic growth had been accompanied by significant gains

among a variety of social indicators. These entailed greater expansion and development within

the public sector migration and employment opportunities abroad thereby reducing the level of

unemployment and raising the advancements of the industrial economies. The Middle East

region by the late 1980s marked greater reductions in the child or infant mortality rates with the

increased school enrolment levels, which approached 100 percent and high life expectancies

(Tsui & Kevin, p.109).

The economies of both Middle East and Central Asia depend on the export of oil to other

countries. The Middle East like other world countries faced a financial crisis in 2009, however,

such crisis contributed to a change in oil prices which never had such reason. The major cause of

the reduction of the gross domestic product (GDP) for the Middle East countries connected with

the decline in oil production by the OPEC (Marcel & Valerie n.d.). The region before the

discovery appeared to be affected by wars over the available resources and religious conflicts.

However, Middle East currently has gained much importance and has become very successful

considering that it has become the backbone of the western economies. It is projected that the

economic growth rate of between 2010 and 2011 was 4.1 percent and 5.1 percent respectively

(Schwedler et al. n.d.). This transformation is majorly due to oil discovery in the region. The

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revenues from both oil and gas production with the unparallel feedstock and energy support

further development and investment in the Middle East.

High oil prices enable the Gulf countries to maintain a share of oil markets, however,

such bigger prices negatively affect the global economy. On the other hand, however, the lower

oil prices could have negatively influenced the inherent advantage of Middle East countries.

There are clear indications that the Middle East economy has been greatly affected by the oil

industry. All nations in the region according to the CIA World fact book have maintained a

positive growth rate with the largest economies being Iran, Saudi Arabia, and Turkey (Karl &

Terry, p.670). The countries such as Kuwait, UAE, and Saudi Arabia heavily depend on the

export of oil and gas or oil-related products; although Banking has emerged a fundamental sector

of the economies especially Bahrain and the United Arabs Emirates. The foreign direct

investment and other financial services are interrelated with the government economies within

the region, which indicates how the countries have been influenced by the financial sector

(Simmons & Matthew n.d.). Some Middle East countries such as Egypt, Turkey, Israel, and

Cyprus diversifying in defense equipment, surgical equipment besides regaining its oil oil-related

products base.

Negative Impacts

Research indicates that the economic modernization in the Middle East region as a result

of oil discovery was only witnessed in the short term which could not guarantee stable and

successful economic development within these regions in the long term. Despite the huge oil

reserves within the Middle East region, it is still regarded as a third world region because of its

greater reliance on the revenues generated by oil exploitation (Simmons & Matthew n.d.). The

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weaker production sector of the economy and a range of political factors such as reluctance to

the reforms, cronyism, corruption, and lack of democracy, which have been rampant among

other issues, pose greater challenges to the region in terms of economic development in the long

term (Smith & Benjamin, p.242).

The recent reduction in oil prices has brought a range of greater consequences on the oil-

producing countries particularly in Iran, Iraq, and Saudi Arabia. All these Middle East countries

heavily depend on the production and export of oil and the fall in prices has thus resulted in

adverse economic situations for both the government and citizens of these countries. Each

country, however, faces different challenges which in turn complicate the regional and domestic

condition of these countries. According to Simmons & Matthew (n.d.), the fall of oil prices in

Saudi Arabia, for instance, have complicated the social contracts of subsidies, jobs, and lavish

perks in exchange of an authoritarian political system which causes many damages thereby

lowering the economic growth of the country. The nuclear deal and US sanctions have

contributed to the fluctuating production and more challenges as the country tries to rejoin world

markets and a range of different external and internal economic pressures (Simmons & Matthew

n.d.). Moreover, the oil discovery of oil can be linked to the frequent fight against the ISIL,

which in turn results in significant negative impacts, which includes the economic calamities.

The reduction in oil price is the sole cause of most economic and political pressures within the

Middle East countries, which in turn leads to economic hardships of different levels.

Saudi Arabia's oil is all concentrated in the Saudi-Oman Desert (Also called the Great

Arab Desert.) As an economy, they are completely dependent on oil, since tourism is highly

restricted there because of the strict religious policies and the impossibility of the availability of

freedom within these countries, which generally hinder tourists such as Germany and France

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among others as they used to (Smith & Benjamin, p.234). Moreover, the barring reserves of

wealth that lie with the Sheikhs would never be handed out to the civilians as aid and hence

Saudi Arabia is likely to crumble in such a situation. Oman is further a Sultanate whose Sultan is

extremely benevolent, and if he was to continue as the Sultan, the tourism and frankincense

industry would be explored, but it would fall too, as its prosperity only begun after the discovery

of oil about 40 years ago (Longrigg, Stephen n.d.).

UAE, having already foreseen such a situation, has spent a copious amount of cash on

developing their Emirates for tourism. Dubai, with absolute lack of oil, is the major GDP

contributor towards UAE's treasury due to its massive tourist attractions and Abu Dhabi is also

moving towards the same. Sharjah and Al Ain are to some extent expected to earn from the

residents there that thrive on cheap living costs (Karl & Terry, p.669). Therefore, the Emirs, who

are the monarchs of UAE, are likely to lead their lives of comfort. Furthermore, Bahrain is a tiny

nation, just as Qatar and Kuwait are. Their income comes from one source only, which is the Oil

production (Simmons & Matthew n.d.). Due to the mid-2015 fall of crude oils prices, these

countries suffered enormously and in a bid to make themselves more friendly towards tourists

and the likes, they've begun the process of deportation to a huge extremity (In Kuwait, all

Bangladesh expats were deported). This has also been done to preserve resources.

The problem with the Middle East is that they give off crude oil while they have a serious

paucity of refineries and whatever refineries they do have, are controlled by the western nations

(Karl & Terry, p.664). Thus, no oil reserves would imply the complete evasion of nations like

Bahrain and Kuwait. However, Saudi Arabia, UAE, Oman, and Qatar would sail through.

Conclusion

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In conclusion, the available literature has indicated that Middle East region has

significantly benefitted from oil discovery in the region. Despite the region remaining a third

world region, it has witnessed a surge of greater economic developments and only a few negative

caused mostly by political factors such as corruption and lack of democracy in the region.

Furthermore, population growth is also connected to the factors affecting the development and

economic growth of Middle East states by generating greater stress on resources distribution in

terms of the access to education, medicine, food, and clean water among others. Nevertheless,

fluctuation has also been established as contributing factors, which should be addressed

effectively in order to maintain the economic growth and development within the region.

However, despite the challenges, several economists often predict hope of continued growth

within the Middle East region, however not evenly spread across. Therefore, there is need to

address the factors such as fluctuation of oil prices, the current lower rate of foreign investment

and the population growth to maintain the growth and development of the region following the

huge oil reserves in most states.

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Work Cited

Karl, Terry Lynn. "Oil-led development: social, political, and economic consequences."

Encyclopedia of energy 4 (2007): 661-672.

Longrigg, Stephen Hemsley. Oil in the Middle East: its discovery and development. issued under

the auspices of the Royal Institute of International Affairs [by] Oxford UP, 1997.

Marcel, Valerie. Oil Titans: National oil companies in the Middle East. Brookings Institution

Press, 2007.

Schwedler, Jillian, and Deborah J. Gerner, eds. Understanding the Contemporary Middle East.

Lynne Rienner Publishers, 2008.

Simmons, Matthew R. Twilight in the desert: the coming Saudi oil shock and the world

economy. John Wiley & Sons, 2006.

Smith, Benjamin. "Oil wealth and regime survival in the developing world, 1960–1999."

American Journal of Political Science 48.2 (2004): 232-246.

Tsui, Kevin K. "More oil, less democracy: evidence from worldwide crude oil discoveries." The

Economic Journal121.551 (2011): 89-115.

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