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In the last four decades, the Persian Gulf has evolved from a region of mostly small fishing
villages and nomadic groups to the global centre of petrodollar fuelled excess. Cities like Dubai,
Abu Dhabi, Doha and Riyadh have sprung up seemingly out of nowhere with the promise that they have
something of real value to add to the global economy beyond just being a nation-sized gas station.
All of these cities are marketing themselves as both a tourist destination and a business hub to
rival centres like Singapore, Hong Kong or even New York and London. Of course, it's easy to make
most of these ambitions a reality by just throwing endless piles of oil money at them, and an economy
that hands out trillions of dollars worth of contracts, runs high-quality subsidised airlines
and implements very generous tax policies is going to attract a lot of international interest,
but that's clearly not sustainable. There are the headline issues like the ultra-ambitious
neon project and its centrepiece, the line, which has been scaled down from 170km to 10km to now
less than 2km, don't worry Saudi Arabia, it happens to everyone, but while it's easy to laugh at
the growing list of ludicrously bizarre failed projects, they are a sign that the endless oil
wealth of the Gulf is not really that endless. That could quickly become a major problem for
these countries because they've staked their future on that dream of tourism and international
business, but it's becoming increasingly unclear if these industries will stick around for longer
than they're paid to. In the race for the hearts and dollars of international businesses
and wealthy tourists, reputation is everything. Dubai has gone from being internationally recognised
as the wonder city of the future to that kind of tacky place where crypto bros rent Lamborghinis
to look rich for a weekend. That's to say nothing of the negative attention that the other Gulf
states have received. The only way to know for sure if their economic plan for longevity is working
is to see what happens after the oil wealth runs dry, but by then it will be too late and at that
point all of these big projects, generous tax incentives and questionable migration policies
will just be a drain on what few resources they have left for what few people they have left.
So are the Gulf states economic developments really building sustainable industries
or are they just playing pretend with oil money? Are there more sustainable ways to guarantee the
economy's longevity? And finally what happens to these places when the oil wealth dries up?
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For most of their history, the gulf states have had very small sparse populations because
geographic obstacles simply couldn't support a large population. There were very few arable
regions, very harsh conditions, and nothing really worth living there for, except for the
groups that had been there for centuries and their nomadic customs that helped them weather
these difficulties. Maritime trading was an ancient staple, but much of that revolved around
the slave trade, manuscripts, and new technological discoveries that assisted with these limited
markets. But after George Bernard Reynolds, a British geologist and oil industry executive,
discovered oil in 1908, the paradigm shifted violently towards the extraction and exportation
of the precious resource. Suddenly it didn't matter if the land couldn't support people,
because they could export oil and import literally everything else they needed.
The economic development has transformed gulf societies and economies, and at the same time
the population has also undergone a significant change. Specific countries like the UAE are now
home to almost 100 times as many people as they were when oil production first started to ramp up
in the 1960s. A lot of people have moved there as oil workers and support workers, but a lot of
people have also moved there because of the industries that the country is building.
Top-tier engineers and business executives have made a home in the countries inhabiting the
Persian Gulf, often used for PR to show how developed the region has become. However,
the bulk of new labour consists of underpaid labourers. The conditions they enjoy to build
oil-funded vanity projects and questions regarding sustainability of this Persian Gulf oil boom
are contributing to a growing controversy, specifically the kafala system giving Gulf
countries almost total control over migrant workers' employment and immigration status.
The lack of regulations and protections from migrant workers' rights often results in low
wages, poor working conditions and employee abuse. Even despite these now very well-documented
problems, this paper population boom by itself is also not sustainable because it was never really
meant to be. The Arab states of the Persian Gulf stand out with men outnumbering women by almost
four times in Qatar, followed by the United Arab Emirates, Bahrain, Oman, Kuwait and Saudi Arabia.
These elements undoubtedly contribute to the growing disparity. So in addition to these social
changes of concerns, are the Gulf states' economic developments really building sustainable
industries, or are they just playing pretend with oil money? Well, it's traditional industries
that are all but extinct, but to be fair, that would have happened with or without oil. While the
Persian Gulf was known for sailcloth, camels, reed mats, dates, red ochre and pearls, the notion
that these industries have contributed to modern development of the Persian Gulf countries when
referring to the Gulf's history is nothing more than a farce. Typically, oil wealth can
compromise existing local industries, but of course, these would have died anyway.
Sailcloth is almost non-existent, camels are primarily used for novelty meat,
dates are grown virtually everywhere in the world with similar conditions, pearls are a slow
limited game and textiles are far from being a rare commodity. Not to mention that these supplies
have historically been scarce, primarily being traded amongst those geographically accessible
within the Gulf itself. With Arab lands that see little to no vegetation, the modern discussion
has always been a matter of energy. Energy with numerous limitations and more importantly,
totally non-renewable. Moreover, the rising population is simply too large to support
without the current inflow of oil revenue. These countries couldn't supply enough food
and water without imports and they cannot pay for those imports without oil money.
For now, this hasn't been a problem for them and that's a matter of accessibility.
In places like the North Sea or the United States, one can see elaborate oil rig systems
to pump the resources out of the ground. The oil is there, but it's challenging to extract.
In the Persian Gulf though, the oil is so easily accessible that it literally bubbles and shoots
out of the desert floor, making it far cheaper to extract than the former. With cheaper extraction
and greater volume, it's easy to see why the nations presiding over this coveted resources
ran with it, with it only costing about $20 per barrel in places like Saudi Arabia and about
$90 per barrel in the deep water wells. This means that they will turn a profit,
even if the other regions become unprofitable. But there is a looming problem. The flow of
oil is massive, but it's not endless, not by a long shot. Overdependence on a single industry
is never a good thing and the Gulf states have taken oil dependence to the extreme.
This has made the Gulf countries effectively less of an economy in the traditional sense
and more of a barren industrial outpost, constantly dependent on resupplies of literally
everything in exchange for their one singular precious resource. So, are there more sustainable
ways to guarantee the economy's longevity? The 2022 FIFA World Cup host Qatar has recently
come out with what they call the Qatar National Vision 2030. The government claims that it aims
at transforming Qatar into an advanced country by 2030 capable of sustaining its own development
and providing for a high standard of living for all of its people for generations to come.
They claim that they will be able to improve environmental development using Lusail City
as a prime example of what is to come. According to what Qatar shares with the press,
Lusail is a smart city project intended to house its rising population of expats.
Of the 2.3 million people who live in the country, fewer than 315,000 are native Qataris.
The plan is to make a hip modern and sustainable location for remote and domestic workers,
a fun place to spend their money. Apparently, what gives Lusail this smart city status
is sustainable facilities and utilities. The most notable being a district cooling system.
175km of pyre being a projected to save an estimated 200,000 tons of carbon dioxide annually.
They also make a big deal out of their move to focus on the production of natural gas,
which produces 25% less carbon dioxide than gasoline, 27% less than fuel oil, 30% less
than crude oil and 45% less than coal. But these figures still don't represent a long-term solution
because this still requires continual extraction of non-renewable resources.
With foreign laborers continuing to come out in large numbers calling for major reforms
related to the insanely antiquated kafala system, something that made headlines during and after
the FIFA World Cup, the chasm separating Qatar from its 2030 objectives appears to be widening.
Then there is Bahrain, which is noted for spearheading the post-oil economic movement,
investing in banking and tourism sectors since the late 20th century. They've also expanded
their industrial network to include the production of aluminium, signing a free trade
agreement with the United States to expand their export base. In 2002, oil made up 42%
of Bahrain's GDP, but by 2023, it had declined to 14.5%. The UAE is also applauded for its
efforts to diversify. Currently, they're investing in sectors including technology,
health, education, renewable energy and transportation through their sovereign wealth fund.
The UAE claims that this fund is making strides to boost social entrepreneurship for the next
generation, teaching them ways to capitalise in the post-oil era. These programs are heavily
focused on the technology sector with goals to teach Emirati children how to code,
support Emirati researchers and high-tech startups, and to support small and mid-sized
enterprises that encourage positive social impacts. Now, although this sounds positive,
all of these countries are falling for the same trap. They've become incredibly wealthy at least
on the surface thanks to their oil wealth, and this has afforded them a glamorous lifestyle
akin to or even exceeding most advanced economies. So, they're trying to replace this unsustainable
industry with the advanced glamorous industries they see in other advanced economies, but they're
not advanced economies. In fact, they are extremely basic economies. Advanced industries
like building smart cities to house coders and social entrepreneurs, whatever that means,
sounds great, but there are no competitive advantages to running these industries in the
Gulf over more established global centres like Silicon Valley or even Shenzhen. Since these
countries are all targeting industries that will compete globally, they need to provide a competitive
reason why profit-driven businesses stop right there over the places they always have. For now,
that reason is because businesses can enjoy tax breaks and a flow of oil money, but when that
stops, any advantage that the Gulf states had over existing centres will stop too, and the
underlying issues with the region will be the only thing left. For Saudi Arabia, the situation is
largely the same. The oil sector alone generated an estimated gross domestic product of approximately
607.7 billion Saudi Riyals. That said, the total estimated GDP for the year was about 2.62 trillion
Saudi Riyals or almost 650 billion US dollars. Much of this comes from the private sector,
so they are attempting to diversify and privatise, but unfortunately the way they're doing it is
almost as unsustainable as the oil extraction they're trying to replace. A perfect example of this
has to do with their interest in the EV market, specifically Lucid Motors, an automotive and
technology company that makes electric vehicles and supplies advanced electric vehicle powertrain
systems. The problem with this move for one is that these vehicles are horrendously expensive,
with the price of a 2025 Lucid Air expected to start around $71,400 and go up to $251,000
depending on the Truman options. Even at that price, Lucid is a long way from being a profitable
company. More accurately, all it's done so far is hemorrhage money. In 2023, Tesla produced 1.8
million vehicles, the company Rivian produced 57,000, and Lucid on the other hand produced just
under 8,500. Right now, it's a minor plague compared to other well-known electric vehicle makers.
To make matters worse, the Saudi public investment fund has pumped exorbitant amounts of money into
Lucid and it has a 60% stake in the company's faltering business. Their shares were once
worth over $55 billion, but now it's worth just a little over 5. Lucid's gross margins
remained hugely negative due to low production volumes. Basically, the Saudis and arguably their
most popular mascot for economic diversification still make a loss on every single car. The company
should have gone bankrupt, but the Saudi government keeps pouring money into it because they're
trying to build a high-end auto industry in Saudi Arabia. Theoretically, the dream of a luxury EV
company sponsored by the Saudis could work, but the automotive industry is extremely competitive,
and there's no comparative advantage to building high-end cars in the Persian Gulf over building
them in regions that have more skilled auto workers or even just a history of producing
high-end automobiles. People will happily shell out six figures for a car made in Germany,
Italy, or even the USA, but a six-figure car made by a relatively unknown company in the
King Abdullah Economic City is a little bit more of a hard sell. So why are they doing all this?
Well, it all goes back to trying to replicate the glamour of an advanced economy by just making
the industries of an advanced economy. They're the national equivalent of trying to start a party
by just spending lots of money on it. The money might attract a crowd, but as soon as it dries up,
people are going to leave and go back to a place where they can actually have a good time. The real
solution is just to embrace the mundane and admit that isolated cities in the middle of the desert
are going to struggle to accommodate major global industries. But that's okay. With so much oil
money floating around, the countries in the Persian Gulf could easily create a sovereign
wealth fund that just invests internationally for the good of its people. A low-population state like
Alaska does this with its permanent fund, the Gulf states have far more royal and far fewer
native citizens. Of course, they do technically have established sovereign wealth funds at their
disposal, but they are highly opaque and are used more as the personal piggy bank of the ruling
families. A sovereign wealth fund that invests in real, sustainable businesses and is transparent
could easily fund a very high standard of living for the small native population of these countries
well after the oil industry has moved out. But there's the reason that these dynasties don't
usually encourage such an idea. Safe, sustainable investment isn't as glamorous as mega projects
and being an international business hub. The ruling families are set for life anyway,
and it's understandably hard to give up on being a globally influential monarch to instead
oversee a small, forgotten country of comfortable citizens. The economic success of the Persian
Gulf, coming from a state of total nomadic poverty just over a century ago to literally a powerhouse
that many nations depend on, comes with a sense of problematic pride. Pride that creates a division
between the working and noble classes, and perhaps most evident, pride that makes the country's
leadership think they have all the time in the world. If the Persian Gulf wants to survive the
post-oil era, they're going to have to be humble and pragmatic, which is an ideological barrier
the region has yet to overcome. But to be fair, it could be worse. They could be Venezuela
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