Saudi Arabia's $30 billion bonus from oil revenues

This year Saudi Arabia will see oil revenues surge to a two-decade high of $61 billion, turning a projected $11 billion budget deficit into a $13 billion surplus, and creating 4.9% GDP growth.

These figures come from the latest economic bulletin from the National Commercial Bank. The rest of the world may be mired in sub-par growth or economic recession, but the performance of the Middle East's largest economy has not been better for 20 years.

It would be nice to claim that this performance is down to supply-side economic reform, new mega-projects and modernization. But that is not true. It is all down to the high oil prices that are mainly a consequence of US policy in Iraq.

If the US military had stayed at home and left Iraq to the UN weapons' inspectors then the oil price situation might be looking very different. As it is, we have a situation in which Iraq is struggling to get any term oil contracts moving, and the latest - optimistic - prediction for the return of pre-war oil supplies is next April.

But this is good news for the Saudi economy. Oil prices will stay higher, and for much longer than most forecasters dared to hope. This is great news for business, commerce and finance in the kingdom which all spins its wealth off the black gold.

However, the economic reformers are being thrown a few bones to chew on now that the two-year old $25 billion Saudi Gas Initiative has been officially declared dead. Shell and Total are the first of a clutch of oil firms that will be awarded gas exploration contracts.

This is not the same as the fully integrated gas development deals of the SGI but at least they will be simple enough for the projects to actually get going. There must also be some hope that more will emerge from these projects which may just be the foot-in-the-door that the Western oil giants have been hoping for.

But where does this leave the Saudi economy? Surely the old mistake of forgetting about reform whenever the oil price rises is being committed again. Diversification of the economy, even into energy fields where the kingdom has a comparative natural advantage, is going on to the back burner again.

On the other hand, there is reason to believe that the energy price boom of the past few years is not a passing phase. We may be passing into an era of high oil prices like the 1970s, and have put a 20-year bear market in commodities behind us.

Part of the reason is that the world is awash with liquidity due to loose monetary policy and that money has to find its way into some asset class. Now Western equities, Western real estate and bonds, have all had a boom followed by bust that leaves commodities as the next candidate for inflation.

So that is great news for the Middle East. The third great oil boom is upon us. Enjoy your summer, as this will be a busy autumn.