How long can the Middle East economic boom continue?

It began in 2000 with what everyone thought was an exceptional year for oil revenues. The tragedy of 9/11 in 2001 accelerated the repatriation of wealth to the region. But this year oil revenues will actually be higher than in 2000.

Arab stock markets have surged in 2003. Up 150% in Egypt, 87% in Kuwait, 60% in Saudi Arabia, 37% in Jordan and 31% in the UAE. Money supply has taken off and liquidity is at record levels. Real estate prices have rocketed.

Welcome to the third great Middle East Oil boom. We have been here before. But how long can it last this time?

A lot depends on one commodity price, oil. After a 20-year bear market for commodities, some analysts believe we are now into a 20-year bull market. That maybe hard to swallow but certain economic factors do support such a scenario.

China is the new force in global growth, and depends almost entirely on oil imported from the Middle East. If demand continues to grow at present exponential rates that will make China the region's customer of the future, and keep oil prices high.

We also know for a fact that oil stocks in the US and UK are now dwindling and will be a fraction of present output levels in 10 years' time. But this does not mean that either of these two major economies will cease to use oil.

That is the long-term perspective. The short-term is easier to predict. Iraq, which has the world's second largest oil reserves, remains unstable and unlikely to attract investment from oil majors in the immediate future. This will keep supply pressures in place and allow Opec to manage oil prices towards the top of its target price range.

Fortunately Opec's management also seems to have fallen into capable hands. And while some may question the Saudi Oil Minister's attitude to foreign direct investment, his ability to support the oil price is widely acknowledged.

However, it will be down to domestic economic policy in the Arab countries to translate an oil boom into a better standard of living for residents. Massive liquidity can translate into higher inflation if money can not find another place to go, and indeed higher local stock and real estate prices are a manifestation of this factor.

But if Arab countries want a successful example of economic diversification they do not have to look very far. The UAE, or more particularly Dubai, is literally shoveling money into economic development projects and real estate. This is how to secure lasting benefit from an economic boom as this infrastructure will still be in place when the boom disappears.

How long will that be? Certainly another two years, as US economic policy will not change much until the next President has been elected to the White House. But it is possible that we are witnessing a generational shift in the pattern of global wealth, and that could prove remarkably enduring for the Middle East.