Where next for the Middle East oil boom?

It is hard to take a step back when business is booming. Blink and you might miss an opportunity. All the same, it is essential to look at the bigger picture to perform best.

So where is the Middle East today? Oil prices have been strong now for more than four years, and 2004 could well be another record year. This has caused a real estate and stock market boom in the Oil States; which varies only according to their degree of openness to foreign trade and investment.

The open door policy of places like Dubai, Bahrain and Qatar has allowed a really big boom in economic activity. Other states lag behind but are still showing very tangible economic expansion.

It is tempting to predict that the laggards will want to catch up. In certain cases, such as Kuwait, this is possible though foreign investment in the Northern oilfields has been promised since 1991 but not delivered as yet.

However, what is more likely is that a big development gap will open up between those states that want to be more open, and those that do not. Indeed, part of the price of not being open is slower economic development, and this will be to the benefit of those states with open doors through which those with closed doors will have to trade.

Thus the huge redevelopment of Dubai in to a major world-class trading city that is now underway will be completed. Likewise, there will be a massive expansion of the energy sectors in Abu Dhabi and Qatar, and Bahrain's renaissance as a regional business centre.

Of course, the most open economy in the Middle East is now Iraq. And it is hard to see the massive investment now pouring in from the US and foreign donors failing to produce an economic boom in this country. US administrations in occupied Germany and Japan certainly managed to produce economic miracles whatever the security issues.

The Iraq effect will also stimulate trade and investment in Dubai, Bahrain and Qatar, as well as neighboring Kuwait.

Thus the present and near future of the Middle East looks to be one of polarization between those places with an open and closed approach to economic management. This is the reality that business will have to cope with, and the fruits of economic success will not be evenly distributed.

Whether the oil price will continue at today's heady levels is really the subject of another article. But a combination of strong demand from China, which has little of its own oil, and a global economic recovery should maintain high oil prices if Opec keeps its act together.

It could be that what we are seeing is more than a few years of high oil prices. This could well be a permanent shift to higher oil prices that will be enough to stimulate the growth of the energy sector to meet what look to be very much higher levels of demand than have been evident since the last great oil boom of the late 1970s.

If that is the case then the Middle East will become a much bigger market for goods and services than it is today. And there will be a better standard of living for those who participate enthusiastically, and slightly better prospects for the rest.