Cash Guzzlers

Source: Institute of International Finance

Wondering where all the cash you've been pouring into your gas tank is going? Have a look at the chart above. It's the accumulated annual revenue for the six member states of the Saudi-based Gulf Cooperation Council, the closest thing Arab nations have to a European Union-style common market. Or, as the GCC puts it with strange tentativeness on its About page, "a fulfillment of the aspirations of its citizens towards some sort of Arab regional unity."

The six states: Saudi Arabia, Kuwait, Oman, Bahrain, the United Arab Emirates and Kuwait, which among them account for close to half the world's known oil reserves.

Their combined revenue this year will reach almost half a trillion dollars, based on current prices. The GCC's foreign assets add up to $1.8 trillion. That's equivalent to 13 percent of the size of the entire American economy. The GCC's cash is yielding a construction and investment boom in the Arab Peninsula the likes of which was last seen in 1979 to 1981, when the last volcanic oil-price boom gilded the same countries' finances. It's also ensuring against instability in those countries, each of which has restless religious minorities (and in Bahrain's case, a restless Shiite majority lorded over by a Sunni family).

If the way those countries spent their money during the 1980 boom is any indication, the money this time is finding familiar pockets. As David Lamb wrote (in "The Arabs: Journeys Beyond the Mirage") about the previous boom,

What the governments really accomplished with such largess was to buy off everyone. Religious leaders were bought off with grand new mosques and immense sums poured into Islamic affairs. The middle class and the Shiite minority were bought off with the generous perks of a welfare state, the military with an elitist, affluent status in society. (A Saudi private in the army earns twenty thousand dollars a year and receives a fully furnished house with eighteen-hundred square feet of space.) Royal families took hefty cuts of multimillion-dollar foreign contracts in the form of "commissions," but the pie was so big that everyone shared and everyone prospered. No group got left behind, and nothing ensured political stability better than prosperity across the board and rising expectations that are being fulfilled.

What all that also means is that whatever reckoning these GCC regimes fear from their restless groups is only being delayed until the next bust, or perhaps the bust after that. There's also a downside with being so flush even now. As the Wall Street Journal reported, "the Gulf states will need to be weary of internal inflation and a depreciating dollar, as well as the potential for political backlash, especially during an election year in the U.S., analysts say."