Middle Israel: What next for the petrodollar?

The new technocrats understand that oil revenues must be used to reduce dependence on fossil fuels.

amotz asa el 88 (photo credit: )
amotz asa el 88
(photo credit: )
They say there is a new mercantilism on the Arabian shores of the Persian Gulf. In what some see as a happy antithesis to the 1970s, when the petrodollar bonanza was largely wasted on assorted dynasties' exhibitionism, hedonism and unquenchable thirst for arms they did not need and could hardly use, the Arab beneficiaries of the current oil boom are actually building, investing and planning. Dubai is building a $20 billion ultra-luxurious real-estate project involving 30,000 homes, snazzy hotels, an ice-skating rink and an artificial lake. One of its towers, the Burj Dubai, itself a $1 billion scheme, is planned to be the world's tallest structure at some 2,500 ft., in other words more than three times the height of Ramat Gan's 68-story Aviv Tower, the tallest building in Israel. Another plan seeks to build opposite Dubai 300 artificial islands at a total cost of $4b. Considering that the oil principality has already put $200 billion in its tourism infrastructure, the scheme may well be treated less as pie in the sky and more as fact in the sea. Further north, the Bahrain Financial Port will house some 8,000 bankers and insurance agents in a forest of office towers. Across the Arabian Desert, the Saudis are building the $27 billion King Abdullah Economic City on the Red Sea Coast north of Jeddah. Throughout the region, a dramatic rise in energy consumption has seen General Electric sales nearly double this decade to $80b. Such commotion reflects this decade's unexpected windfall of petrodollars as well as the rise of a new generation of technocrats who understand that oil revenues - which this year have been on average more than three times their level a decade ago - must be used in ways that will reduce their economies' long-term dependence on the extraction of oil and gas. Today's planners in the Arab Gulf states understand that local stock markets' soaring shares - many have appreciated tenfold and more since '02 - and the currently pervasive boom atmosphere can give way almost overnight to a resounding bust. Their effort, therefore, is aimed at nurturing an educational infrastructure and giving rise to a financial industry that will hopefully help create a future for the region the day its current source of wealth either dries up physically or vanishes financially. Qatar, for instance, has attracted outlets of American universities like Cornell and Carnegie Mellon, where 1,700 students are already studying, more than half of them women, while the Saudis are executing a $50 billion, five-year-plan for new roads, hospitals and schools. It follows, then, that something good is finally happening in our neighborhood, something good for the Arabs, their neighbors, and the rest of the world, right? Wrong. THE MOST glaringly wrong thing about the current petrodollar spending is its extravagance. Take, for instance, aircraft purchasing. Emirates Airlines, according to Business Week, has ordered $37 billion worth of planes, including 45 of Airbus's new double-decker A380. Do they really need that? Probably not more than Dubai needs the world's tallest building, or more than Bahrain can count on its ambitious scheme for a financial district ending up as a white elephant. More intriguingly, even with all of this regional hyperactivity a great deal of the new Arab oil revenues still end up abroad, as Arab investors are spending billions buying anything and everything from London's Madame Tussauds Wax Museum to seaports across the US, as Dubai International Capital has done recently, or a stake in Ferrari, as Abu-Dhabi's Mubadala Development did. Some in fact suspect that Arab weight in the Western financial capitals is already excessive. A UBS executive told Business Week that the Middle East's oil producers hold between them $1 trillion in foreign financial assets. Considering their elaborate imports from China and Japan, and these Asian powers' purchase in turn of US Treasuries, Arab petrodollars are effectively financing some 45 percent of America's deficit, the executive explained. Well, that - like Hillary Clinton's alarm earlier this year over Arab ownership of US seaports - is a distorted way of looking at the financial Middle East. Just like Arabs who choose to preach hatred and spread death should be fought, Arabs who choose to engage in buying, selling and profiting should be hailed. Rather, what is alarming about the latest spate of petrodollar spending is that, with all due respect to the inventiveness and vision behind those assorted Gulf projects, they are clearly meant to employ, serve and benefit but a fraction of the Arab people, and do not even make an appearance of addressing the needs of some 250 million Arabs whose social malaise has become a major cause of global instability. With Saudi Arabia still spending (according to the Defense Monitor newsletter) a humongous $19.3 billion on defense, which is about as much as Russia and nearly twice as much as Israel, it is fair to say that at the end of the day Arab petrodollars are still getting lost in their time-honored Bermuda Triangle of arms, extravaganza and capital exports. The sad fact is that the new Arab El-Dorado looms as a monument to Arab plutocracy's indifference to the destitution, illiteracy and social wrath that plague much of the greater Arab world, and create the emigration waves that feed Europe's main social problem, and the international system's main source of instability. The West would do well, therefore, to gently make it plain to the Gulf states that they are expected to use their wealth - which so often not only originates but also ends up in the West - in ways that will help their nation no less than themselves. The fortune on which they currently sit can be used to blanket the Arab Middle East with hospitals, universities, infirmaries, banks, vocational schools, nurseries, libraries, day care centers, kindergartens and all other amenities of a healthy society where solidarity, mobility and opportunity give even the disadvantaged a reason to stick around rather than plunge into a stormy sea in a shaky boat, as so many illegal Arab immigrants to Europe do daily. As long as such a pan-Arab financial strategy is not adopted, Westerners would do well to qualify their impression with the new Arab developmental commotion. Time may yet render all that lies between those double-decker airplanes and sky-scraping Towers of Babel a Fools' Paradise, and those hundreds of artificial islands a social Nautilus 20,000 leagues beyond the real Arab world.