How 9/11 caused an economic boom in the Gulf Oil States from 2003-8
Posted on 11 September 2011 with 2 comments from readers
While the media focus on the aftermath of 9/11 is understandably on what happened first in Afghanistan and then Iraq, this unforgivable act of mass terrorism also brought great economic prosperity to the Gulf Oil States from 2003 until the global financial crisis in 2008 that pricked what had by then become a real estate bubble.
First, 9/11 put a risk premium on the price of oil that has still not been eliminated. Before September 11th oil prices hovered in an Opec price range of $22-28 a barrel. By July 2008 oil prices hit a peak of $147. They are still four times higher than before 9/11.
Direct inward investment inflow
Secondly, after 9/11 there was a massive repatriation of Arab capital from the United States for fear of seizure by the enraged nation. The in-flows of cash into the Gulf States were prodigious. One estimate for Dubai alone was $300 billion.
It was almost a question of coming up with real estate and construction projects fast enough to absorb this flood of money. Again Dubai was quickest off the mark with the official nod given to freehold for foreigners, although the necessary legislation took several years.
The legacy is obvious to anybody visiting the city today: the world’s tallest building, the Burj Khalifa; the Palm Island; the many five-star deluxe hotels; the Dubai Marina of hundreds of towers; the brand new Dubai International Financial Centre with the neighboring Dubai Downtown and Business Bay districts; Dubai Healthcare City; the villa projects; Dubailand’s successful projects like Motor City and Sports City; and the Dubai Metro whose Green line has just opened.
Abu Dhabi started building three years later but also has its Yas Island Formula One complex, Emirates Palace Hotel and Al Raha Beach residential community, among other new buildings. Doha is transformed with high-rise towers, new hotels and a brand new airport coming up for completion.
2003-8 oil boom
The impact of the 2003-8 oil boom is less evident in Saudi Arabia, Kuwait and Oman but nonetheless the increase in affluence compared to the period before 9/11 is apparent. For the rest of the Middle East fortunes have not been so good.
Some countries picked up on the oil boom’s prosperity with money sent home and direct investments from the Oil States, like Jordan and Lebanon. Iraq clearly fared very badly with the US occupation, insurgency and de facto civil war.
Yet despite the backlash in the USA against Arabs post 9/11, ironically it was the Oil States that prospered from the higher oil prices and inward direct investment that arose directly as a consequence of these terrible events whose tenth anniversary is remembered around the world today.
2 Comments posted by readers:
The cheap oil is gone forever. So what 9/11 type problems do you younger folks have to watch out for in the future? Here are my guesses in chronological order.
1. Peak oil between 2015 and 2025. Some British researchers just invented a gel for use in lithium batteries which should make them a lot cheaper and safer. Whether industrial civilization can survive the depletion of the fossil fuels, first oil, then gas, and finally coal, is a question that I am not alone in not being able to predict. I note that France is building an enormous laser fusion research complex. It looks even bigger than the US National Ignition Facility in California. Let’s all hope they can get it to work. If you made me bet right now, I would say that a functioning fusion power plant will be far too expensive to scale up to replace the fossil fueled ones. But who knows.
2. Atoms for Peace, the worst idea in human history. I need to research what theory was behind the idea that it would be good to spread nuclear technology by giving many countries research reactors after what happened in Hiroshima. The Russians had the right idea, keep it secret and under the control of the USA and Russia for as long as possible. Certainly other advanced countries would get the bomb, but make it as hard as possible. It doesn’t take a genius to figure out that the more countries that have nukes, the greater the probability of a nuclear bomb being used in war, or falling into the hands of terrorists. I won’t be around in 30 years, but if a nuke hasn’t gone off somewhere by then, consider yourself very lucky. Hopefully, it won’t set off a global nuclear war. That is the greatest danger of having them on missiles, large scale accidental use. So nukes are the second great threat to humanity. At least they are under our control. We can’t make more fossil fuels.
3. Too many of us. Until the Industrial Revolution, world population was nearly constant. What ran the Industrial Revolution? Cheap, abundant, fossil fuels did, and does. Today the international food trade is huge. Most of it relies on abundant oil and natural gas to grow and transport food from regions of fertile soil and sufficient fresh water, to countries with exploding populations that can’t grow enough food to feed the people living there. As the oil and gas available start to decline, a lot of people are going to get hungry. Food will get more and more expensive. Countries who can pay the most will get what surplus can be produced. Mass starvation in some areas, won’t become a problem until after peak oil becomes evident. How long after, I can’t estimate, but it won’t be decades.
So is humanity doomed? Certainly not, but without the development of some radically new energy source to replace the fossil fuels, the population of the planet will probably undergo a significant reduction. There is only so much land to be farmed using animals and hand labor. You can’t grow nearly as much food without nitrogen fertilizer made from natural gas. Mining and transporting phosphate fertilizers will become difficult too. Modern agriculture is a very energy intensive business. But baring a comet strike or a super volcanic eruption causing another snowball Earth, people should be around for a long, long time.
Hydroelectric dams will be big. Brazil should do well. But keeping the electricity on in a lot of other places may become a problem. Even coal won’t last forever.
We are living in an age of abundance that just might turn out to be unique in human history. Let’s hope not. Our future will depend on technology yet to be developed.
Those are my reflections on the tenth anniversary of 9/11.
My guess is that US dominance is far, far from over. The emerging markets will stay “emerging” ad infinitum! The world will turn to the old world to take action and find solutions. I’m a brit living in the Middle East, but I’ve asked the question many times…..If you had to spend the rest of your life in one country without ever crossing the borders again, where’s it going to be?
For me…without a second hesitation, it’s the US.