The Gulf Economies: Oil Wealth and Beyond

How six small Gulf states became some of the richest countries in the world on oil and gas, and why they are racing to build other industries.

The six members of the Gulf Cooperation Council, or GCC, are Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Oman and Bahrain. Before oil, most of their people lived by fishing, pearl diving, trading and herding. Today several of them rank among the richest countries in the world by income per person.

Built on hydrocarbons

Large oil discoveries from the 1930s onward, and later natural gas, transformed the region. Saudi Arabia holds some of the largest proven oil reserves in the world, and Qatar sits on one of the largest natural gas fields, which it shares with Iran. Oil and gas, known together as hydrocarbons, have supplied most export earnings and government revenue.

How the money is used

Because governments receive oil revenue directly, they play an unusually large economic role. They have used it to:

Build roads, ports, airports and cities at great speed.
Provide free or cheap health care, education, electricity and water to citizens.
Employ many citizens in well-paid government jobs.
Invest abroad through sovereign wealth funds.

The diversification challenge

Oil is finite, its price swings sharply, and the world is shifting toward clean energy. Every Gulf government now has a plan to diversify, building industries such as tourism, finance, logistics, manufacturing and technology. Progress differs: the UAE, and especially Dubai, has gone furthest, while Kuwait remains heavily dependent on oil.

The oil price and the budget

When oil prices fell from over 100 dollars a barrel in 2014 to below 30 dollars in early 2016, Gulf governments suddenly faced large deficits. Saudi Arabia cut spending, borrowed and, in 2018, introduced a value added tax for the first time, later tripling its rate to 15 percent in 2020. A single price in a global market reshaped whole national budgets.

Small citizen populations

In several Gulf states, citizens are a minority of residents. Most of the workforce consists of migrants, many from South Asia. This shapes labour markets, public spending and politics in ways that differ from almost anywhere else.

Thinking all Gulf states are equally rich

Incomes vary widely. Qatar and the UAE are far richer per person than Oman or Bahrain, and Saudi Arabia's much larger population means its wealth is spread across more people. Each economy has its own mix of resources and strategies.

Key takeaways

The six GCC states grew rich mainly on oil and natural gas.
Governments use oil revenue to fund infrastructure, services, public jobs and foreign investment.
Falling oil prices, as in 2014 to 2016, quickly create budget deficits.
Every Gulf state now pursues diversification, with the UAE furthest along.